10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2013
	or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51290

EpiCept Corporation

(Exact name of registrant as specified in its charter)

Delaware	52-1841431
(State or other jurisdiction of	(IRS Employer Id. No.)
incorporation or organization)

777 Old Saw Mill River Road

Tarrytown, NY 10591

(Address of principal executive offices)

Registrant’s telephone number, including area code: (914) 606-3500

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 ☑ 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 (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ 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 ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of July 31, 2013, the Registrant had outstanding 114,159,030 shares of its $.0001 par value Common Stock.

1

TABLE OF CONTENTS

Part I. Financial Information
	Item 1. Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Mine Safety Disclosures
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURE PAGE
EX-31.1: CERTIFICATION
EX-32.1: CERTIFICATION
EX-101.1: XBRL FINANCIAL INFORMATION

2

Part I. Financial Information 

Item 1. Financial Statements.

EpiCept Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

		June 30, 2013			December 31, 2012
		(unaudited)
ASSETS
Cash and cash equivalents	$	200		$	172
Restricted cash		601			909
Prepaid expenses and other current assets		99			116
Total current assets		900			1,197
Property and equipment, net		36			56
Deferred financing costs		24			75
Total assets	$	960		$	1,328
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable	$	2,304		$	1,349
Accrued research contract costs		—			120
Other accrued liabilities		2,497			2,043
Related party loan		638			—
Notes and loans payable, net of discount		4,040			3,975
Deferred revenue		294			314
Total current liabilities		9,773			7,801
Deferred revenue, net of current portion		7,368			7,496
Total liabilities		17,141			15,297
Commitments and contingencies
Convertible preferred stock, par value $0.0001; 5,000,000 authorized Series A – 2,000 shares authorized and issued; 0 shares and 576 shares outstanding at June 30, 2013 and December 31, 2012, respectively		—			—
Series B – 1,065 shares authorized and issued; 0 shares and 1,065 shares outstanding at June 30, 2013 and December 31, 2012, respectively		—			—
Common stock, $.0001 par value; authorized 225,000,000 shares; issued 114,159,030 shares and 93,645,376 shares at June 30, 2013 and December 31, 2012, respectively		11			9
Additional paid-in capital		242,213			236,886
Warrants		14,411			19,152
Accumulated deficit		(271,595	)		(268,811	)
Accumulated other comprehensive loss		(1,146	)		(1,130	)
Treasury stock, at cost (4,167 shares)		(75	)		(75	)
Total stockholders’ deficit		(16,181	)		(13,969	)
Total liabilities and stockholders’ deficit	$	960		$	1,328

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

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EpiCept Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue:
Net product sales	$	—		$	577		$	283		$	583
Licensing and other revenue		99			6,025			192			6,260
Total revenue		99			6,602			475			6,843
Costs and expenses:
Costs of goods sold		—			396			143			396
Selling, general and administrative		927			1,384			1,737			2,815
Research and development		681			963			1,011			2,259
Total costs and expenses		1,608			2,743			2,891			5,470
Income (loss) from operations		(1,509	)		3,859			(2,416	)		1,373
Other income (expense):
Interest income		—			1			—			3
Foreign exchange gain (loss)		—			(521	)		—			(264	)
Warrant amendment expense		—			—			—			(936	)
Interest expense (see Note 3)		(175	)		(380	)		(363	)		(743	)
Other income (expense), net		(175	)		(900	)		(363	)		(1,940	)
Net income (loss) before income taxes		(1,684	)		2,959			(2,779	)		(567	)
Income tax expense		—			—			(5	)		(2	)
Net income (loss)	$	(1,684	)	$	2,959		$	(2,784	)	$	(569	)
Deemed dividends on convertible preferred stock		—			(750	)		—			(1,926	)
Income (loss) attributable to common stockholders	$	(1,684	)	$	2,209		$	(2,784	)	$	(2,495	)
Basic and diluted income (loss) per common share	$	(0.01	)	$	0.03		$	(0.03	)	$	(0.03	)
Weighted average common shares outstanding-basic		113,639,424			83,772,960			110,158,277			80,414,692
Weighted average common shares outstanding-diluted		113,639,424			91,591,893			110,158,277			80,414,692
Net income (loss)	$	(1,684	)	$	2,959		$	(2,784	)	$	(569	)
Other comprehensive income (loss), net of income tax expense:
Foreign currency translation adjustments		(16	)		521			(16	)		257
Other comprehensive income (loss), net of $0 income tax expense		(16	)		521			(16	)		257
Comprehensive income (loss)	$	(1,700	)	$	3,480		$	(2,800	)	$	(312	)

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

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EpiCept Corporation and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Deficit

(In thousands, except share amounts)

(Unaudited)

	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Common Stock				Additional Paid-In						Accumulated			Accumulated Other Comprehensive			Treasury			Stockholders’
	Shares			Amount		Shares			Amount		Shares		Amount		Capital			Warrants			Deficit			(Loss) Income			Stock			Deficit
Balance at December 31, 2012		236		$	—		1,065		$	—		93,649,543	$	9	$	236,886		$	19,152		$	(268,811	)	$	(1,130	)	$	(75	)	$	(13,969	)
Net loss		—			—		—			—		—		—		—			—			(2,784	)		—			—			(2,784	)
Foreign currency translation adjustment		—			—		—			—		—		—		—			—			—			(16	)		—			(16	)
Issuance of common stock, net of issuance costs		—			—		—			—		3,846,154		—		500			—			—			—			—			500
Conversion of Series A convertible preferred stock		(236	)		—		—			—		2,950,000		1		(1	)		—			—			—			—			—
Conversion of Series B convertible preferred stock		—			—		(1,065	)		—		13,312,500		1		(1	)		—			—			—			—			—
Issuance of common stock to directors		—			—		—			—		405,000		—		—			—			—			—			—			—
Expiration of warrants		—			—		—			—		—		—		4,741			(4,741	)		—			—			—			—
Amortization of deferred stock compensation		—			—		—			—		—		—		88			—			—			—			—			88
Balance at June 30, 2013		—			—		—			—		114,163,197	$	11	$	242,213		$	14,411		$	(271,595	)	$	(1,146	)	$	(75	)	$	(16,181	)

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

5

EpiCept Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited) 

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(2,784	)	$	(569	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		20			36
Foreign exchange (gain) loss		—			264
Stock-based compensation expense		88			404
Warrant amendment expense		—			936
Amortization and write-off of deferred financing costs and discount on loans		116			307
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		15			(68	)
Decrease in inventory		—			354
Decrease in prepaid expenses and other current assets		2			153
Increase (decrease) in accounts payable		955			(292	)
Decrease in accrued research contract costs		(120	)		(17	)
Increase in other accrued liabilities		454			252
Recognition of deferred revenue		(148	)		(4,247	)
Decrease in other liabilities		—			(112	)
Net cash used in operating activities		(1,402	)		(2,599	)
Cash flows from investing activities:
Release of restricted cash		308			—
Net cash provided by investing activities		308			—
Cash flows from financing activities:
Proceeds from exercise of warrants		—			728
Proceeds from issuance of preferred stock and warrants, net of issuance costs		—			2,834
Proceeds from issuance of common stock to related party, net of issuance costs		500			—
Proceeds from related party loan		638			—
Repayment of loans		—			(2,559	)
Net cash provided by financing activities		1,138			1,003
Effect of exchange rate changes on cash and cash equivalents		(16	)		(9	)
Net increase in cash and cash equivalents		28			(1,605	)
Cash and cash equivalents at beginning of year		172			6,378
Cash and cash equivalents at end of period	$	200		$	4,773
Supplemental disclosure of cash flow information:
Cash paid for interest	$	237		$	448
Cash paid for income taxes		5			2
Supplemental disclosure of non-cash financing activities:
Conversion of preferred stock to common stock		2			1
Beneficial conversion feature in connection with issuance of preferred stock		—			1,925
Unpaid costs associated with issuance of preferred stock		—			1
Unpaid financing costs		—			301

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

6

EpiCept Corporation and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Description of Business

EpiCept is a specialty pharmaceutical company focused on the development and commercialization of pharmaceutical products for the treatment of pain and cancer. The Company’s strategy is to focus on topically delivered analgesics targeting peripheral nerve receptors and on innovative cancer therapies. In November 2012, the Company entered into a definitive merger agreement with Immune Pharmaceuticals Ltd. (“Immune”), and recently filed a definitive proxy statement that contains details on Immune and the merger. The definitive proxy was mailed to shareholders on or about June 20, 2013. The transaction is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions, including the approval of a reverse split of EpiCept’ s common stock by a majority of EpiCept shareholders.

The combined entity, to be named Immune Pharmaceuticals, Inc., will be primarily focused on developing antibody therapeutics and other targeted drugs for the treatment of inflammatory diseases and cancer. Immune’s lead product candidate, bertilimumab, is a fully human monoclonal antibody that targets eotaxin-1, a chemokine involved in eosinophilic inflammation, angiogenesis and neurogenesis. Immune is currently initiating a placebo-controlled, double-blind Phase II clinical trial with bertilimumab for the treatment of ulcerative colitis. The following results of operations and discussion of business are of EpiCept only and do not represent the prospective combined entity.

The Company’s lead compound is AmiKet™, a topical cream consisting of a patented combination of amitriptyline and ketamine that is in late stage development for the treatment of peripheral neuropathies. In December 2011, the Company met with the Food and Drug Administration (“FDA”) and was granted permission by the FDA to begin Phase III clinical development. Fast Track designation was granted in April 2012. In June 2012, EpiCept announced that it had received formal scientific advice from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for AmiKet’s clinical and nonclinical development and subsequent Marketing Authorization Approval (MAA).

The Company’s oncology compounds include crolibulin^TM and Azixa®. Crolibulin^TM is a novel small molecule vascular disruption agent (“VDA”) and apoptosis inducer for the treatment of patients with solid tumors that is currently in a Phase Ib/II clinical trial sponsored by the National Cancer Institute (“NCI”) to assess the drug’s efficacy and safety in combination with cisplatin in patients with anaplastic thyroid cancer (“ATC”). Azixa®, an apoptosis inducer with VDA activity previously licensed by the Company to Myrexis, Inc. (“Myrexis”), as part of an exclusive, worldwide development and commercialization agreement, is currently in Phase II development for the treatment of brain cancer. In August 2012, Myrexis elected to terminate the license agreement resulting in the reversion of all rights and licenses granted under the license agreement back to the Company. In January 2013, the Company negotiated with Myrexis to license the Myriad patents and know-how as set forth in the License Agreement. Under the agreement, the Company will be responsible for paying milestone payments and royalties to Myrexis if the Company decides to further develop Azixa® itself, or to share in milestones and royalties the Company receives from a partner in the event it out-licenses the drug candidate to a third party who successfully completes product development and obtains marketing approval. The Company has no plans to pursue further development of Azixa® on its own.

Ceplene^®, when used concomitantly with low-dose interleukin-2, or IL-2, is intended as remission maintenance therapy in the treatment of acute myeloid leukemia, or AML, for adult patients who are in their first complete remission. The Company sold all of its rights to Ceplene^® in Europe and certain Pacific Rim countries and a portion of its remaining Ceplene® inventory to Meda AB for approximately $2.6 million in June 2012. Ceplene^® is licensed to MegaPharm Ltd. to market and sell in Israel, where it is currently available on a named-patient basis. The Company has retained its rights to Ceplene^® in all other countries, including countries in North and South America, but at the current time has no plans to continue clinical development.

2. Basis of Presentation

The Company has prepared its condensed consolidated financial statements under the assumption that it is a going concern. The Company has devoted substantially all of its cash resources to research and development programs and general and administrative expenses, and to date it has not generated any significant revenues from the sale of products. Since inception, the Company has incurred significant net losses each year. As a result, the Company has an accumulated deficit of $271.6 million as of June 30, 2013. The Company’s recurring losses from operations and the accumulated deficit raise substantial doubt about its ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s losses have resulted principally from costs incurred in connection with its development activities and from general and administrative expenses. Even if the Company succeeds in developing and commercializing one or more of its product candidates, the Company may never become profitable. Furthermore, there can be no guarantees that the proposed merger with Immune will close, or that even if it does close, that the Company will become profitable.

7

The Company had cash at June 30, 2013 of $0.2 million, plus the restricted cash held with its senior secured lender of $0.6 million. In addition, EpiCept received net cash of $0.4 million from Immune in July 2013 by entering into a loan pursuant to the merger agreement with Immune.  The merger is expected to close in August 2013, before the need arises for additional funds.

The condensed consolidated balance sheet as of June 30, 2013, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012, the condensed consolidated statement of stockholders’ deficit for the six months ended June 30, 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2013 and 2012 and related disclosures contained in the accompanying notes are unaudited. The condensed consolidated balance sheet as of December 31, 2012 is derived from the audited consolidated financial statements included in the annual report filed on Form 10-K with the U.S. Securities and Exchange Commission (the “SEC”). The condensed consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States of America for interim financial information and in accordance with the instructions of the SEC on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the condensed consolidated balance sheet as of June 30, 2013 and the results of operations and cash flows for the periods ended June 30, 2013 and 2012 have been made. The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013 or for any other period. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC.

3. Summary of Significant Accounting Policies

Consolidation

The accompanying consolidated financial statements include the accounts of EpiCept Corporation and the Company’s 100%-owned subsidiaries, Maxim Pharmaceuticals, Inc., Cytovia, Inc. and EpiCept GmbH (in liquidation). All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period, including stock –based compensation. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue relating to its collaboration agreements in accordance with the SEC Staff Accounting Bulletin No. 104, Revenue Recognition, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-25, “Revenue Recognition - Multiple Element Arrangements” (“ASC 605-25”), and Accounting Standards Update (“ASU”) 2009-13, "Multiple Revenue Arrangements - a Consensus of the FASB Emerging Issues Task Force" (“ASU 2009-13”). ASU 2009-13 supersedes certain guidance in ASC 605-25, and requires an entity to allocate arrangement consideration to all of its deliverables at the inception of an arrangement based on their relative selling prices (i.e., the relative-selling-price method). The Company adopted the provisions of ASU 2009-13 beginning on January 1, 2011. The adoption of ASU 2009-13 did not have a material effect on the Company’s financial statements.

8

Revenue under collaborative arrangements may result from license fees, milestone payments, research and development payments and royalty payments. The Company’s application of these standards requires subjective determinations and requires management to make judgments about the value of the individual elements and whether they are separable from the other aspects of the contractual relationship. The Company evaluates its collaboration agreements to determine units of accounting for revenue recognition purposes. For collaborations containing a single unit of accounting, the Company recognizes revenue when the fee is fixed or determinable, collectibility is reasonably assured and the contractual obligations have occurred or been rendered. For collaborations involving multiple elements, the Company’s application requires management to make judgments about value of the individual elements and whether they are separable from the other aspects of the contractual relationship. To date, the Company has determined that its upfront non-refundable license fees cannot be separated from its ongoing collaborative research and development activities and, accordingly, does not treat them as a separate element. The Company recognizes revenue from non-refundable, upfront licenses and related payments, not specifically tied to a separate earnings process, either on the proportional performance method with respect to the Company’s license with Endo, or ratably over either the development period in which the Company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in the contract, or the later of 1) the conclusion of the royalty term on a jurisdiction by jurisdiction basis or 2) the expiration of the last EpiCept licensed patent as we do with respect to our license with DURECT, Myrexis and GNI, Ltd.

Proportional performance is measured based on costs incurred compared to total estimated costs to be incurred over the development period which approximates the proportion of the value of the services provided compared to the total estimated value over the development period. The proportional performance method currently results in revenue recognition at a slower pace than the ratable method as many of the Company’s costs are incurred in the latter stages of the development period. The Company periodically reviews its estimates of cost and the length of the development period and, to the extent such estimates change, the impact of the change is recorded at that time. The Company increased the estimated development period with respect to its license with Endo by an additional twelve months to reflect additional time required to obtain clinical data from our partner during each of the years 2012 and 2011.

EpiCept recognizes milestone payments as revenue upon achievement of the milestone only if (1) it represents a separate unit of accounting as defined in ASC 605-25; (2) the milestone payments are nonrefundable; (3) substantive effort is involved in achieving the milestone; and (4) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions is not met, EpiCept will recognize milestones as revenue in accordance with its accounting policy in effect for the respective contract. For current agreements, EpiCept recognizes revenue for milestone payments based upon the portion of the development services that are completed to date and defers the remaining portion and recognizes it over the remainder of the development services on the proportional or ratable method, whichever is applicable. When payments are specifically tied to a separate earnings process, revenue will be recognized when the specific performance obligation associated with the payment has been satisfied. Deferred revenue represents the excess of cash received compared to revenue recognized to date under licensing agreements.

Revenue from the sale of product is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry, if any, are provided for in the same period the related sales are recorded.

Royalty revenue is recognized in the period in which the sales occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and the Company has no remaining performance obligations under the arrangement providing for the royalty. If royalties are received when the Company has remaining performance obligations, they would be attributed to the services being provided under the arrangement and, therefore, recognized as such obligations are performed under either the proportionate performance or ratable methods, as applicable.

Share-Based Payments

The Company records stock-based compensation expense at fair value in accordance with the FASB issued ASC 718-10, “Compensation – Stock Compensation” (“ASC 718-10”). The Company utilizes the Black-Scholes valuation method to recognize compensation expense over the vesting period. Certain assumptions need to be made with respect to utilizing the Black-Scholes valuation model, including the expected life, volatility, risk-free interest rate and anticipated forfeiture of the stock options. The expected life of the stock options was calculated using the method allowed by the provisions of ASC 718-10. In accordance with ASC 718-10, the simplified method for “plain vanilla” options may be used where the expected term is equal to the vesting term plus the original contract term divided by two. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the options. Estimates of pre-vesting option forfeitures are based on the Company’s experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

9

The Company accounts for stock-based transactions with non-employees in which services are received in exchange for the equity instruments based upon the fair value of the equity instruments issued, in accordance with ASC 718-10 and ASC 505-50, “Equity-Based Payments to Non-Employees.” The two factors that most affect charges or credits to operations related to stock-based compensation are the estimated fair market value of the common stock underlying stock options for which stock-based compensation is recorded and the estimated volatility of such fair market value. The value of such options is periodically remeasured and income or expense is recognized during the vesting terms.

Accounting for stock-based compensation granted by the Company requires fair value estimates of the equity instrument granted or sold. If the Company’s estimate of the fair value of stock-based compensation is too high or too low, it will have the effect of overstating or understating expenses. When stock-based grants are granted in exchange for the receipt of goods or services, the Company estimates the value of the stock-based compensation based upon the value of its common stock.

Foreign Exchange Gains and Losses

EpiCept’s 100%-owned subsidiary in Germany, EpiCept GmbH, is currently in in the process of liquidating its assets and liabilities. EpiCept GmbH performed certain commercialization activities on the Company’s behalf and has generally been unprofitable since its inception. Its functional currency is the euro. The process by which EpiCept GmbH’s financial results are translated into U.S. dollars is as follows: income statement accounts are translated at average exchange rates for the period and balance sheet asset and liability accounts are translated at end of period exchange rates. Translation of the balance sheet in this manner affects the stockholders’ deficit account, referred to as the cumulative translation adjustment account. This account exists only in EpiCept GmbH’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet stated in U.S. dollars in balance.

Research and Development Expenses

The Company expects that a large percentage of its future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. The Company tests its product candidates in numerous preclinical studies for toxicology, safety and efficacy. The Company then conducts early stage clinical trials for each drug candidate. As the Company obtains results from clinical trials, it may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years but the length of time generally varies according to the type, complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including:

● the number of sites included in the trials;

● the length of time required to enroll suitable patients;

● the number of patients that participate in the trials;

● the number of doses that patients receive;

● the duration of follow-up with the patient;

● the product candidate’s phase of development; and

● the efficacy and safety profile of the product.

Expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, estimates of expenses are modified accordingly on a prospective basis.

Other than Ceplene^®, none of the Company’s drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that its clinical data and that of its collaborators establish the safety and efficacy of our drug candidates. Furthermore, the Company’s strategy includes entering into collaborations with third parties to participate in the development and commercialization of its products. In the event that third parties have control over the preclinical development or clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under the Company’s control. The Company cannot forecast with any degree of certainty which of its drug candidates will be subject to future collaborations or how such arrangements would affect its development plan or capital requirements.

10

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” The Company files income tax returns in the U.S. federal jurisdiction, New York, California and Germany. The Company’s income tax returns for tax years after 2008 are still subject to review. Since the Company incurred losses in the past, all prior years that generated losses are open and subject to audit examination in relation to the losses generated from those years.

The Company accounts for its income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based upon the differences arising from carrying amounts of the Company’s assets and liabilities for tax and financial reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period when the change in tax rates is enacted. A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance has been applied against the Company’s net deferred tax assets at June 30, 2013 and December 31, 2012, because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets. Upon completion of the merger with Immune, the Company’s deferred tax assets and net operating loss carry-forwards  will be reevaluated to determine any limitations due to change in control under Internal Revenue Code Section 382.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense. The Company did not have any liabilities, accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarters ended June 30, 2013 and 2012. Income tax expense for the three and six months ended June 30, 2013 and 2012 is primarily due to minimum state and local income taxes.

Income (loss) per Share:

Basic and diluted loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted weighted average shares outstanding for the three months ended June 30, 2013 and the six months ended June 30, 2013 and 2012 excludes shares underlying convertible preferred stock, stock options, restrictive stock and warrants, since the effects would be anti-dilutive. Accordingly, basic and diluted loss per share is the same. Diluted weighted average shares outstanding for the three months ended June 30, 2012 excludes shares underlying stock options, restrictive stock and warrants, because these shares were out of the money. Such excluded shares are summarized as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Common stock options		2,277,989		4,316,436		2,277,989		4,316,436
Restricted stock units		—		2,325,000		—		2,730,000
Shares issuable upon conversion of preferred stock		—		—		—		7,444,706
Warrants		21,718,914		31,088,705		21,718,914		34,221,058
Total shares excluded from calculation		23,996,903		37,730,141		23,996,903		48,712,200

Basic and diluted earnings per share (EPS) were computed using the following data (in thousands, except share and per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
EPS Numerator – Basic:
Net income (loss)	$	(1,684	)	$	2,209	$	(2,784	)	$	(2,495	)
EPS Numerator – Diluted:
Net income (loss)	$	(1,684	)	$	2,959	$	(2,784	)	$	(2,495	)
EPS Denominator:
Weighted-average common shares outstanding––Basic		113,639,424			83,772,960		110,158,277			80,414,692
Common stock equivalents: convertible preferred stock, restricted stock units and warrants		—			7,818,933		—			—
Weighted-average common shares outstanding––Diluted		113,639,424			91,591,893		110,158,277			80,414,692

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Interest Expense:

Interest expense consisted of the following for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in $000s)						(in $000s)
Interest expense	$	(125	)	$	(208	)	$	(247	)	$	(447	)
Amortization of debt issuance costs and discount		(50	)		(172	)		(116	)		(296	)
Interest and amortization of debt discount and expense	$	(175	)	$	(380	)	$	(363	)	$	(743	)

Amortization of debt issuance costs in 2013 and 2012 was primarily related to issuance costs in connection with the Company’s senior secured term loan that was entered into in May 2011.

Cash and Cash Equivalents 

The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents.

Restricted Cash 

The Company has lease agreements for the premises it occupies. A letter of credit in lieu of a lease deposit for leased facilities totaling $0.1 million was secured by restricted cash in the same amount at December 31, 2012. The letter of credit was not renewed in 2013, resulting in the release of restricted cash totaling $0.1 million. The Company has failed to make payments on its lease agreement for the premises located in San Diego, California since April 2012. As a result, the landlord applied approximately $0.1 million to unpaid rent in 2012 (see Deferred Rent and Other Noncurrent Liabilities). The Company also has a restricted cash balance of $0.6 million being held by Midcap Financial, LLC., (“Midcap”) at June 30, 2013 (see Note 8).

Prepaid Expenses and Other Current Assets: 

As of June 30, 2013 and December 31, 2012, prepaid expenses and other current assets consist of the following:

	June 30,		December 31,
	2013		2012
	(in thousands)
Prepaid expenses	$	30	$	43
Prepaid insurance		64		53
Other		5		20
Total prepaid expenses and other current assets	$	99	$	116

Property and Equipment

Property and equipment consists of furniture, office and laboratory equipment, and leasehold improvements stated at cost. Furniture and office and laboratory equipment are depreciated on a straight-line basis over their estimated useful lives ranging from five to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repairs are charged to expense as incurred.

Deferred Financing Costs

Deferred financing costs represent legal and other costs and fees incurred to negotiate and obtain debt financing. Deferred financing costs are capitalized and amortized using the effective interest method over the life of the applicable financing. Deferred financing costs were approximately $24,000 and $0.1 million at June 30, 2013 and December 31, 2012, respectively. Amortization expense was $0.1 million for each of the six months ended June 30, 2013 and 2012, respectively.

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Beneficial Conversion Feature of Certain Instruments

The convertible feature of certain financial instruments provided for a rate of conversion that was below market value at the commitment date. Such feature is normally characterized as a beneficial conversion feature (“BCF”). Pursuant to ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), the estimated fair value of the BCF is recorded as a dividend if it is related to preferred stock. Our Series A 0% Convertible Preferred Stock and Series B 0% Convertible Preferred Stock were each immediately convertible and contained a BCF. Therefore, the Company initially recorded a BCF of approximately $1.9 million as a deemed dividend in 2012. As the result of the Reset Offer in September 2012, the Company recorded an additional BCF of $1.6 million. (see Note 8).

Deferred Rent and Other Noncurrent Liabilities

Deferred rent and other noncurrent liabilities represents deferred rent expense on the Company’s facilities in Tarrytown, NY and San Diego, CA. In accordance with accounting principles generally accepted in the U.S., the Company recognizes rental expense, including tenant improvement allowances, on a straight-line basis over the life of the leases or useful life, whichever is shorter, irrespective of the timing of payments to or from the lessor. The Company ceased use of its discovery research facility in San Diego, CA as a result of the Company’s decision to discontinue its drug discovery activities in 2009. In accordance with ASC 420-10, “Exit or Disposal Cost Activities” (“ASC 420-10”), the Company recorded a liability of $0.8 million, included in research and development expense on the consolidated statements of operations and comprehensive loss, on the cease-use date based on the fair value of the costs that are expected to be incurred under the lease of the facility. The fair value of the liability at the cease-use date was determined based on the remaining rental payments, reduced by estimated sublease rental income that could be reasonably obtained for the property. The Company had deferred rent of zero and $0.3 million at June 30, 2013 and December 31, 2012, respectively. The Company accrued $1.5 million payable under this lease at June 30, 2013.

Impairment of Long-Lived Assets

The Company performs impairment tests on its long-lived assets when circumstances indicate that their carrying amounts may not be recoverable. If required, recoverability is tested by comparing the estimated future undiscounted cash flows of the asset or asset group to its carrying value. If the carrying value is not recoverable, the asset or asset group is written down to fair value. No such impairments have been identified with respect to the Company’s long-lived assets, which consist primarily of property and equipment at June 30, 2013.

Derivatives

The Company accounts for its derivative instruments in accordance with ASC 815-10, “Derivatives and Hedging” (“ASC 815-10”). ASC 815-10 establishes accounting and reporting standards requiring that derivative instruments, including derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value. ASC 815-10 also requires that changes in the fair value of derivative instruments be recognized currently in results of operations unless specific hedge accounting criteria are met. The Company does not have derivatives in the current quarter and has not entered into hedging activities to date.

Accumulated Other Comprehensive Loss

The Company’s only element of accumulated other comprehensive loss was foreign currency translation adjustments of ($1.1) million at June 30, 2013 and December 31, 2012.

Fair Value of Financial Instruments

The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to all financial instruments that are being measured and reported on a fair value basis, non-financial assets and liabilities measured and reported at fair value on a non-recurring basis, and disclosures of fair value of certain financial assets and liabilities.

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The following fair value hierarchy is used in selecting inputs for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:

● Level 1 — Quoted prices in active markets for identical assets or liabilities.

● Level 2 — Inputs other than Level 1 that are observable for similar assets or liabilities either directly or indirectly.

● Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The financial instruments recorded in the Company’s consolidated balance sheets consist primarily of cash and cash equivalents, accounts payable and the Company’s debt obligations. The carrying amounts of the Company’s cash and cash equivalents and accounts payable approximate fair value due to their short-term nature. The fair market value of the Company’s convertible and non-convertible loans is based on the present value of their cash flows discounted at a rate that approximates current market returns for issues of similar risk.

The carrying amount and estimated fair values of the Company’s debt instruments are as follows:

	June 30, 2013				December 31, 2012
	Carrying Amount		Level 2 Fair Value		Carrying Amount		Level 2 Fair Value
	(In millions)
Non-convertible loans	$	4.1	$	4.0	$	4.1	$	4.0

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) – Presentation of Comprehensive Income" which amends ASC 220, “Comprehensive Income”. ASU 2011-05 gives an entity the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-05 on a retrospective basis in the year ended December 31, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred. In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Company’s consolidated financial statements.

4. License Agreements

Meda AB

The Company entered into an exclusive commercialization agreement for Ceplene^® with Meda AB (“Meda”), a leading international specialty pharmaceutical company based in Stockholm, Sweden in January 2010. Under the terms of the agreement, the Company granted Meda the right to market Ceplene^® in Europe and several other countries including Japan, China, and Australia. The Company received a $3.0 million fee on signing and an additional $2.0 million milestone payment in May 2010 upon the first commercial sale of Ceplene^® in a major European market, both of which were deferred and recognized as revenue ratably over the life of the commercialization agreement with Meda. This agreement was terminated by mutual agreement in June 2012.

The Company sold all of its rights to Ceplene^® in the territories previously licensed to Meda for $2.0 million in June 2012. In addition, Meda purchased a portion of the Company’s remaining Ceplene^® inventory for approximately $0.6 million and Meda has assumed all of EpiCept's ongoing responsibilities related to the manufacture and maintenance of the marketing authorization of Ceplene® in the European Union. The Company recognized the $2.0 million payment received from Meda as revenue in June 2012. The Company recognized $0.5 million of product revenue and $0.1 million of expense reimbursement from the sale of existing Ceplene^® inventory in June 2012, since approximately $0.1 million of the amount purchased by Meda related to the Company’s purchase of Proleukin^® that was previously recorded as clinical trial expense. The Company has retained its rights to Ceplene^® in all other countries, including countries in North and South America, but at the current time have no plans to continue development.

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The Company recognized the remaining $3.8 million in deferred revenue from Meda relating to the original commercialization agreement for each of the three and six months ended June 30, 2012. The Company recognized total revenue from the original commercialization agreement of approximately zero and $3.9 million for the three months ended June 30, 2013 and 2012, respectively, and approximately $0.3 million and $4.1 million for each of the six months ended June 30, 2013 and 2012, respectively. The Company recognized revenue relating to commercial sales of Ceplene^® of approximately zero and $0.6 million for the three months ended June 30, 2013 and 2012, respectively, and approximately $0.3 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively.

Dalhousie University

The Company entered into a direct license with Dalhousie University in July 2007, under which the Company was granted an exclusive license to certain patents for the topical use of tricyclic anti-depressants and NMDA antagonists as topical analgesics for neuralgia. These, and other patents, cover the combination treatment consisting of amitriptyline and ketamine in AmiKet^TM. This technology has been incorporated into AmiKet^TM.

The Company has been granted worldwide rights to make, use, develop, sell and market products utilizing the licensed technology in connection with passive dermal applications. The Company is obligated to make payments to Dalhousie upon achievement of specified milestones and to pay royalties based on annual net sales derived from the products incorporating the licensed technology. The Company is obligated to pay Dalhousie an annual maintenance fee until the license agreement expires or is terminated, or an NDA for AmiKet^TM is filed with the FDA, or Dalhousie will have the option to terminate the contract. The license agreement with Dalhousie terminates upon the expiration of the last to expire licensed patent. The Company incurred a maintenance fee of $0.5 million with Dalhousie in 2012, of which $0.3 million is still currently payable ($0.1 million was paid to Dalhousie in 2012 and another $0.1 million was paid in July 2013). These payments were expensed to research and development in their respective years.

Myrexis, Inc.

In connection with its merger with Maxim Pharmaceuticals on January 4, 2006, EpiCept acquired a license agreement with Myrexis Inc. (“Myrexis”) under which the Company licensed the MX90745 series of caspase-inducer anti-cancer compounds to Myrexis. The Company received a milestone payment of $1.0 million in March 2008, following dosing of the first patient in a Phase II registration sized clinical trial, which was deferred and was being recognized as revenue ratably over the life of the last to expire patent that expires in July 2024.

In August 2012, Myrexis elected to terminate its efforts to develop and commercialize any product under the license agreement. As a result of the termination of the license agreement, all rights and licenses granted under the license agreement by the Company to Myrexis have reverted to the Company. In January 2013, the Company negotiated with Myrexis to license the Myriad patents and know-how as set forth in the License Agreement. Under the agreement, the Company will be responsible for paying milestone payments and royalties to Myrexis if the Company decides to further develop Azixa®. The Company is not planning to develop Azixa® at this time. The Company therefore recognized the remaining $0.7 million in deferred revenue from Myrexis relating to the license agreement in 2012 since the Company has no future performance obligations under the agreement. The Company recorded revenue from Myrexis of approximately zero and $15,000 for the three months ended June 30, 2013 and 2012, respectively. The Company recorded revenue from Myrexis of approximately zero and $31,000 for the six months ended June 30, 2013 and 2012, respectively.

DURECT Corporation (DURECT)

The Company entered into a license agreement with DURECT Corporation (“DURECT”) in December 2006, pursuant to which it granted DURECT the exclusive worldwide rights to certain of its intellectual property for a transdermal patch containing bupivacaine for the treatment of back pain. Under the terms of the agreement, EpiCept received a $1.0 million payment which has been deferred and is being recognized as revenue ratably over the life of the last to expire patent that expires in March 2020. The Company amended its license agreement with DURECT in September 2008. Under the terms of the amended agreement, the Company granted DURECT royalty-free, fully paid up, perpetual and irrevocable rights to the intellectual property licensed as part of the original agreement in exchange for a cash payment of $2.25 million from DURECT, which has also been deferred and is being recognized as revenue ratably over the last patent life. The Company recorded revenue from DURECT of approximately $68,000 for each of the three months ended June 30, 2013 and June 30, 2012, and approximately $136,000 for each of the six months ended June 30, 2013 and June 30, 2012.

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Endo Pharmaceuticals Inc. (Endo)

In December 2003, the Company entered into a license agreement with Endo Pharmaceuticals Inc. (“Endo”) under which it granted Endo (and its affiliates) the exclusive (including as to the Company and its affiliates) worldwide right to commercialize LidoPAIN BP. The Company also granted Endo worldwide rights to use certain of its patents for the development of certain other non-sterile, topical lidocaine containing patches, including Lidoderm^®, Endo’s topical lidocaine-containing patch for the treatment of chronic lower back pain. Upon the execution of the Endo agreement, the Company received a non-refundable payment of $7.5 million, which has been deferred and is being recognized as revenue on the proportional performance method. The Company is eligible to receive payments of up to $52.5 million upon the achievement of various milestones relating to product development and regulatory approval for both the Company’s LidoPAIN BP product and licensed Endo products, including Lidoderm^®, so long as, in the case of Endo’s product candidate, the Company’s patents provide protection thereof. The Company is also entitled to receive royalties from Endo based on the net sales of LidoPAIN BP. These royalties are payable until generic equivalents to the LidoPAIN BP product are available or until expiration of the patents covering LidoPAIN BP, whichever is sooner. The Company is also eligible to receive milestone payments from Endo of up to approximately $30.0 million upon the achievement of specified net sales milestones for licensed Endo products, including Lidoderm^®, so long as the Company’s patents provide protection thereof. The future amount of milestone payments the Company is eligible to receive under the Endo agreement is $82.5 million. The Company recorded revenue from Endo of approximately $3,000 and $10,000 for the three months ended June 30, 2013 and 2012, respectively and $6,000 and $20,000 for each of the six months ended June 30, 2013 and 2012, respectively.

Under the terms of the license agreement, the Company is responsible for continuing and completing the development of LidoPAIN BP, including the conduct of all clinical trials and the supply of the clinical products necessary for those trials and the preparation and submission of the NDA in order to obtain regulatory approval for LidoPAIN BP. Endo remains responsible for continuing and completing the development of Lidoderm^® for the treatment of chronic lower back pain, including the conduct of all clinical trials and the supply of the clinical products necessary for those trials. No progress in the development of LidoPAIN BP or Lidoderm with respect to back pain has been reported. Accordingly, the Company does not expect to receive any further cash compensation pursuant to this license agreement.

Shire BioChem

The Company entered into a license agreement reacquiring the rights to the MX2105 series of apoptosis inducer anti-cancer compounds from Shire Biochem, Inc (formerly known as BioChem Pharma, Inc.) in March 2004 and as amended in January 2005, which had previously announced that oncology would no longer be a therapeutic focus of the company’s research and development efforts. Under the agreement, all rights and obligations of the parties under the July 2000 agreement were terminated and Shire BioChem agreed to assign and/or license to the Company rights it owned under or shared under the prior research program. The agreement did not require any up-front payments, however, the Company is required to provide Shire Biochem a portion of any sublicensing payments the Company receives if the Company relicenses the series of compounds or make milestone payments to Shire BioChem totaling up to $26.0 million, assuming the successful commercialization of the compounds by the Company for the treatment of a cancer indication, as well as pay a royalty on product sales. A license fee of $0.5 million that became payable to Shire BioChem as a result of the commencement of a Phase I clinical trial for crolibulin^TM in December 2006, and approximately $0.2 million in accrued interest, was reversed to research and development expense in 2012 as the Company believed that this amount is no longer due.

5. Property and Equipment

Property and equipment consist of the following:

	June 30,			December 31,
	2013			2012
	(in thousands)
Furniture, office and laboratory equipment	$	582		$	582
Leasehold improvements		760			760
		1,342			1,342
Less accumulated depreciation		(1,306	)		(1,286	)
	$	36		$	56

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Depreciation expense was approximately $12,000 and $17,000 for the three months ended June 30, 2013 and 2012, respectively, and $20,000 and $36,000 for the six months ended June 30, 2013 and 2012, respectively.

6. Other Accrued Liabilities

Other accrued liabilities consist of the following:

	June 30, 2013		December 31, 2012
	(in thousands)
Accrued professional fees	$	342	$	304
Accrued salaries and employee benefits		300		465
Accrued financing expenses		301		301
Accrued rent		1,480		916
Other accrued liabilities		74		57
Total other accrued liabilities	$	2,497	$	2,043

7. Related Party Loan

The Company is party to a related party loan pursuant to the merger agreement with Immune. The Company has borrowed approximately $0.6 million from Immune at June 30, 2013. The loan bears interest at a rate of 3.27%, which equates to an immaterial amount at June 30, 2013. The loan is expected to be eliminated in consolidation upon the close of the merger with Immune in August 2013.

8. Notes, Loans and Financing

The Company is party to a loan agreement as follows:

	June 30, 2013			December 31, 2012
	(in thousands)
May 2011 senior secured term loan due May 27, 2014 (1)	$	4,071		$	4,071
Total notes and loans payable, before debt discount		4,071			4,071
Less: Debt discount		(31	)		(96	)
Total notes and loans payable	$	4,040		$	3,975
Notes and loans payable, current portion	$	4,040		$	3,975
Notes and loans payable, long-term		—			—

______________

(1) The Company entered into a senior secured term loan in the amount of $8.6 million with Midcap in May 2011. The Company had the option to borrow an additional $2.0 million from Midcap on or before December 31, 2011 upon meeting certain conditions, including the commencement of a Phase III clinical trial, which it did not exercise. The interest rate on the loan is 11.5% per year. The Company incurred approximately $0.1 million in issuance costs in connection with the loan and is required to pay a $0.3 million fee on the maturity date of the loan. In addition, the Company issued five year common stock purchase warrants to Midcap granting them the right to purchase 1.1 million shares of the Company’s common stock at an exercise price of $0.63 per share. The basic terms of the loan require monthly payments of interest only through November 1, 2011, with 30 monthly payments of principal and interest that commenced on December 1, 2011. Any outstanding balance of the loan and accrued interest is to be repaid on May 27, 2014. In connection with the terms of the loan agreement, the Company granted Midcap a security interest in substantially all of the Company’s personal property including its intellectual property.

The Company allocated the $8.6 million in proceeds between the term loan and the warrants based on their relative fair values. The Company calculated the fair value of the warrants at the date of the transaction at approximately $0.5 million with a corresponding amount recorded as a debt discount. The debt discount is being accreted over the life of the outstanding term loan using the effective interest method. At the date of the transaction, the fair value of the warrants of $0.5 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: dividend yield of 0%, risk free interest rate of 1.71%, volatility of 110% and an expected life of five years. The Company recognized approximately $0.1 million and $0.2 million of non-cash interest expense during the first six months of 2013 and 2012, respectively, related to the accretion of the debt discount.

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The Company entered into a consent agreement with Midcap in June 2012 with respect to the sale of its Ceplene^® asset to Meda. As a result of entering into this consent agreement, the Company paid Midcap $0.8 million as a partial payment of principal on the loan in return for Midcap’s release of security interest in certain assets sold to Meda.

The Company entered into an amendment to the loan agreement with Midcap in August 2012. The amendment was not a result of a default under the loan agreement. Under the amendment, the Company agreed to make a principal prepayment of $1.2 million, which approximates the scheduled principal payments due under the loan agreement from September 1, 2012 through December 31, 2012. As a result of the prepayment, the current principal balance of the loan was reduced to $4.1 million. The Company will continue to make monthly payments of interest to Midcap as per the loan agreement while principal payments are currently being deferred.

The Company also agreed, pursuant to the amendment, to maintain a cash balance of $1.1 million in a bank account that is subject to the security interest maintained by Midcap under the loan agreement. Midcap deducted interest payable under the loan agreement and advanced the Company $0.1 million to cover operating expenses in 2012, resulting in a cash balance of $0.6 million at June 30, 2013. Further, the Company committed to signing a definitive agreement, acceptable to Midcap, by November 15, 2012 with respect to a sale or partnering transaction (which the Company satisfied by entering into a definitive merger agreement with Immune Pharmaceuticals, Ltd. on November 8, 2012).

In July 2013, the Company and Midcap executed a Second Amendment to the Loan and Security Agreement in which the parties agreed that interest payments will continue to be made monthly and one half of the cash that is subject to the security interest maintained by Midcap will be returned to the Company upon the favorable stockholder vote to approve the final conditions to the closing of the merger. Any past defaults under the loan agreement have been waived and principal payments on the loan are scheduled to begin September 1, 2013 unless the loan agreement restructuring the loan has been executed.

The Company’s term loan with Midcap contains a subjective acceleration clause, which allows the lender to accelerate the loan’s due date in the event of a material adverse change in the Company’s ability to pay its obligations when due. The Company believes that its losses from operations, its stockholders’ deficit and a cash balance that is lower than its loan payable collectively increase the likelihood of the due date being accelerated in this manner, and therefore the Company has classified loan repayments due more than twelve months from the date of these financial statements as a short term liability. The original deferred financing fees and debt discount continue to be amortized over the life of the debt that was assumed when the obligation was originally recorded.

9. Preferred Stock

The Company has authorized 5.0 million preferred shares, of which 2,000 shares designated as Series A preferred stock and 1,065 shares designated as Series B preferred stock were previously issued. All shares of Series A and Series B preferred stock were subsequently converted into shares of the Company's common stock in 2012 and 2013, cancelled and may not be re-issued. As of June 30, 2013, the Company had no shares of preferred stock outstanding.

Series A 0% Convertible Preferred Stock (“Series A Preferred”)

The Company issued 2,000 shares of Series A Preferred at a price of $1,000 per share and warrants to purchase 5.0 million shares of the Company’s common stock in February 2012 for net proceeds of approximately $1.8 million, net of $0.2 million in transactions costs. The Shares of Series A Preferred were convertible into an aggregate of 10.0 million shares of the Company’s common stock. Each share of Series A Preferred was convertible, at the option of the holder thereof, into that number of shares of Common Stock (subject to certain limitations set forth in the Certificate of Designation) determined by dividing the stated value of such share of Series A Preferred, which was initially $1,000, by the conversion price. The initial conversion price, which was subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices, was $0.20.

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The Warrants had an initial exercise price of $0.20 per share, were immediately exercisable, and had a term of five years from the date of issuance. The exercise price and number of shares issuable upon exercise of the warrants were subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices. The Company allocated the $2.0 million in gross proceeds between the preferred stock and the warrants based on their relative fair values. Based on the Black-Scholes option pricing model (volatility – 110%, risk free rate – 0.82%, dividends – zero, weighted average life – 5 years), we allocated approximately $0.6 million to the warrants. The warrants met the requirements of and were being accounted for as equity in accordance with ASC 815-40.

The convertible feature of the Series A Preferred provided for a rate of conversion that was below market value at the commitment date. Such feature is normally characterized as a BCF. Pursuant to ASC 470-20, the estimated fair value of the BCF is recorded as a dividend if it is related to preferred stock. The Series A Preferred was immediately convertible and contained a BCF. Therefore, the Company recorded a BCF of approximately $1.2 million as a deemed dividend in 2012.

In September 2012, the Company agreed to reduce the conversion price of the Series A Preferred, which was originally convertible at $0.20 per share, to $0.08 per share. The Company also reduced the exercise price of its outstanding common stock purchase warrants that were issued in connection with the Series A Preferred, exercisable for 5.0 million shares of common stock, from $0.20 per share to $0.10 per share. The reduction in conversion price of the Company’s Series A Preferred and exercise price of the common stock purchase warrants resulted in approximately $0.4 million being recorded as a deemed dividend in 2012.

As of June 30, 2013, all 2,000 shares of the Series A Preferred had been converted into approximately 11.8 million shares of the Company’s common stock. As a result, there are no shares of the Series A Preferred outstanding at June 30, 2013.

Series B 0% Convertible Preferred Stock (“Series B Preferred”)

The Company issued 1,065 shares of Series B Preferred at a price of $1,000 per share and warrants to purchase approximately 3.1 million shares of the Company’s common stock in April 2012 for net proceeds of approximately $1.0 million, net of $0.1 million in transactions costs. The shares of Series B Preferred were convertible into an aggregate of approximately 6.3 million shares of the Company’s common stock. Each share of Series B Preferred was convertible, at the option of the holder thereof, into that number of shares of common stock (subject to certain limitations set forth in the Certificate of Designation) determined by dividing the stated value of such share of Series B Preferred, which was initially $1,000, by the conversion price. The initial conversion price, which was subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices, was $0.17.

The Warrants had an initial exercise price of $0.17 per share, were immediately exercisable, and had a term of five years from the date of issuance. The exercise price and number of shares issuable upon exercise of the warrants were subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices. The Company allocated the $1.1 million in gross proceeds between the preferred stock and the warrants based on their relative fair values. Based on the Black-Scholes option pricing model (volatility – 110%, risk free rate – 1.01%, dividends – zero, weighted average life – 5 years), we allocated approximately $0.3 million to the warrants. The warrants met the requirements of and were being accounted for as equity in accordance with ASC 815-40.

The convertible feature of the Series B Preferred was a BCF, which the Company recorded as a deemed dividend of approximately $0.8 million in 2012.

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In September 2012, the Company agreed to reduce the conversion price of the Series B Preferred to $0.08 per share. The Company also reduced the exercise price of its outstanding common stock purchase warrants that were issued in connection with the Series B Preferred, exercisable for approximately 3.1 million shares of common stock, from $0.17 per share to $0.10 per share. The reduction in conversion price of the Series B Preferred and exercise price of the common stock purchase warrants resulted in approximately $1.2 million being recorded as a deemed dividend in 2012.

As of June 30, 2013, all 1,065 shares of the Series B Preferred had been converted into approximately 13.3 million shares of the Company’s common stock. As a result, there are no shares of the Series B Preferred outstanding at June 30, 2013.

10. Common Stock and Common Stock Warrants

The Company raised $0.5 million in gross proceeds during the first six months of 2013 through the issuance of the Company’s common stock to Immune. Approximately 3.8 million shares of the Company’s common stock were sold at a price of $0.13 per share. These shares have not been registered.

On September 24, 2012, the Company reduced the exercise price of its outstanding common stock purchase warrants that were issued in registered direct offerings that closed on February 10, 2012 and April 2, 2012, exercisable for an aggregate of 8,132,353 shares of common stock. The exercise price for all of the warrants was reduced to $0.10 per share. The Warrants issued in February 2012 had an original exercise price of $0.20 per share, and those issued in April 2012 had an original exercise price of $0.17 per share. All of the warrants were immediately exercised, resulting in proceeds of approximately $0.8 million in 2012.

Effective January 9, 2012, the Company reduced the exercise price and extended the expiration date of its outstanding Series B common stock purchase warrants that were issued in a registered direct offering that closed on June 30, 2010. The Series B warrants, which originally would have expired on the close of business on January 9, 2012, were exercisable for up to approximately 6.1 million shares of the Company’s common stock. The exercise price was reduced from $1.64 per share to $0.20 per share subject to no further adjustment other than for stock splits and stock dividends and the expiration date was extended to the close of business on April 9, 2012.  The modification resulted in a warrant amendment expense of $0.9 million which was calculated as the difference in the fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model (volatility – 110%, risk free rate – 0.01%, dividends – zero, weighted average life – 0.25 years). Approximately 3.9 million warrants were exercised for proceeds of approximately $0.7 million in 2012.

11. Share-Based Payments

2005 Equity Incentive Plan

The 2005 Equity Incentive Plan (the “2005 Plan”) was adopted on September 1, 2005, approved by stockholders on September 5, 2005 and became effective on January 4, 2006. The 2005 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to EpiCept’s employees and its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, performance-based awards and cash awards to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. Options are granted and vest as determined by the Board of Directors. A total of 13,000,000 shares of EpiCept’s common stock are reserved for issuance pursuant to the 2005 Plan. No optionee may be granted an option to purchase more than 1,500,000 shares in any fiscal year. Options issued pursuant to the 2005 Plan have a maximum maturity of 10 years and generally vest over 4 years from the date of grant. The Company records stock-based compensation expense at fair value. There were no grants during the six months ended June 30, 2013.

The following table presents the total employee, board of directors and third party stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and the Employee Stock Purchase Plan included in the condensed consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in $000s)				(in $000s)
Selling, general and administrative	$	30	$	130	$	66	$	317
Research and development		11		29		22		87
Stock-based compensation expense before income taxes		41		159		88		404
Benefit for income taxes (1)		—		—		—		—
Net compensation expense	$	41	$	159	$	88	$	404

____________

(1) The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

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Summarized information for stock option grants for the six months ended June 30, 2013 is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2012		2,530,864		$	3.94		6.45	$	—
Granted		—			—
Exercised		—			—
Forfeited		(44,375	)		4.62
Expired		(208,500	)		2.78
Options outstanding at June 30, 2013		2,277,989		$	4.04		5.84	$	—
Vested or expected to vest at June 30, 2013		2,258,030		$	4.06		5.74	$	—
Options exercisable at June 30, 2013		2,078,401		$	4.30		5.74	$	—

There were no stock option exercises during each of the six months ended June 30, 2013 and 2012. There were no stock options granted during the six months ended June 30, 2013. The weighted average grant-date fair value of options granted for the six months ended June 30, 2012 was $0.35 and was estimated at the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the following table:

	Six Months Ended June 30,
	2013	2012
Expected volatility	n/a	110%
Risk free interest rate	n/a	0.89%
Dividend yield	n/a	—
Expected life (Years)	n/a	5

Following the departure of three former directors in August 2012, the Company agreed to extend the period during which they would be entitled to exercise certain vested stock options to purchase its common stock from three months following the effective date of their resignations to the expiration date of each option granted to each former director. Additionally, all options and restricted stock units that were not vested on the date of their respective resignations will continue to vest. The Company recorded compensation expense related to the modification of the exercise period and vesting period of $23,000 in 2012. 

The total remaining unrecognized compensation cost related to the non-vested stock options, restricted stock and restricted stock units amounted to $0.1 million as of June 30, 2013, which will be amortized over the weighted-average remaining requisite service period of 1.08 years.

Restricted Stock

Restricted stock was issued to a certain non-employee member of the Company’s Board of Directors during the six months ended June 30, 2012, which entitled the holder to receive approximately 0.1 million shares of the Company’s common stock upon achieving certain objectives within a one year vesting period, which was achieved and vested in 2012. This restricted stock grant is accounted for at fair value at the date of grant and an expense was recognized during the vesting term. No restricted stock was granted during the six months ended June 30, 2013.

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Restricted Stock Units

Restricted stock units were issued to certain employees and non-employee members of the Company’s Board of Directors during the six months ended June 30, 2012. Typically, restricted stock units entitle the holder to receive a specified number of shares of the Company’s common stock at the end of the vesting term, ranging from one year to four years. The restricted stock unit grant is accounted for at fair value at the date of grant and an expense is recognized during the vesting term. No restricted stock units were granted during the six months ended June 30, 2013. Summarized information for restricted stock unit grants for the six months ended June 30, 2013 is as follows:

	Restricted Stock Units			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2012		405,000		$	0.16
Granted		—			—
Vested		(405,000	)		0.16
Forfeited		—			—
Nonvested at June 30, 2013		—		$	—

2009 Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (the “2009 ESPP”) was adopted by the Board of Directors on December 19, 2008, subject to stockholder approval, and was approved by the stockholders at the Company’s 2009 Annual Meeting held on June 2, 2009. The 2009 ESPP was effective on January 1, 2009 and a total of 1,000,000 shares of common stock have been reserved for sale. The 2009 ESPP is implemented by offerings of rights to all eligible employees from time to time. Unless otherwise determined by the Company’s Board of Directors, common stock is purchased for accounts of employees participating in the 2009 ESPP at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company's common stock on the first day the offering or (ii) 85% of the fair market value of a share of the Company's common stock on the last trading day of the purchase period. The initial period commenced January 1, 2009 and ended on June 30, 2009. Each subsequent offering period will have a six month duration.

The number of shares to be purchased at each balance sheet date is estimated based on the current amount of employee withholdings and the remaining purchase dates within the offering period. The fair value of share options expected to vest is estimated using the Black-Scholes option-pricing model. There were no shares issued under the 2009 ESPP during the six months ended June 30, 2013 and 2012, so no expense was recorded. A total of 78,267 shares have been issued under the 2009 ESPP as of June 30, 2013.

Warrants

The following table summarizes information about warrants outstanding at June 30, 2013:

	Options			Weighted Average Exercise Price
Warrants outstanding at December 31, 2012		25,115,796		$	1.64
Issued		—			—
Exercised		—			—
Expired		(3,396,882	)		3.07
Warrants outstanding at June 30, 2013		21,718,914		$	1.42

12. Commitments and Contingencies

The Company is a party to a number of research, consulting, and license agreements, which require the Company to make payments to the other party upon the other party attaining certain milestones as defined in the agreements. The Company may be required to make future milestone payments as of June 30, 2013, totaling approximately $1.7 million, under these agreements, of which approximately $0.5 million is payable during 2013 and approximately $1.2 million is payable from 2014 through 2016.

Litigation

On September 5, 2012, plaintiffs Kenton L. Crowley and John A. Flores filed an appeal against EpiCept in the United States District Court for the Southern District of California. The Company filed an Answering Brief in October 2012. The Company continues to believe this complaint is entirely without merit and that incurrence of a liability is not probable.

On November 25, 2008 plaintiffs Kenton L. Crowley and John A. Flores filed a complaint against EpiCept in the United States District Court, New Jersey, which was transferred on March 20, 2009 to the United States District Court for the Southern District of California. The complaint alleges breach of contract, breach of covenant of good faith and fair dealing, fraud, and rescission of contract with respect to the development of a topical cream containing ketamine and butamben, known as EpiCept NP-2. Discovery was conducted in 2010 and 2011. The Company filed a motion for summary judgment, which was granted on January 24, 2012.

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13. Subsequent Events

The Company raised $0.4 million in gross proceeds in July 2013 by entering into a loan pursuant to the merger agreement with Immune.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis of EpiCept’s condensed consolidated financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. The Company has based these forward-looking statements on its current expectations and projections of future events. Such statements reflect the Company’s current views with respect to future events and are subject to unknown risks, uncertainties and other factors that may cause results to differ materially from those contemplated in such forward looking statements. Statements made in this document related to the development, commercialization and market expectations of the Company’s drug candidates, to the establishment of corporate collaborations, and to the Company’s operational projections are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Among the factors that could result in a materially different outcome are the inherent uncertainties accompanying new product development, action of regulatory authorities and the results of further trials. Additional economic, competitive, governmental, technological, marketing and other factors identified in EpiCept’s filings with the SEC could affect such results. This report refers to trademarks of the Company as well as trademarks of third parties. All trademarks referenced herein are property of their respective owners.

Overview

We are a specialty pharmaceutical company focused on the clinical development and commercialization of pharmaceutical products for the treatment of pain and cancer. Our strategy is to focus on topically delivered analgesics targeting peripheral nerve receptors and on innovative cancer therapies. In November 2012, we entered into a definitive merger agreement with Immune Pharmaceuticals Ltd., or Immune, and we recently filed a definitive proxy statement that contains details on Immune and the merger. The definitive proxy was mailed to shareholders on or about June 20, 2013. The transaction is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions, including the approval of a reverse split of our common stock by a majority of our shareholders.

The combined entity, to be named Immune Pharmaceuticals, Inc., will be primarily focused on developing antibody therapeutics and other targeted drugs for the treatment of inflammatory diseases and cancer. Immune’s lead product candidate, bertilimumab, is a fully human monoclonal antibody that targets eotaxin-1, a chemokine involved in eosinophilic inflammation, angiogenesis and neurogenesis. Immune is currently initiating a placebo-controlled, double-blind Phase II clinical trial with bertilimumab for the treatment of ulcerative colitis. Based on the Second Amendment to the Merger Agreement with Immune dated February 11, 2013, the values for EpiCept and Immune were estimated to be $14 million and $61 million, respectively, for an assumed combined company valuation of approximately $75 million. The following results of operations and discussion of business are of EpiCept only and do not represent the prospective combined entity.

Our lead compound is AmiKet™, a topical cream consisting of a patented combination of amitriptyline and ketamine that is in late stage development for the treatment of peripheral neuropathies. In December 2011, we met with the Food and Drug Administration (“FDA”) and were granted permission by the FDA to begin Phase III clinical development. Fast Track designation was granted in April 2012. In June 2012, we announced that we had received formal scientific advice from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for AmiKet’s clinical and nonclinical development and subsequent Marketing Authorization Approval (MAA).

Our oncology compounds include crolibulin^TM, a novel small molecule vascular disruption agent (“VDA”) and apoptosis inducer for the treatment of patients with solid tumors that is currently in a Phase Ib/II clinical trial sponsored by the National Cancer Institute (“NCI”) to assess the drug’s efficacy and safety in combination with cisplatin in patients with anaplastic thyroid cancer (“ATC”). Azixa^®, an apoptosis inducer with VDA activity previously licensed by us to Myrexis, Inc. (“Myrexis”), as part of an exclusive, worldwide development and commercialization agreement, is currently in Phase II development for the treatment of brain cancer. In August 2012, Myrexis elected to terminate the license agreement resulting in the reversion of all rights and licenses granted under the license agreement back to us. In January 2013, we negotiated with Myrexis to license the Myriad patents and know-how as set forth in the License Agreement. Under the agreement, we will be responsible for paying milestone payments and royalties to Myrexis if we decide to further develop Azixa® ourselves, or to share in milestones and royalties we receive from a partner in the event we out-license the drug candidate to a third party who successfully completes product development and obtains marketing approval. We have no plans to pursue further development of Azixa® on our own.

Ceplene^®, when used concomitantly with low-dose interleukin-2, or IL-2, is intended as remission maintenance therapy in the treatment of acute myeloid leukemia, or AML, for adult patients who are in their first complete remission. We sold all of our rights to Ceplene^® in Europe and certain Pacific Rim countries and a portion of our remaining Ceplene® inventory to Meda AB for approximately $2.6 million in June 2012. Ceplene^® is licensed to MegaPharm Ltd. to market and sell in Israel, where it is currently available on a named-patient basis. Following Ministry of Health approval of labeling and other technical matters, Megapharm Ltd. is expected to commence the commercial launch of Ceplene^® in Israel. We have retained our rights to Ceplene^® in all other countries, including countries in North and South America, but at the current time have no plans to continue development.

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We have prepared our consolidated financial statements under the assumption that we are a going concern. We have devoted substantially all of our cash resources to research and development programs and selling, general and administrative expenses, and to date we have not generated any significant revenues from the sale of products. Since inception, we have incurred significant net losses each year. As a result, we have an accumulated deficit of $271.6 million as of June 30, 2013. Our recurring losses from operations and the accumulated deficit raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our losses have resulted principally from costs incurred in connection with our development activities and from selling, general and administrative expenses. Even if we succeed in developing and commercializing one or more of our product candidates, we may never become profitable. We expect to continue to incur significant expenses over the next several years.

We had approximately $0.2 million in cash and cash equivalents at June 30, 2013 plus restricted cash held with our senior secured lender of $0.6 million. We received net cash of $0.4 million in July 2013 by entering into a loan pursuant to the merger agreement with Immune. The definitive merger with Immune is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions.  We believe that further funding will not be necessary before the anticipated closing of the Merger with Immune in August 2013.

Recent Events

We raised $0.4 million in gross proceeds in July 2013 by entering into a loan pursuant to the merger agreement with Immune.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires that we make estimates and judgments affecting the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included in this annual report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.

Consolidation

The accompanying condensed consolidated financial statements include the accounts of EpiCept Corporation and the Company’s 100%-owned subsidiaries, Maxim Pharmaceuticals, Inc., Cytovia, Inc. and EpiCept GmbH (in liquidation). All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period, including stock-based compensation. Actual results could differ from those estimates.

Revenue Recognition

We recognize revenue relating to our collaboration agreements in accordance with the SEC Staff Accounting Bulletin, or SAB 104, “Revenue Recognition”, Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 605-25, “Revenue Recognition - Multiple Element Arrangements” (“ASC 605-25”), and Accounting Standards Update, or ASU, 2009-13, "Multiple Revenue Arrangements - a Consensus of the FASB Emerging Issues Task Force" (“ASU 2009-13”). ASU 2009-13 supersedes certain guidance in ASC 605-25, and requires an entity to allocate arrangement consideration to all of its deliverables at the inception of an arrangement based on their relative selling prices (i.e., the relative-selling-price method). We adopted the provisions of ASU 2009-13 beginning on January 1, 2011. The adoption of ASU 2009-13 did not have a material effect on our financial statements.

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Revenue under collaborative arrangements may result from license fees, milestone payments, research and development payments and royalties. Our application of these standards involves subjective determinations and requires management to make judgments about value of the individual elements and whether they are separable from the other aspects of the contractual relationship. We evaluate our collaboration agreements to determine units of accounting for revenue recognition purposes. For collaborations containing a single unit of accounting, we recognize revenue when the fee is fixed or determinable, collectibility is assured and the contractual obligations have occurred or been rendered. For collaborations involving multiple elements, our application requires management to make judgments about value of the individual elements and whether they are separable from the other aspects of the contractual relationship. To date, we have determined that our upfront non-refundable license fees cannot be separated from our ongoing collaborative research and development activities to the extent such activities are required under the agreement and, accordingly, do not treat them as a separate element. We recognize revenue from non-refundable, up-front licenses and related payments, not specifically tied to a separate earnings process, either on the proportional performance method with respect to our license with Endo, or ratably over either the development period in which the Company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in the contract or the later of (1) the conclusion of the royalty term on a jurisdiction by jurisdiction basis; and (2) the expiration of the last EpiCept licensed patent as we do with respect to our license with DURECT, Myrexis and GNI, Ltd., or GNI.

Proportional performance is measured based on costs incurred compared to total estimated costs to be incurred over the development period which approximates the proportion of the value of the services provided compared to the total estimated value over the development period. The proportional performance method currently results in revenue recognition at a slower pace than the ratable method as many of our costs are incurred in the latter stages of the development period. We periodically review our estimates of cost and the length of the development period and, to the extent such estimates change, the impact of the change is recorded at that time. We increased the estimated development period with respect to our license with Endo by an additional twelve months to reflect additional time required to obtain clinical data from our partner during each of the years 2012 and 2011.

We will recognize milestone payments as revenue upon achievement of the milestone only if (1) it represents a separate unit of accounting as defined in ASC 605-25; (2) the milestone payments are nonrefundable; (3) substantive effort is involved in achieving the milestone; and (4) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, we will recognize milestones as revenue in accordance with our accounting policy in effect for the respective contract. For current agreements,, we will recognize revenue based upon the portion of the development services that are completed to date and defer the remaining portion and recognize it over the remainder of the development services on the proportional or ratable method, whichever is applicable. When payments are specifically tied to a separate earnings process, revenue will be recognized when the specific performance obligation associated with the payment has been satisfied. Deferred revenue represents the excess of cash received compared to revenue recognized to date under licensing agreements.

Revenue from the sale of product is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry, if any, are provided for in the same period the related sales are recorded.

Royalty revenue is recognized in the period the sales occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no remaining performance obligations under the arrangement providing for the royalty. If royalties are received when we have remaining performance obligations, they would be attributed to the services being provided under the arrangement and, therefore, recognized as such obligations are performed under either the proportionate performance or straight-line methods, as applicable.

Foreign Currency

The financial statements of our foreign subsidiary are translated into U.S. dollars using the period-end exchange rate for all balance sheet accounts and the average exchange rates for all statements of operations and comprehensive loss accounts. Adjustments resulting from translation have been reported in other comprehensive loss.

Gains or losses from foreign currency transactions relating to inter-company debt are recorded in the consolidated statements of operations and comprehensive loss in other income (expense).

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Share-Based Compensation

We record stock-based compensation expense at fair value in accordance with the FASB issued ASC 718-10, “Compensation – Stock Compensation” (“ASC 718-10”). We utilize the Black-Scholes valuation method to recognize compensation expense over the vesting period. Certain assumptions need to be made with respect to utilizing the Black-Scholes valuation model, including the expected life, volatility, risk-free interest rate and anticipated forfeiture of the stock options. The expected life of the stock options was calculated using the method allowed by the provisions of ASC 718-10. In accordance with ASC 718-10, the simplified method for “plain vanilla” options may be used where the expected term is equal to the vesting term plus the original contract term divided by two. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the options. Estimates of pre-vesting option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

We account for stock-based transactions with non-employees in which services are received in exchange for the equity instruments based upon the fair value of the equity instruments issued, in accordance with ASC 718-10 and ASC 505-50, “Equity-Based Payments to Non-Employees.” The two factors that most affect charges or credits to operations related to stock-based compensation are the estimated fair market value of the common stock underlying stock options for which stock-based compensation is recorded and the estimated volatility of such fair market value. The value of such options is periodically remeasured and income or expense is recognized during the vesting terms.

Accounting for stock-based compensation granted by us requires fair value estimates of the equity instrument granted or sold. If our estimate of the fair value of stock-based compensation is too high or too low, it will have the effect of overstating or understating expenses. When stock-based grants are granted in exchange for the receipt of goods or services, we estimate the value of the stock-based compensation based upon the value of our common stock.

Foreign Exchange Gains and Losses

Our 100%-owned subsidiary in Germany, EpiCept GmbH, is currently in liquidation. EpiCept GmbH performed certain commercialization activities on our behalf and has generally been unprofitable since its inception. Its functional currency is the euro. The process by which EpiCept GmbH’s financial results are translated into U.S. dollars is as follows: income statement accounts are translated at average exchange rates for the period and balance sheet asset and liability accounts are translated at end of period exchange rates. Translation of the balance sheet in this manner affects the stockholders’ deficit account, referred to as the cumulative translation adjustment account. This account exists only in EpiCept GmbH’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet stated in U.S. dollars in balance.

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Research and Development Expenses

We expect that a large percentage of our future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. We test our product candidates in numerous preclinical studies for toxicology, safety and efficacy. We then conduct early stage clinical trials for each drug candidate. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years but the length of time generally varies according to the type, complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including:

● the number of sites included in the trials;

● the length of time required to enroll suitable patients;

● the number of patients that participate in the trials;

● the number of doses that patients receive;

● the duration of follow-up with the patient;

● the product candidate’s phase of development; and

● the efficacy and safety profile of the product.

Expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct clinical trials on the our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, estimates of expenses are modified accordingly on a prospective basis.

Other than Ceplene^®, none of our drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that our clinical data and that of our collaborators establish the safety and efficacy of our drug candidates. Furthermore, our strategy includes entering into collaborations with third parties to participate in the development and commercialization of our products. In the event that third parties have control over the preclinical development or clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under our control. We cannot forecast with any degree of certainty which of our drug candidates will be subject to future collaborations or how such arrangements would affect our development plan or capital requirements.

Income Taxes

We account for income taxes in accordance with ASC 740, “Income Taxes.” We file income tax returns in the U.S. federal jurisdiction and, New York, California and Germany. Our income tax returns for tax years after 2008 are still subject to review. Since we incurred losses in the past, all prior years that generated losses are open and subject to audit examination in relation to the losses generated from those years. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.

We account for our income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based upon the differences arising from carrying amounts of our assets and liabilities for tax and financial reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period when the change in tax rates is enacted. A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance has been applied against our net deferred tax assets at June 30, 2013 and December 31, 2012, because it is not more likely than not that we will realize future benefits associated with these deferred tax assets. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) – Presentation of Comprehensive Income" which amends Topic 220, “Comprehensive Income”. ASU 2011-05 gives an entity the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted the provisions of ASU 2011-05 on a retrospective basis in the year ended December 31, 2011. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred. In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on our consolidated financial statements.

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Results of Operations

Three months ended June 30, 2013 and 2012

Revenues. During the three months ended June 30, 2013 and 2012, we recognized revenue of approximately $0.1 million and $6.6 million, respectively, from prior upfront licensing fees and milestone payments received from our strategic alliances, royalties with respect to certain technology, and product revenues from the sales of Ceplene^® to Meda. We previously recognized revenue from our agreement with Meda using the Milestone Method, from our agreements with Myrexis, DURECT and GNI on a straight line method over the life of the last to expire patent and from our agreement with Endo using the proportional performance method with respect to LidoPAIN BP. For the three months ended June 30, 2013 and 2012, we recognized zero and $0.6 million, respectively, in product revenue from the sale of Ceplene^® to Meda.

We terminated our commercialization agreement with Meda in June 2012, and as a result recognized the remaining deferred revenue of approximately $3.8 million in the second quarter of 2012. We also simultaneously sold the rights to Ceplene^® under the original agreement to Meda for $2.0 million. In addition, Meda purchased approximately $0.6 million of Ceplene^® commercial and clinical supply and our supply of Proleukin^® that was to be used in the Ceplene^® post-approval trial. We recognized the $2.0 million payment received from Meda as revenue in the second quarter of 2012. We recognized $0.5 million of product revenue from the sale of Ceplene^® inventory and $0.1 million expense reimbursement from the sale of Proleukin^®. We recognized total revenue from the original commercialization agreement of approximately $3.9 million for the three months ended June 30, 2012.

The current portion of deferred revenue as of June 30, 2013 of $0.3 million represents our estimate of revenue to be recognized over the next twelve months primarily related to the upfront payments received from our strategic alliances.

Cost of goods sold. Cost of goods sold was zero and $0.4 million for the three months ended June 30, 2013 and 2012, respectively. Cost of goods sold during the second quarter of 2012 related solely to the costs of sales of Ceplene^®, including manufacturing costs and royalty expense related to sales of Ceplene^®.

Selling, general and administrative expense. Selling, general and administrative expense decreased by 36%, or $0.5 million, to $0.9 million for the three months ended June 30, 2013 from $1.4 million for the three months ended June 30, 2012. Salary and salary related expenses decreased by $0.2 million as the result of a reduction in staff, stock-based compensation decreased by $0.1 million, consulting expense decreased by $0.1 million and director fees and expenses decreased by $0.1 million due to a decrease in the size of our board of directors. We expect general and administrative expenses to remain at approximately current levels through the close of the merger with Immune.

Research and development expense. Research and development expense decreased by 30%, or $0.3 million, to $0.7 million for the three months ended June 30, 2013 from $1.0 million for the three months ended June 30, 2012. The decrease was primarily attributable to lower clinical trial costs for Ceplene^® of $0.5 million as our clinical efforts were focused on our open label trial of Ceplene^® during the second quarter of 2012. This reduction was partially offset by higher facility costs of $0.2 million since we expensed the remaining amount of the lease liability on our facility in San Diego during the second quarter of 2013. Except for the higher expense incurred for the San Diego facility, we expect research and development expenses to remain at approximately current levels through the close of the merger with Immune.

Other income (expense). Our other income (expense) consisted of the following:

	Three Months Ended June 30,
	2013			2012
	(in $000s)
Other income (expense) consist of:
Interest income	$	—		$	1
Foreign exchange loss		—			(521	)
Interest expense		(175	)		(380	)
Other income (expense), net	$	(175	)	$	(900	)

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For the three months ended June 30, 2013, we recorded other expense, net of $0.2 million as compared with other expense, net of $0.9 million for the three months ended June 30, 2012. Other income (expense), net was positively impacted by a $0.5 million change in foreign exchange loss and $0.2 million in lower interest expense on our senior secured term loan that we entered into in May 2011.

Deemed dividends on convertible preferred stock and warrant re-pricing. Deemed convertible preferred stock dividends amounted to $0.8 million for the three months ended June 30, 2012 relating to our Series B convertible preferred stock. Our Preferred Stock was issued at a discount to the current market price of our common stock and warrants were issued to purchase 3.1 million shares of our common stock, therefore a BCF of approximately $0.8 million was recorded as a deemed dividend in accordance with ASC 470-20.

Six months ended June 30, 2013 and 2012

Revenues. During the six months ended June 30, 2013 and 2012, we recognized revenue of approximately $0.5 million and $6.8 million, respectively, from prior upfront licensing fees and milestone payments received from our strategic alliances, royalties with respect to certain technology, and product revenues from the sales of Ceplene^® to Meda. We previously recognized revenue from our agreement with Meda using the Milestone Method, from our agreements with Myrexis, DURECT and GNI on a straight line method over the life of the last to expire patent and from our agreement with Endo using the proportional performance method with respect to LidoPAIN BP. We recognized total revenue from the original commercialization agreement of approximately $0.3 million and $4.1 million for the six months ended June 30, 2013 and 2012, respectively. We recognized revenue relating to commercial sales of Ceplene^® of approximately $0.3 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively. We recognized revenue of $11,000 and $14,000 for the six months ended June 30, 2013 and 2012, respectively, from royalties with respect to acquired Maxim technology.

We terminated our commercialization agreement with Meda in June 2012, and as a result recognized the remaining deferred revenue of approximately $3.8 million in the second quarter of 2012. We also simultaneously sold the rights to Ceplene^® under the original agreement to Meda for $2.0 million. In addition, Meda purchased approximately $0.6 million of Ceplene^® commercial and clinical supply and our supply of Proleukin^® that was to be used in the Ceplene^® post-approval trial. We recognized the $2.0 million payment received from Meda as revenue in the second quarter of 2012. We recognized $0.5 million of product revenue from the sale of Ceplene^® inventory and $0.1 million expense reimbursement from the sale of Proleukin^®.

Cost of goods sold. Cost of goods sold was $0.1 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively. Cost of goods sold related solely to the costs of sales of Ceplene^®, including manufacturing costs and royalty expense related to sales of Ceplene^®.

Selling, general and administrative expense. Selling, general and administrative expense decreased by 39%, or $1.1 million, to $1.7 million for the six months ended June 30, 2013 from $2.8 million for the six months ended June 30, 2012. Salary and salary related expenses decreased by $0.4 million as the result of a reduction in staff, stock-based compensation decreased by $0.3 million, consulting expense decreased by $0.2 million and director fees and expenses decreased by $0.2 million due to a decrease in the size of our board of directors. We expect general and administrative expenses to remain at approximately current levels through the close of the merger with Immune.

Research and development expense. Research and development expense decreased by 57%, or $1.3 million, to $1.0 million for the six months ended June 30, 2013 from $2.3 million for the six months ended June 30, 2012. The decrease was primarily attributable to lower clinical trial costs for Ceplene^® of $0.8 million as our clinical efforts were focused on our open label trial of Ceplene^® during the first six months of 2012. Salary and salary related expenses decreased by $0.4 million as the result of a reduction in staff and stock-based compensation decreased by $0.1 million. We expect research and development expenses to remain at approximately current levels through the close of the merger with Immune.

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Other income (expense). Our other income (expense) consisted of the following:

	Six Months Ended June 30,
	2013			2012
	(in $000s)
Other income (expense) consist of:
Interest income	$	—		$	3
Foreign exchange loss		—			(264	)
Warrant amendment expense		—			(936	)
Interest expense		(363	)		(743	)
Other income (expense), net	$	(363	)	$	(1,940	)

We recorded other expense, net of $0.4 million for the six months ended June 30, 2013, as compared with other expense, net of $1.9 million for the six months ended June 30, 2012. Other income (expense), net was positively impacted by no warrant amendment expense in the six months ended June 30, 2013, lower interest expense of $0.4 million related to our senior secured term loan that we entered into in May 2011 and a $0.3 million change in foreign exchange losses.

As a result of the amendment to our Series B common stock purchase warrant dated June 25, 2010, we agreed to extend the period during which investors would be entitled to exercise warrants to purchase our common stock from January 9, 2012 to April 9, 2012 (three months following the original termination date). Approximately 6.1 million warrants were originally issued in connection with a common stock and warrant transaction entered into on June 28, 2010 and the warrants were appropriately classified as equity. As a result of the amendment to the warrant agreements, the fair value of the warrants was recalculated using the Black-Scholes option pricing model immediately before and after the date of modification. The resulting difference in fair value of approximately $0.9 million on the date of modification was recorded as a warrant amendment expense for the six months ended June 30, 2012. Approximately 3.9 million warrants were exercised as of June 30, 2012.

Deemed dividends on convertible preferred stock and warrant re-pricing. Deemed convertible preferred stock dividends amounted to $1.9 million for the six months ended June 30, 2012 relating to our Series A and Series B convertible preferred stock. Our Series A and Series B Preferred Stock was both issued at a discount to the current market price of our common stock and warrants were issued to purchase 5.0 million shares and 3.1 million shares, respectively, of our common stock. Therefore a BCF of approximately $1.9 million was recorded as a deemed dividend in accordance with ASC 470-20.

Liquidity and Capital Resources

We have devoted substantially all of our cash resources to research and development programs and general and administrative expenses. To date, we have not generated any significant revenues from the sale of products and may not generate any such revenues for a number of years, if at all. As a result, we have incurred an accumulated deficit of $271.6 million as of June 30, 2013, and we anticipate that we will continue to incur operating losses in the future. Our recurring losses from operations and our stockholders’ deficit raise substantial doubt about our ability to continue as a going concern. Should we be unable to close the merger with Immune, operations will need to be further scaled back or discontinued. We have little if any access to new equity capital. Since our inception, we have financed our operations primarily through the proceeds from the sales of common and preferred securities, debt, revenue from collaborative relationships, investment income earned on cash balances and short-term investments and, prior to 2007, the sales of a portion of our New Jersey net operating loss carryforwards.

The following table describes our liquidity and financial position on June 30, 2013 and December 31, 2012.

	June 30, 2013			December 31, 2012
	(in thousands)
Working capital (deficit)	$	(8,873	)	$	(6,604	)
Cash and cash equivalents		200			172
Notes and loans payable, current portion		4,040			3,975

Working Capital

We had a working capital deficit of $8.9 million at June 30, 2013, consisting of current assets of $0.9 million and current liabilities of $9.8 million. This represents a negative change in working capital of approximately $2.3 million from a working capital deficit of $6.6 million at December 31, 2012, which consisted of current assets of $1.2 million and current liabilities of $7.8 million. We funded our working capital and the cash portion of our 2013 operating loss with the cash proceeds from the reset offer of our Series A and Series B Preferred Stock and warrants in September 2012 and the funding from Immune in the first six months of 2013.

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Cash and Cash Equivalents

Our cash and cash equivalents totaled $0.2 million at June 30, 2013 and December 31, 2012. Our cash and cash equivalents consist primarily of an interest bearing account. We received $0.5 million cash in 2013 from the issuance of approximately 3.8 million shares of our Common Stock, at a price of $0.13 per share, to Immune. We also received $0.6 million cash in 2013 by entering into a loan pursuant to the merger agreement with Immune.

We reduced the exercise price and extended the expiration date of our outstanding Series B Common Stock Purchase Warrants that were issued in a registered direct offering that closed on June 30, 2010 in January 2012. A total of 3.9 million warrants were exercised for proceeds of $0.7 million for the six months ending June 30, 2012. We received $1.8 million cash, net of $0.2 million in transaction costs, in February 2012 from the issuance of 2,000 shares of our Series A 0% Convertible Preferred Stock, at a price of $1,000 per share, and warrants to purchase 5.0 million shares of our Common Stock. The 2,000 shares of Preferred Stock were converted into an aggregate of 10.0 million shares of our Common Stock as of June 30, 2013.

We received $1.0 million cash, net of $0.1 million in transaction costs, in April 2012 from the issuance of 1,065 shares of our Series B 0% Convertible Preferred Stock, at a price of $1,000 per share, and warrants to purchase 3.1 million shares of our Common Stock. The Shares of Series B Preferred Stock were convertible into an aggregate of 6.3 million shares of our Common Stock. We also sold the rights to Ceplene^® under the original agreement to Meda in June 2012 for $2.0 million. In addition, Meda purchased approximately $0.6 million of Ceplene^® commercial and clinical supply and our supply of Proleukin^® for use in the Ceplene^® post-approval trial.

Current and Future Liquidity Position

We received $0.5 million of net cash from Immune during the first six months of 2013 through the issuance of approximately 3.8 million shares of our common stock, and an additional $0.6 million by entering into a loan pursuant to the merger agreement with Immune. We had approximately $0.2 million in cash and cash equivalents at June 30, 2013 plus restricted cash held with our senior secured lender of $0.6 million. Our anticipated average monthly cash operating expense in 2013 is approximately $0.3 million, which we have financed through this issuance of our common stock and debt to Immune and delaying amounts due to our vendors. In addition, we are required to make monthly interest and principal payments on our senior secured term loan of approximately $0.3 million, the interest portion of which is being drawn from the restricted cash held by our senior secured lender. Our lender has agreed to forego repayments of principal until an amendment to the current loan agreement is completed. We entered into the definitive merger agreement with Immune that is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions, including the positive vote for a reverse split of our common stock by a majority of our shareholders.  We believe additional funds will not be required prior to the merger closing.

If additional funds are raised by issuing equity, substantial dilution to existing shareholders may result. If we fail to obtain capital when required, we may be forced to delay, scale back, or eliminate some or all of our commercialization efforts for our research and development programs or to cease operations entirely.

Our future capital uses and requirements depend on numerous forward-looking factors. These factors include, but are not limited to, the following:

● the completion of our pending merger with Immune;

● the timing, receipt and amount of front-end fees and milestone payments that may become payable through an AmiKet^TM license;

● the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators, if any;

● the ability to establish and maintain additional collaborative arrangements;

● the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims; and

● the timing, receipt and amount of sales and royalties, if any, from our potential products.

We cannot be certain that additional funding will be available upon acceptable terms, or at all. Should we raise additional capital by issuing equity securities, our then-existing stockholders will likely experience further significant dilution. Our sales of equity have generally included the issuance of warrants, and if these warrants are exercised in the future, stockholders may experience significant additional dilution. We may not be able to raise additional capital through the sale of our securities which would severely limit our ability to fund our operations. Debt financing, if available, may subject us to restrictive covenants that could limit our flexibility in conducting future business activities. Given our available cash resources, existing indebtedness and results of operations, obtaining debt financing may not be possible. To the extent that we raise additional capital through collaboration and licensing arrangements, it may be necessary for us to relinquish valuable rights to our product candidates that we might otherwise seek to develop or commercialize independently.

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Operating Activities

Net cash used in operating activities for the first six months of 2013 was $1.4 million as compared to $2.6 million in the first six months of 2012. Cash was primarily used to fund our net loss for the first six months of 2013 resulting from research and development, general, administrative and other expenses. Accounts payable and accrued expenses increased by approximately $1.3 million as a result of our delaying payment to vendors. Deferred revenue decreased by $0.1 million to account for the portion of the deferred revenue received from our licensing partners that was recognized as revenue during the first six months of 2013. 

During the first six months of 2012, accounts payable and accrued expenses decreased by approximately $0.1 million as a result of paying vendors and deferred revenue decreased by $4.2 million to account for the portion of the deferred revenue received from our licensing partners that was recognized as revenue. The 2012 net loss was partially offset by non-cash charges of $0.9 million of warrant amendment expense, $0.4 million of stock-based compensation, $0.3 million in foreign exchange losses and $0.3 million in amortization of deferred financings costs and discount on loans. The 2012 net loss was also partially funded by a $0.4 million decrease in inventory resulting from the sale of most of our Ceplene^® inventory to Meda.

Investing Activities

Net cash provided by investing activities for the first six months of 2013 was $0.3 million compared to zero for the first six months of 2012. Net cash provided by investing activities for the first six months of 2013 consisted of the release of restricted cash from our lender to make interest payments on our senior secured term loan totaling $0.2 million and the release of the letter of credit on our leased facility totaling $0.1 million.

Financing Activities

Net cash provided by financing activities for the first six months of 2013 was $1.1 million compared to net cash provided by financing activities of $1.0 million for the first six months of 2012. We received $0.5 million of net cash from Immune during the first six months of 2013 through the issuance of approximately 3.8 million shares of our common stock and an additional $0.6 million by entering into a loan pursuant to the merger agreement with Immune. The loan is expected to be eliminated in consolidation upon the close of the merger with Immune in August 2013.

We reduced the exercise price and extended the expiration date of our outstanding Series B Common Stock Purchase Warrants that were issued in a registered direct offering that closed on June 30, 2010 in January 2012. A total of 3.9 million warrants were exercised for proceeds of $0.7 million as of June 30, 2012. We received $1.8 million cash, net of $0.2 million in transaction costs, in February 2012 from the issuance of 2,000 shares of our Series A 0% Convertible Preferred Stock, at a price of $1,000 per share, and warrants to purchase 5.0 million shares of our common stock. The 2,000 shares of preferred stock were converted into an aggregate of 11.8 million shares of our common stock as of June 30, 2013. We also received $1.0 million cash, net of $0.1 million in transaction costs, in April 2012 from the issuance of 1,065 shares of our Series B 0% Convertible Preferred Stock, at a price of $1,000 per share, and warrants to purchase approximately 3.1 million shares of our common stock. The shares of preferred stock were convertible into an aggregate of 13.3 million shares of our common stock.

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Contractual Obligations

The annual amounts of future minimum payments under debt obligations, interest, lease obligations and other long term obligations consisting of research, development, consulting and license agreements (including maintenance fees) are as follows as of June 30, 2013, (in thousands of U.S. dollars, using exchange rates where applicable in effect as of June 30, 2013):

	Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years		Total
Notes and loans payable	$	4,071	$	—	$	—	$	—	$	4,071
Interest expense		170		—		—		—		170
Operating leases		250		—		—		—		250
Severance		64		—		—		—		64
Other obligations		500		1,150		—		—		1,650
Total	$	5,055	$	1,150	$	—	$	—	$	6,205

Our current commitments of debt consist of the following:

Senior Secured Term Loan. In May 2011, we entered into a senior secured term loan in the amount of $8.6 million with Midcap Financial, LLC., (“Midcap”). We had the option to borrow an additional $2.0 million from Midcap on or before December 31, 2011 upon meeting certain conditions, including the commencement of a Phase III clinical trial, which we did not exercise. The interest rate on the loan is 11.5% per year. In addition, we issued five year common stock purchase warrants to Midcap granting them the right to purchase 1.1 million shares of our common stock at an exercise price of $0.63 per share. The basic terms of the loan required monthly payments of interest only through November 1, 2011, with 30 monthly payments of principal and interest which commenced on December 1, 2011. Any outstanding balance of the loan and accrued interest is to be repaid on May 27, 2014. In connection with the terms of the loan agreement, we granted Midcap a security interest in substantially all of our personal property including our intellectual property.

We allocated the $8.6 million in proceeds between the term loan and the warrants based on their relative fair values. We calculated the fair value of the warrants at the date of the transaction at approximately $0.5 million with a corresponding amount recorded as a debt discount. The debt discount is being accreted over the life of the outstanding term loan using the effective interest method. At the date of the transaction, the fair value of the warrants of $0.5 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: dividend yield of 0%, risk free interest rate of 1.71%, volatility of 110% and an expected life of five years. During the first six months of 2013 and 2012, we recognized approximately $0.1 million and $0.2 million, respectively, of non-cash interest expense related to the accretion of the debt discount.

We entered into a consent agreement with Midcap in June 2012 with respect to the sale of our Ceplene^® asset to Meda. As a result of entering into this consent agreement, we paid Midcap $0.8 million as a partial payment of principal on the loan in return for Midcap’s release of security interest in the assets sold to Meda.

We entered into an amendment to the loan agreement with Midcap in August 2012. The amendment was not a result of a default under the loan agreement. Under the amendment, we agreed to make a principal prepayment of $1.2 million, which approximates the scheduled principal payments due under the loan agreement from September 1, 2012 through December 31, 2012. As a result of the prepayment, the current principal balance of the loan was reduced to $4.1 million. We will continue to make monthly payments of interest to Midcap as per the loan agreement.

We also agreed, pursuant to the amendment, to maintain a cash balance of $1.1 million in a bank account that is subject to the security interest maintained by Midcap under the loan agreement. Midcap is deducting interest payable under the loan agreement and advanced us $0.1 million to cover operating expenses in 2012, resulting in a restricted cash balance of $0.6 million at June 30, 2013. Further, we committed to signing a definitive agreement, acceptable to Midcap, by November 15, 2012 with respect to a sale or partnering transaction (which the Company satisfied by entering into a definitive merger agreement with Immune Pharmaceuticals, Ltd. on November 8, 2012).

In July 2013, we executed a Second Amendment to the Loan and Security Agreement with Midcap in which the parties agreed that interest payments will continue to be made monthly and one half of the cash that is subject to the security interest maintained by Midcap will be returned to us upon the favorable stockholder vote to approve the final conditions to the closing of the merger. Any past defaults under the loan agreement have been waived and principal payments on the loan are scheduled to begin September 1, 2013 unless the loan agreement restructuring the loan has been executed.

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Our term loan with Midcap contains a subjective acceleration clause, which allows the lender to accelerate the loan’s due date in the event of a material adverse change in our ability to pay our obligations when due. We believe that our losses from operations, our stockholders’ deficit and a cash balance that is lower than our loan payable increase the likelihood of the due date being accelerated in this manner, and therefore we have classified loan repayments due more than twelve months from the date of these financial statements as a short term liability. The original deferred financing fees and debt discount continue to be amortized over the life of the debt that was assumed when the obligation was originally recorded.

Severance. We are obligated to pay severance to two of our former executive officers in the amount of $0.1 million at June 30, 2013.

Other Commitments. Our long-term commitments under operating leases shown above consist of payments relating to our facility lease in Tarrytown, New York, which expired in May 2013. Long-term commitments under operating leases for facilities leased by Maxim and retained by us relate primarily to the research and development site at 6650 Nancy Ridge Drive in San Diego, which is leased through October 2013. We defaulted on our lease agreement for the premises located in San Diego, California in June 2008 by failing to make the monthly rent payment. As a result, the landlord exercised their right to draw down the full letter of credit, amounting to approximately $0.3 million, and applied approximately $0.2 million to unpaid rent. The remaining balance of $0.1 million was classified as prepaid rent. We defaulted on this lease agreement again in April 2012 by ceasing to make the monthly rent payments. As a result, we applied the remaining $0.1 million of prepaid rent to unpaid rent. We discontinued our drug discovery activities at this location in 2009 and we accrued rent payable on this lease of $1.5 million at June 30, 2013.

We have a number of research, consulting and license agreements that require us to make payments to the other party to the agreement upon us attaining certain milestones as defined in the agreements. We may be required to make future milestone payments, totaling approximately $1.7 million as of June 30, 2013, under these agreements, depending upon the success and timing of future clinical trials and the attainment of other milestones as defined in the respective agreement. Our current estimate as to the timing of other research, development and license payments, assuming all related research and development work is successful, is listed in the table above in “Other obligations.”

We are also obligated to make future royalty payments to three of our collaborators under existing license agreements, based on net sales of Ceplene^®, AmiKet^TM and crolibulin^TM, to the extent revenues on such products are realized. We cannot reasonably determine the amount and timing of such royalty payments and they are not included in the table above.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The financial currency of our German subsidiary, which is in the process of liquidating its assets and liabilities, is the euro. As a result, we are exposed to various foreign currency risks. First, our consolidated financial statements are in U.S. dollars, but a portion of our consolidated assets and liabilities is denominated in euros. Accordingly, changes in the exchange rate between the euro and the U.S. dollar will affect the translation of our German subsidiary’s financial results into U.S. dollars for purposes of reporting consolidated financial results. Historically, fluctuations in exchange rates resulting in transaction gains or losses have had a material effect on our consolidated financial results. We have not engaged in any hedging activities to minimize this exposure, although we may do so in the future.

Our exposure to interest rate risk is limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in bank deposits. The primary objective of our investment activities has been to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To minimize risk, we maintain our portfolio of cash and cash equivalents in a variety of interest- bearing instruments, primarily bank deposits and money market funds, which may also include U.S. government and agency securities, high-grade U.S. corporate bonds and commercial paper. Due to the nature of our short-term and restricted investments, we believe that we are not exposed to any material interest rate risk. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties.

Item 4. Controls and Procedures.

Our Interim Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Interim Chief Executive Officer and Chief Financial Officer has concluded that, as of June 30, 2013, our disclosure controls and procedures were effective to ensure that all information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the United States and Exchange Commission rules and forms.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) during the fiscal quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information 

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors. 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. To the extent that the risk factors set forth below appear in our Annual Report on Form 10-K, the risk factors set forth below amend and supplement those risk factors with the same titles contained in such previously filed report.

Risks Related to our Financial Condition and Business 

We have limited liquidity and, as a result, may not be able to meet our obligations.

We had approximately $0.2 million in cash and cash equivalents at June 30, 2013 plus restricted cash held with our senior secured lender of $0.6 million. We received $0.4 million of net cash in July 2013 by entering into a loan pursuant to the merger agreement with Immune.   Our anticipated average monthly cash operating expenses in 2013 is approximately $0.3 million. In addition, we are required to make monthly interest and principal payments on our senior secured term loan in the amount of approximately $0.3 million. We entered into a definitive merger agreement which is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions.  We believe the merger will close before the need for additional funds.

We plan to out-license our AmiKet^TM compound to a third party who will complete clinical development and commercialize the product upon receipt of necessary regulatory approvals. Discussions with prospective partners are continuing, however at this time we are unable to determine whether or when such an agreement might be concluded or the amount of any fees that may be paid to us in connection with the agreement.

If additional funds are raised by issuing equity, substantial dilution to existing shareholders may result. If we fail to obtain capital when required, we may be forced to delay, scale back, or eliminate some or all of our research and development programs or to cease operations entirely.

We may not be able to continue as a going concern.

Our recurring losses from operations, insufficient working capital resources and our stockholders’ deficit raise substantial doubt about our ability to continue as a going concern and as a result our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements for the year ended December 31, 2012 with respect to this uncertainty. We will need to raise additional capital to continue to operate as a going concern. In addition, the perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations and may adversely affect our ability to raise additional capital.

37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the six months ended June 30, 2013, pursuant to the terms of the Merger Agreement and Plan of Reorganization, as amended, with Immune Pharmaceuticals Ltd., the Company sold an aggregate of 3,846,154 shares of its common stock to Immune for an aggregate purchase price of $500,000. The exemption from registration relied upon was Section 4(2) of the Securities Act of 1933, given that the transactions did not involve any public offering.

Item 3. Defaults upon Senior Securities.

None. 

Item 4. Mine Safety Disclosures.

None. 

Item 5. Other Information

None. 

38

Item 6. Exhibits

Number	Exhibit
3.1	Third Amended and Restated Certificate of Incorporation of EpiCept Corporation (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed May 21, 2008).
3.2	Amendment to the Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed July 9, 2009).
3.3	Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on January 14, 2010 (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed January 14, 2010).
3.4	Amended and Restated Bylaws of EpiCept Corporation (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed February 18, 2010).
3.5	Certificate of Designation of Series A 0% Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed February 9, 2012).
3.6	Certificate of Designation of Series B 0% Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed April 3, 2012).
3.7	Amendment to Certificate of Designation of Series B 0% Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to EpiCept Corporation’s Current Report on Form 8-K filed October 2, 2012).
3.8	Amended and Restated Bylaws of EpiCept Corporation (incorporated by reference to Exhibit 3.1 to EpiCept Corporation’s Current Report on Form 8-K filed February 18, 2010).
10.1	Amendment No. 4 to Merger Agreement and Plan of Reorganization, dated as of June 17, 2013, by and between Immune Pharmaceuticals Ltd., EpiCept Corporation and Epicept Israel Ltd. (incorporated by reference to Exhibit 10.1 to EpiCept Corporation’s Current Report on Form 8-K filed June 19, 2013).
10.2	Second Amendment to Loan and Security Agreement with Midcap Funding III, LLC, dated July 31, 2013 (incorporated by reference to Exhibit 10.1 to EpiCept Corporation's Current Report on Form 8-K filed August 1, 2013).
31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a- 14(a) and 15(d)-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from EpiCept Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2013, and December 31, 2012, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013, and June 30, 2012 (iii) Condensed Consolidated Statement of Stockholders’ Deficit for the six months ended June 30, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013, and June 30, 2012, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.

39

SIGNATURE PAGE

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.

	EpiCept Corporation
August 2, 2013	By:	/s/ Robert W. Cook
		Robert W. Cook
		Interim Chief Executive Officer and Chief Financial Officer

40

EX-31

EXHIBIT 31.1

CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

I, Robert W. Cook, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EpiCept Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 2, 2013	/s/ Robert W. Cook
	Robert W. Cook
	Interim Chief Executive Officer and Chief Financial Officer

EX-32

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of EpiCept Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert W. Cook, Interim Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C § 1350, as adopted pursuant to § 906 of the Sarbanes –Oxley Act of 2002, that:

1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert W. Cook

Robert W. Cook, Interim Chief Executive Officer and Chief Financial Officer

August 2, 2013            

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Note 10 - Common Stock and Common Stock Warrants

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note Disclosure [Text Block]

Stockholders' Equity Note Disclosure [Text Block]

10. Common Stock and Common Stock Warrants

The Company raised $0.5 million in gross proceeds during the first six months of 2013 through the issuance of the Company’s common stock to Immune. Approximately 3.8 million shares of the Company’s common stock were sold at a price of $0.13 per share. These shares have not been registered.

On September 24, 2012, the Company reduced the exercise price of its outstanding common stock purchase warrants that were issued in registered direct offerings that closed on February 10, 2012 and April 2, 2012, exercisable for an aggregate of 8,132,353 shares of common stock. The exercise price for all of the warrants was reduced to $0.10 per share. The Warrants issued in February 2012 had an original exercise price of $0.20 per share, and those issued in April 2012 had an original exercise price of $0.17 per share. All of the warrants were immediately exercised, resulting in proceeds of approximately $0.8 million in 2012.

Effective January 9, 2012, the Company reduced the exercise price and extended the expiration date of its outstanding Series B common stock purchase warrants that were issued in a registered direct offering that closed on June 30, 2010. The Series B warrants, which originally would have expired on the close of business on January 9, 2012, were exercisable for up to approximately 6.1 million shares of the Company’s common stock. The exercise price was reduced from $1.64 per share to $0.20 per share subject to no further adjustment other than for stock splits and stock dividends and the expiration date was extended to the close of business on April 9, 2012.  The modification resulted in a warrant amendment expense of $0.9 million which was calculated as the difference in the fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model (volatility – 110%, risk free rate – 0.01%, dividends – zero, weighted average life – 0.25 years). Approximately 3.9 million warrants were exercised for proceeds of approximately $0.7 million in 2012.

XML

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue:
Net product sales	$ 0	$ 577	$ 283	$ 583
Licensing and other revenue	99	6,025	192	6,260
Total revenue	99	6,602	475	6,843
Costs and expenses:
Costs of goods sold	0	396	143	396
Selling, general and administrative	927	1,384	1,737	2,815
Research and development	681	963	1,011	2,259
Total costs and expenses	1,608	2,743	2,891	5,470
Income (loss) from operations	(1,509)	3,859	(2,416)	1,373
Other income (expense):
Interest income	0	1	0	3
Foreign exchange gain (loss)	0	(521)	0	(264)
Warrant amendment expense	0	0	0	(936)
Interest expense (see Note 3)	(175)	(380)	(363)	(743)
Other income (expense), net	(175)	(900)	(363)	(1,940)
Net income (loss) before income taxes	(1,684)	2,959	(2,779)	(567)
Income tax expense	0	0	(5)	(2)
Net loss	(1,684)	2,959	(2,784)	(569)
Deemed dividends on convertible preferred stock	0	(750)	0	(1,926)
Income (loss) attributable to common stockholders	(1,684)	2,209	(2,784)	(2,495)
Basic and diluted income (loss) per common share (in Dollars per share)	$ (0.01)	$ 0.03	$ (0.03)	$ (0.03)
Weighted average common shares outstanding-basic (in Shares)	113,639,424	83,772,960	110,158,277	80,414,692
Weighted average common shares outstanding-diluted (in Shares)	113,639,424	91,591,893	110,158,277	80,414,692
Other comprehensive income (loss), net of income tax expense:
Foreign currency translation adjustments	(16)	521	(16)	257
Other comprehensive income (loss), net of $0 income tax expense	(16)	521	(16)	257
Comprehensive income (loss)	$ (1,700)	$ 3,480	$ (2,800)	$ (312)

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Note 3 - Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Significant Accounting Policies [Text Block]

Significant Accounting Policies [Text Block]

3. Summary of Significant Accounting Policies

Consolidation

The accompanying consolidated financial statements include the accounts of EpiCept Corporation and the Company’s 100%-owned subsidiaries, Maxim Pharmaceuticals, Inc., Cytovia, Inc. and EpiCept GmbH (in liquidation). All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period, including stock –based compensation. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue relating to its collaboration agreements in accordance with the SEC Staff Accounting Bulletin No. 104, Revenue Recognition, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-25, “Revenue Recognition - Multiple Element Arrangements” (“ASC 605-25”), and Accounting Standards Update (“ASU”) 2009-13, "Multiple Revenue Arrangements - a Consensus of the FASB Emerging Issues Task Force" (“ASU 2009-13”). ASU 2009-13 supersedes certain guidance in ASC 605-25, and requires an entity to allocate arrangement consideration to all of its deliverables at the inception of an arrangement based on their relative selling prices (i.e., the relative-selling-price method). The Company adopted the provisions of ASU 2009-13 beginning on January 1, 2011. The adoption of ASU 2009-13 did not have a material effect on the Company’s financial statements.

Revenue under collaborative arrangements may result from license fees, milestone payments, research and development payments and royalty payments. The Company’s application of these standards requires subjective determinations and requires management to make judgments about the value of the individual elements and whether they are separable from the other aspects of the contractual relationship. The Company evaluates its collaboration agreements to determine units of accounting for revenue recognition purposes. For collaborations containing a single unit of accounting, the Company recognizes revenue when the fee is fixed or determinable, collectibility is reasonably assured and the contractual obligations have occurred or been rendered. For collaborations involving multiple elements, the Company’s application requires management to make judgments about value of the individual elements and whether they are separable from the other aspects of the contractual relationship. To date, the Company has determined that its upfront non-refundable license fees cannot be separated from its ongoing collaborative research and development activities and, accordingly, does not treat them as a separate element. The Company recognizes revenue from non-refundable, upfront licenses and related payments, not specifically tied to a separate earnings process, either on the proportional performance method with respect to the Company’s license with Endo, or ratably over either the development period in which the Company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in the contract, or the later of 1) the conclusion of the royalty term on a jurisdiction by jurisdiction basis or 2) the expiration of the last EpiCept licensed patent as we do with respect to our license with DURECT, Myrexis and GNI, Ltd.

Proportional performance is measured based on costs incurred compared to total estimated costs to be incurred over the development period which approximates the proportion of the value of the services provided compared to the total estimated value over the development period. The proportional performance method currently results in revenue recognition at a slower pace than the ratable method as many of the Company’s costs are incurred in the latter stages of the development period. The Company periodically reviews its estimates of cost and the length of the development period and, to the extent such estimates change, the impact of the change is recorded at that time. The Company increased the estimated development period with respect to its license with Endo by an additional twelve months to reflect additional time required to obtain clinical data from our partner during each of the years 2012 and 2011.

EpiCept recognizes milestone payments as revenue upon achievement of the milestone only if (1) it represents a separate unit of accounting as defined in ASC 605-25; (2) the milestone payments are nonrefundable; (3) substantive effort is involved in achieving the milestone; and (4) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions is not met, EpiCept will recognize milestones as revenue in accordance with its accounting policy in effect for the respective contract. For current agreements, EpiCept recognizes revenue for milestone payments based upon the portion of the development services that are completed to date and defers the remaining portion and recognizes it over the remainder of the development services on the proportional or ratable method, whichever is applicable. When payments are specifically tied to a separate earnings process, revenue will be recognized when the specific performance obligation associated with the payment has been satisfied. Deferred revenue represents the excess of cash received compared to revenue recognized to date under licensing agreements.

Revenue from the sale of product is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry, if any, are provided for in the same period the related sales are recorded.

Royalty revenue is recognized in the period in which the sales occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and the Company has no remaining performance obligations under the arrangement providing for the royalty. If royalties are received when the Company has remaining performance obligations, they would be attributed to the services being provided under the arrangement and, therefore, recognized as such obligations are performed under either the proportionate performance or ratable methods, as applicable.

Share-Based Payments

The Company records stock-based compensation expense at fair value in accordance with the FASB issued ASC 718-10, “Compensation – Stock Compensation” (“ASC 718-10”). The Company utilizes the Black-Scholes valuation method to recognize compensation expense over the vesting period. Certain assumptions need to be made with respect to utilizing the Black-Scholes valuation model, including the expected life, volatility, risk-free interest rate and anticipated forfeiture of the stock options. The expected life of the stock options was calculated using the method allowed by the provisions of ASC 718-10. In accordance with ASC 718-10, the simplified method for “plain vanilla” options may be used where the expected term is equal to the vesting term plus the original contract term divided by two. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the options. Estimates of pre-vesting option forfeitures are based on the Company’s experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

The Company accounts for stock-based transactions with non-employees in which services are received in exchange for the equity instruments based upon the fair value of the equity instruments issued, in accordance with ASC 718-10 and ASC 505-50, “Equity-Based Payments to Non-Employees.” The two factors that most affect charges or credits to operations related to stock-based compensation are the estimated fair market value of the common stock underlying stock options for which stock-based compensation is recorded and the estimated volatility of such fair market value. The value of such options is periodically remeasured and income or expense is recognized during the vesting terms.

Accounting for stock-based compensation granted by the Company requires fair value estimates of the equity instrument granted or sold. If the Company’s estimate of the fair value of stock-based compensation is too high or too low, it will have the effect of overstating or understating expenses. When stock-based grants are granted in exchange for the receipt of goods or services, the Company estimates the value of the stock-based compensation based upon the value of its common stock.

Foreign Exchange Gains and Losses

EpiCept’s 100%-owned subsidiary in Germany, EpiCept GmbH, is currently in in the process of liquidating its assets and liabilities. EpiCept GmbH performed certain commercialization activities on the Company’s behalf and has generally been unprofitable since its inception. Its functional currency is the euro. The process by which EpiCept GmbH’s financial results are translated into U.S. dollars is as follows: income statement accounts are translated at average exchange rates for the period and balance sheet asset and liability accounts are translated at end of period exchange rates. Translation of the balance sheet in this manner affects the stockholders’ deficit account, referred to as the cumulative translation adjustment account. This account exists only in EpiCept GmbH’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet stated in U.S. dollars in balance.

Research and Development Expenses

The Company expects that a large percentage of its future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. The Company tests its product candidates in numerous preclinical studies for toxicology, safety and efficacy. The Company then conducts early stage clinical trials for each drug candidate. As the Company obtains results from clinical trials, it may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years but the length of time generally varies according to the type, complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including:

● the number of sites included in the trials;

● the length of time required to enroll suitable patients;

● the number of patients that participate in the trials;

● the number of doses that patients receive;

● the duration of follow-up with the patient;

● the product candidate’s phase of development; and

● the efficacy and safety profile of the product.

Expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, estimates of expenses are modified accordingly on a prospective basis.

Other than Ceplene^®, none of the Company’s drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that its clinical data and that of its collaborators establish the safety and efficacy of our drug candidates. Furthermore, the Company’s strategy includes entering into collaborations with third parties to participate in the development and commercialization of its products. In the event that third parties have control over the preclinical development or clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under the Company’s control. The Company cannot forecast with any degree of certainty which of its drug candidates will be subject to future collaborations or how such arrangements would affect its development plan or capital requirements.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” The Company files income tax returns in the U.S. federal jurisdiction, New York, California and Germany. The Company’s income tax returns for tax years after 2008 are still subject to review. Since the Company incurred losses in the past, all prior years that generated losses are open and subject to audit examination in relation to the losses generated from those years.

The Company accounts for its income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based upon the differences arising from carrying amounts of the Company’s assets and liabilities for tax and financial reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period when the change in tax rates is enacted. A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance has been applied against the Company’s net deferred tax assets at June 30, 2013 and December 31, 2012, because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets. Upon completion of the merger with Immune, the Company’s deferred tax assets and net operating loss carry-forwards  will be reevaluated to determine any limitations due to change in control under Internal Revenue Code Section 382.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense. The Company did not have any liabilities, accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarters ended June 30, 2013 and 2012. Income tax expense for the three and six months ended June 30, 2013 and 2012 is primarily due to minimum state and local income taxes.

Income (loss) per Share:

Basic and diluted loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted weighted average shares outstanding for the three months ended June 30, 2013 and the six months ended June 30, 2013 and 2012 excludes shares underlying convertible preferred stock, stock options, restrictive stock and warrants, since the effects would be anti-dilutive. Accordingly, basic and diluted loss per share is the same. Diluted weighted average shares outstanding for the three months ended June 30, 2012 excludes shares underlying stock options, restrictive stock and warrants, because these shares were out of the money. Such excluded shares are summarized as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Common stock options		2,277,989		4,316,436		2,277,989		4,316,436
Restricted stock units		—		2,325,000		—		2,730,000
Shares issuable upon conversion of preferred stock		—		—		—		7,444,706
Warrants		21,718,914		31,088,705		21,718,914		34,221,058
Total shares excluded from calculation		23,996,903		37,730,141		23,996,903		48,712,200

Basic and diluted earnings per share (EPS) were computed using the following data (in thousands, except share and per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
EPS Numerator – Basic:
Net income (loss)	$	(1,684	)	$	2,209	$	(2,784	)	$	(2,495	)
EPS Numerator – Diluted:
Net income (loss)	$	(1,684	)	$	2,959	$	(2,784	)	$	(2,495	)
EPS Denominator:
Weighted-average common shares outstanding––Basic		113,639,424			83,772,960		110,158,277			80,414,692
Common stock equivalents: convertible preferred stock, restricted stock units and warrants		—			7,818,933		—			—
Weighted-average common shares outstanding––Diluted		113,639,424			91,591,893		110,158,277			80,414,692

Interest Expense:

Interest expense consisted of the following for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in $000s)						(in $000s)
Interest expense	$	(125	)	$	(208	)	$	(247	)	$	(447	)
Amortization of debt issuance costs and discount		(50	)		(172	)		(116	)		(296	)
Interest and amortization of debt discount and expense	$	(175	)	$	(380	)	$	(363	)	$	(743	)

Amortization of debt issuance costs in 2013 and 2012 was primarily related to issuance costs in connection with the Company’s senior secured term loan that was entered into in May 2011.

Cash and Cash Equivalents 

The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents.

Restricted Cash 

The Company has lease agreements for the premises it occupies. A letter of credit in lieu of a lease deposit for leased facilities totaling $0.1 million was secured by restricted cash in the same amount at December 31, 2012. The letter of credit was not renewed in 2013, resulting in the release of restricted cash totaling $0.1 million. The Company has failed to make payments on its lease agreement for the premises located in San Diego, California since April 2012. As a result, the landlord applied approximately $0.1 million to unpaid rent in 2012 (see Deferred Rent and Other Noncurrent Liabilities). The Company also has a restricted cash balance of $0.6 million being held by Midcap Financial, LLC., (“Midcap”) at June 30, 2013 (see Note 8).

Prepaid Expenses and Other Current Assets: 

As of June 30, 2013 and December 31, 2012, prepaid expenses and other current assets consist of the following:

	June 30,		December 31,
	2013		2012
	(in thousands)
Prepaid expenses	$	30	$	43
Prepaid insurance		64		53
Other		5		20
Total prepaid expenses and other current assets	$	99	$	116

Property and Equipment

Property and equipment consists of furniture, office and laboratory equipment, and leasehold improvements stated at cost. Furniture and office and laboratory equipment are depreciated on a straight-line basis over their estimated useful lives ranging from five to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repairs are charged to expense as incurred.

Deferred Financing Costs

Deferred financing costs represent legal and other costs and fees incurred to negotiate and obtain debt financing. Deferred financing costs are capitalized and amortized using the effective interest method over the life of the applicable financing. Deferred financing costs were approximately $24,000 and $0.1 million at June 30, 2013 and December 31, 2012, respectively. Amortization expense was $0.1 million for each of the six months ended June 30, 2013 and 2012, respectively.

Beneficial Conversion Feature of Certain Instruments

The convertible feature of certain financial instruments provided for a rate of conversion that was below market value at the commitment date. Such feature is normally characterized as a beneficial conversion feature (“BCF”). Pursuant to ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), the estimated fair value of the BCF is recorded as a dividend if it is related to preferred stock. Our Series A 0% Convertible Preferred Stock and Series B 0% Convertible Preferred Stock were each immediately convertible and contained a BCF. Therefore, the Company initially recorded a BCF of approximately $1.9 million as a deemed dividend in 2012. As the result of the Reset Offer in September 2012, the Company recorded an additional BCF of $1.6 million. (see Note 8).

Deferred Rent and Other Noncurrent Liabilities

Deferred rent and other noncurrent liabilities represents deferred rent expense on the Company’s facilities in Tarrytown, NY and San Diego, CA. In accordance with accounting principles generally accepted in the U.S., the Company recognizes rental expense, including tenant improvement allowances, on a straight-line basis over the life of the leases or useful life, whichever is shorter, irrespective of the timing of payments to or from the lessor. The Company ceased use of its discovery research facility in San Diego, CA as a result of the Company’s decision to discontinue its drug discovery activities in 2009. In accordance with ASC 420-10, “Exit or Disposal Cost Activities” (“ASC 420-10”), the Company recorded a liability of $0.8 million, included in research and development expense on the consolidated statements of operations and comprehensive loss, on the cease-use date based on the fair value of the costs that are expected to be incurred under the lease of the facility. The fair value of the liability at the cease-use date was determined based on the remaining rental payments, reduced by estimated sublease rental income that could be reasonably obtained for the property. The Company had deferred rent of zero and $0.3 million at June 30, 2013 and December 31, 2012, respectively. The Company accrued $1.5 million payable under this lease at June 30, 2013.

Impairment of Long-Lived Assets

The Company performs impairment tests on its long-lived assets when circumstances indicate that their carrying amounts may not be recoverable. If required, recoverability is tested by comparing the estimated future undiscounted cash flows of the asset or asset group to its carrying value. If the carrying value is not recoverable, the asset or asset group is written down to fair value. No such impairments have been identified with respect to the Company’s long-lived assets, which consist primarily of property and equipment at June 30, 2013.

Derivatives

The Company accounts for its derivative instruments in accordance with ASC 815-10, “Derivatives and Hedging” (“ASC 815-10”). ASC 815-10 establishes accounting and reporting standards requiring that derivative instruments, including derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value. ASC 815-10 also requires that changes in the fair value of derivative instruments be recognized currently in results of operations unless specific hedge accounting criteria are met. The Company does not have derivatives in the current quarter and has not entered into hedging activities to date.

Accumulated Other Comprehensive Loss

The Company’s only element of accumulated other comprehensive loss was foreign currency translation adjustments of ($1.1) million at June 30, 2013 and December 31, 2012.

Fair Value of Financial Instruments

The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to all financial instruments that are being measured and reported on a fair value basis, non-financial assets and liabilities measured and reported at fair value on a non-recurring basis, and disclosures of fair value of certain financial assets and liabilities.

The following fair value hierarchy is used in selecting inputs for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:

● Level 1 — Quoted prices in active markets for identical assets or liabilities.

● Level 2 — Inputs other than Level 1 that are observable for similar assets or liabilities either directly or indirectly.

● Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The financial instruments recorded in the Company’s consolidated balance sheets consist primarily of cash and cash equivalents, accounts payable and the Company’s debt obligations. The carrying amounts of the Company’s cash and cash equivalents and accounts payable approximate fair value due to their short-term nature. The fair market value of the Company’s convertible and non-convertible loans is based on the present value of their cash flows discounted at a rate that approximates current market returns for issues of similar risk.

The carrying amount and estimated fair values of the Company’s debt instruments are as follows:

	June 30, 2013				December 31, 2012
	Carrying Amount		Level 2 Fair Value		Carrying Amount		Level 2 Fair Value
	(In millions)
Non-convertible loans	$	4.1	$	4.0	$	4.1	$	4.0

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) – Presentation of Comprehensive Income" which amends ASC 220, “Comprehensive Income”. ASU 2011-05 gives an entity the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-05 on a retrospective basis in the year ended December 31, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred. In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Company’s consolidated financial statements.

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Note 6 - Other Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Schedule of Accrued Liabilities [Table Text Block]

	June 30, 2013		December 31, 2012
	(in thousands)
Accrued professional fees	$	342	$	304
Accrued salaries and employee benefits		300		465
Accrued financing expenses		301		301
Accrued rent		1,480		916
Other accrued liabilities		74		57
Total other accrued liabilities	$	2,497	$	2,043

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Note 11 - Share-Based Payments

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. Share-Based Payments

2005 Equity Incentive Plan

The 2005 Equity Incentive Plan (the “2005 Plan”) was adopted on September 1, 2005, approved by stockholders on September 5, 2005 and became effective on January 4, 2006. The 2005 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to EpiCept’s employees and its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, performance-based awards and cash awards to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. Options are granted and vest as determined by the Board of Directors. A total of 13,000,000 shares of EpiCept’s common stock are reserved for issuance pursuant to the 2005 Plan. No optionee may be granted an option to purchase more than 1,500,000 shares in any fiscal year. Options issued pursuant to the 2005 Plan have a maximum maturity of 10 years and generally vest over 4 years from the date of grant. The Company records stock-based compensation expense at fair value. There were no grants during the six months ended June 30, 2013.

The following table presents the total employee, board of directors and third party stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and the Employee Stock Purchase Plan included in the condensed consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in $000s)				(in $000s)
Selling, general and administrative	$	30	$	130	$	66	$	317
Research and development		11		29		22		87
Stock-based compensation expense before income taxes		41		159		88		404
Benefit for income taxes (1)		—		—		—		—
Net compensation expense	$	41	$	159	$	88	$	404

(1) The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

Summarized information for stock option grants for the six months ended June 30, 2013 is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2012		2,530,864		$	3.94		6.45	$	—
Granted		—			—
Exercised		—			—
Forfeited		(44,375	)		4.62
Expired		(208,500	)		2.78
Options outstanding at June 30, 2013		2,277,989		$	4.04		5.84	$	—
Vested or expected to vest at June 30, 2013		2,258,030		$	4.06		5.74	$	—
Options exercisable at June 30, 2013		2,078,401		$	4.30		5.74	$	—

There were no stock option exercises during each of the six months ended June 30, 2013 and 2012. There were no stock options granted during the six months ended June 30, 2013. The weighted average grant-date fair value of options granted for the six months ended June 30, 2012 was $0.35 and was estimated at the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the following table:

	Six Months Ended June 30,
	2013	2012
Expected volatility	n/a	110%
Risk free interest rate	n/a	0.89%
Dividend yield	n/a	—
Expected life (Years)	n/a	5

Following the departure of three former directors in August 2012, the Company agreed to extend the period during which they would be entitled to exercise certain vested stock options to purchase its common stock from three months following the effective date of their resignations to the expiration date of each option granted to each former director. Additionally, all options and restricted stock units that were not vested on the date of their respective resignations will continue to vest. The Company recorded compensation expense related to the modification of the exercise period and vesting period of $23,000 in 2012. 

The total remaining unrecognized compensation cost related to the non-vested stock options, restricted stock and restricted stock units amounted to $0.1 million as of June 30, 2013, which will be amortized over the weighted-average remaining requisite service period of 1.08 years.

Restricted Stock

Restricted stock was issued to a certain non-employee member of the Company’s Board of Directors during the six months ended June 30, 2012, which entitled the holder to receive approximately 0.1 million shares of the Company’s common stock upon achieving certain objectives within a one year vesting period, which was achieved and vested in 2012. This restricted stock grant is accounted for at fair value at the date of grant and an expense was recognized during the vesting term. No restricted stock was granted during the six months ended June 30, 2013.

Restricted Stock Units

Restricted stock units were issued to certain employees and non-employee members of the Company’s Board of Directors during the six months ended June 30, 2012. Typically, restricted stock units entitle the holder to receive a specified number of shares of the Company’s common stock at the end of the vesting term, ranging from one year to four years. The restricted stock unit grant is accounted for at fair value at the date of grant and an expense is recognized during the vesting term. No restricted stock units were granted during the six months ended June 30, 2013. Summarized information for restricted stock unit grants for the six months ended June 30, 2013 is as follows:

	Restricted Stock Units			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2012		405,000		$	0.16
Granted		—			—
Vested		(405,000	)		0.16
Forfeited		—			—
Nonvested at June 30, 2013		—		$	—

2009 Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (the “2009 ESPP”) was adopted by the Board of Directors on December 19, 2008, subject to stockholder approval, and was approved by the stockholders at the Company’s 2009 Annual Meeting held on June 2, 2009. The 2009 ESPP was effective on January 1, 2009 and a total of 1,000,000 shares of common stock have been reserved for sale. The 2009 ESPP is implemented by offerings of rights to all eligible employees from time to time. Unless otherwise determined by the Company’s Board of Directors, common stock is purchased for accounts of employees participating in the 2009 ESPP at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company's common stock on the first day the offering or (ii) 85% of the fair market value of a share of the Company's common stock on the last trading day of the purchase period. The initial period commenced January 1, 2009 and ended on June 30, 2009. Each subsequent offering period will have a six month duration.

The number of shares to be purchased at each balance sheet date is estimated based on the current amount of employee withholdings and the remaining purchase dates within the offering period. The fair value of share options expected to vest is estimated using the Black-Scholes option-pricing model. There were no shares issued under the 2009 ESPP during the six months ended June 30, 2013 and 2012, so no expense was recorded. A total of 78,267 shares have been issued under the 2009 ESPP as of June 30, 2013.

Warrants

The following table summarizes information about warrants outstanding at June 30, 2013:

	Options			Weighted Average Exercise Price
Warrants outstanding at December 31, 2012		25,115,796		$	1.64
Issued		—			—
Exercised		—			—
Expired		(3,396,882	)		3.07
Warrants outstanding at June 30, 2013		21,718,914		$	1.42

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Note 11 - Share-Based Payments (Details) - Restricted Stock Units (Restricted Stock Units (RSUs) [Member], USD $)	6 Months Ended
	Jun. 30, 2013
Restricted Stock Units (RSUs) [Member]
Note 11 - Share-Based Payments (Details) - Restricted Stock Units [Line Items]
Nonvested at December 31, 2012	405,000
Nonvested at December 31, 2012 (in Dollars per share)	$ 0.16
Granted	0
Granted (in Dollars per share)	$ 0
Vested	(405,000)
Vested (in Dollars per share)	$ 0.16
Forfeited	0
Forfeited (in Dollars per share)	$ 0
Nonvested at June 30, 2013	0
Nonvested at June 30, 2013 (in Dollars per share)	$ 0

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Note 6 - Other Accrued Liabilities (Details) - Other Accrued Liabilities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Other Accrued Liabilities [Abstract]
Accrued professional fees	$ 342	$ 304
Accrued salaries and employee benefits	300	465
Accrued financing expenses	301	301
Accrued rent	1,480	916
Other accrued liabilities	74	57
Total other accrued liabilities	$ 2,497	$ 2,043

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Note 1 - Organization and Description of Business (Details) (Sale of Rights - Including Inventory (Member), USD $) In Millions, unless otherwise specified	1 Months Ended
	Jun. 30, 2012
Sale of Rights - Including Inventory (Member)
Note 1 - Organization and Description of Business (Details) [Line Items]
Proceeds from Sale of Intangible Assets	$ 2.6

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Note 11 - Share-Based Payments (Tables)

6 Months Ended

Jun. 30, 2013

Note 11 - Share-Based Payments (Tables) [Line Items]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in $000s)				(in $000s)
Selling, general and administrative	$	30	$	130	$	66	$	317
Research and development		11		29		22		87
Stock-based compensation expense before income taxes		41		159		88		404
Benefit for income taxes (1)		—		—		—		—
Net compensation expense	$	41	$	159	$	88	$	404

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2012		2,530,864		$	3.94		6.45	$	—
Granted		—			—
Exercised		—			—
Forfeited		(44,375	)		4.62
Expired		(208,500	)		2.78
Options outstanding at June 30, 2013		2,277,989		$	4.04		5.84	$	—
Vested or expected to vest at June 30, 2013		2,258,030		$	4.06		5.74	$	—
Options exercisable at June 30, 2013		2,078,401		$	4.30		5.74	$	—

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Restricted Stock Units			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2012		405,000		$	0.16
Granted		—			—
Vested		(405,000	)		0.16
Forfeited		—			—
Nonvested at June 30, 2013		—		$	—

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Options			Weighted Average Exercise Price
Warrants outstanding at December 31, 2012		25,115,796		$	1.64
Issued		—			—
Exercised		—			—
Expired		(3,396,882	)		3.07
Warrants outstanding at June 30, 2013		21,718,914		$	1.42

Employee Stock Option [Member]

Note 11 - Share-Based Payments (Tables) [Line Items]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Six Months Ended June 30,
	2013	2012
Expected volatility	n/a	110%
Risk free interest rate	n/a	0.89%
Dividend yield	n/a	—
Expected life (Years)	n/a	5

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Note 11 - Share-Based Payments (Details) - Stock Option (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Note 11 - Share-Based Payments (Details) - Stock Option [Line Items]
Granted	0
Granted (in Dollars per share)	$ 0
Exercised	0
Exercised (in Dollars per share)	$ 0
Forfeited	(44,375)
Forfeited (in Dollars per share)	$ 4.62
Expired	(208,500)
Expired (in Dollars per share)	$ 2.78
Vested or expected to vest at June 30, 2013	2,258,030
Vested or expected to vest at June 30, 2013 (in Dollars per share)	$ 4.06
Vested or expected to vest at June 30, 2013	5 years 270 days
Vested or expected to vest at June 30, 2013 (in Dollars)	$ 0
Options exercisable at June 30, 2013	2,078,401
Options exercisable at June 30, 2013 (in Dollars per share)	$ 4.30
Options exercisable at June 30, 2013	5 years 270 days
Options exercisable at June 30, 2013 (in Dollars)	0
Beginning Balance (Member)
Note 11 - Share-Based Payments (Details) - Stock Option [Line Items]
Options outstanding at December 31, 2012	2,530,864
Options outstanding at December 31, 2012 (in Dollars per share)	$ 3.94
Options outstanding at December 31, 2012	6 years 164 days
Options outstanding at December 31, 2012 (in Dollars)	0
Options outstanding at June 30, 2013	6 years 164 days
Ending Balance (Member)
Note 11 - Share-Based Payments (Details) - Stock Option [Line Items]
Options outstanding at December 31, 2012	5 years 306 days
Options outstanding at June 30, 2013	2,277,989
Options outstanding at June 30, 2013 (in Dollars per share)	$ 4.04
Options outstanding at June 30, 2013	5 years 306 days
Options outstanding at June 30, 2013 (in Dollars)	$ 0

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Note 3 - Significant Accounting Policies (Details) - Debt Instruments (Non-Convertible Loans [Member], USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Note 3 - Significant Accounting Policies (Details) - Debt Instruments [Line Items]
Non-convertible loans	$ 4.1	$ 4.1
Fair Value, Inputs, Level 2 [Member]
Note 3 - Significant Accounting Policies (Details) - Debt Instruments [Line Items]
Non-convertible loans	$ 4.0	$ 4.0

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Note 8 - Notes, Loans and Financing (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended					6 Months Ended		12 Months Ended
	Aug. 31, 2012	Jun. 30, 2012	Apr. 30, 2012	Feb. 28, 2012	May 31, 2011	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Sep. 24, 2012	Dec. 31, 2011
Note 8 - Notes, Loans and Financing (Details) [Line Items]
Debtor-in-Possession Financing, Unused Borrowings										$ 2.0
Debt Instrument, Interest Rate, Stated Percentage					11.50%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)					1,100,000				8,132,353
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)					0.63				0.10
Proceeds from Issuance of Debt					8.6
Convertible Debt, Fair Value Disclosures					0.5
Debt Instrument, Convertible, Terms of Conversion Feature					$0.5
Fair Value Assumptions, Expected Dividend Rate			0.00%	0.00%	0.00%			0.00%
Fair Value Assumptions, Risk Free Interest Rate			1.01%	0.82%	1.71%			0.01%
Fair Value Assumptions, Expected Volatility Rate			110.00%	110.00%	110.00%			110.00%
Fair Value Assumptions, Expected Term			5 years	5 years	5 years			3 months
Interest Expense, Debt						0.1	0.2
Debt Instrument, Periodic Payment, Principal	1.2	0.8
Loans Payable								4.1
Line Of Credit Facility, Reserve Balance								1.1
Proceeds from Lines of Credit								0.1
Restricted Cash and Cash Equivalents						0.6
Senior Secured Term Loan [Member]
Note 8 - Notes, Loans and Financing (Details) [Line Items]
Debt Instrument, Face Amount					8.6
Issuance Costs - Initial Fee (Member)
Note 8 - Notes, Loans and Financing (Details) [Line Items]
Debt Instrument, Fee Amount					0.1
Fee at Maturity Date (Member)
Note 8 - Notes, Loans and Financing (Details) [Line Items]
Debt Instrument, Fee Amount					$ 0.3

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Note 11 - Share-Based Payments (Details) - Warrants Outstanding (USD $)	Sep. 24, 2012	May 31, 2011	Jun. 30, 2013 Issued (Member)	Jun. 30, 2013 Exercised (Member)	Jun. 30, 2013 Expired (Member)	Dec. 31, 2012 Beginning Balance (Member)	Jun. 30, 2013 Ending Balance (Member)
Class of Warrant or Right [Line Items]
Warrants outstanding at December 31, 2012						25,115,796	21,718,914
Warrants outstanding at December 31, 2012 (in Dollars per Item)	0.10	0.63				1.64	1.42
Issued			0
Issued (in Dollars per share)			$ 0
Exercised				0
Exercised (in Dollars per share)				$ 0
Expired					(3,396,882)
Expired (in Dollars per share)					$ 3.07
Warrants outstanding at June 30, 2013						25,115,796	21,718,914
Warrants outstanding at June 30, 2013 (in Dollars per Item)	0.10	0.63				1.64	1.42

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Note 3 - Significant Accounting Policies (Details) - Earnings Per Share, Basic and Diluted (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
EPS Numerator – Basic:
Net income (loss) (in Dollars)	$ (1,684)	$ 2,209	$ (2,784)	$ (2,495)
EPS Numerator – Diluted:
Net income (loss) (in Dollars)	$ (1,684)	$ 2,959	$ (2,784)	$ (2,495)
EPS Denominator:
Weighted-average common shares outstanding––Basic	113,639,424	83,772,960	110,158,277	80,414,692
Common stock equivalents: convertible preferred stock, restricted stock units and warrants		7,818,933
Weighted-average common shares outstanding––Diluted	113,639,424	91,591,893	110,158,277	80,414,692

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Note 10 - Common Stock and Common Stock Warrants (Details) (USD $)	1 Months Ended			6 Months Ended		12 Months Ended		6 Months Ended			12 Months Ended
	Apr. 30, 2012	Feb. 28, 2012	May 31, 2011	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Sep. 24, 2012	Jun. 30, 2013 February 2011 Stock Issuance 1 [Member]	Sep. 24, 2012 February 2012 Issuance (Member)	Sep. 24, 2012 April 2012 Issuance (Member)	Dec. 31, 2012 Warrants Issued in February and April (Member)	Dec. 31, 2012 Series B Convertible Preferred Stock (Member)	Jan. 09, 2012 Series B Convertible Preferred Stock (Member)	Jan. 09, 2012 Original Exercise Price (Member)	Jan. 09, 2012 Reduced Exercise Price (Member)
Note 10 - Common Stock and Common Stock Warrants (Details) [Line Items]
Proceeds from Issuance or Sale of Equity (in Dollars)								$ 500,000
Sale of Stock, Number of Shares Issued in Transaction (in Shares)				3,800,000
Sale of Stock, Price Per Share (in Dollars per share)				$ 0.13
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)			1,100,000				8,132,353						6,100,000
Class of Warrant or Right, Exercise Price of Warrants or Rights			0.63				0.10		0.20	0.17				1.64	0.20
Proceeds from Warrant Exercises (in Dollars)					728,000						800,000	700,000
Share-based Compensation Arrangement by Share-based Payment Award, Plan Modification, Incremental Compensation Cost (in Dollars)						$ 900,000
Fair Value Assumptions, Expected Volatility Rate	110.00%	110.00%	110.00%			110.00%
Fair Value Assumptions, Risk Free Interest Rate	1.01%	0.82%	1.71%			0.01%
Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%			0.00%
Fair Value Assumptions, Expected Term	5 years	5 years	5 years			3 months
Conversion of Stock, Shares Converted (in Shares)												3,900,000

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Note 8 - Notes, Loans and Financing (Tables)

6 Months Ended

Jun. 30, 2013

Debt Disclosure [Text Block]

Schedule of Debt [Table Text Block]

	June 30, 2013			December 31, 2012
	(in thousands)
May 2011 senior secured term loan due May 27, 2014 (1)	$	4,071		$	4,071
Total notes and loans payable, before debt discount		4,071			4,071
Less: Debt discount		(31	)		(96	)
Total notes and loans payable	$	4,040		$	3,975
Notes and loans payable, current portion	$	4,040		$	3,975
Notes and loans payable, long-term		—			—

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Condensed Consolidated Statement of Stockholders’ Deficit (Unaudited) (USD $) In Thousands, except Share data	Series A Preferred Stock [Member]	Series A Preferred Stock [Member]	Series B Preferred Stock [Member]	Series B Preferred Stock [Member]	Common Stock [Member] Series A Preferred Stock [Member] USD ($)	Common Stock [Member] Series B Preferred Stock [Member] USD ($)	Common Stock [Member] USD ($)	Additional Paid-in Capital [Member] Series A Preferred Stock [Member] USD ($)	Additional Paid-in Capital [Member] Series B Preferred Stock [Member] USD ($)	Additional Paid-in Capital [Member] USD ($)	Warrant [Member] USD ($)	Retained Earnings [Member] USD ($)	Accumulated Other Comprehensive Income (Loss) [Member] USD ($)	Treasury Stock [Member] USD ($)	Total USD ($)
Balance at Dec. 31, 2012							$ 9			$ 236,886	$ 19,152	$ (268,811)	$ (1,130)	$ (75)	$ (13,969)
Balance (in Shares) at Dec. 31, 2012		236		1,065			93,649,543
Net loss												(2,784)			(2,784)
Foreign currency translation adjustment													(16)		(16)
Issuance of common stock, net of issuance costs										500					500
Issuance of common stock, net of issuance costs (in Shares)							3,846,154
Conversion of Preferred Stock					1	1		(1)	(1)
Conversion of Preferred Stock (in Shares)	(236)		(1,065)		2,950,000	13,312,500
Issuance of common stock to directors (in Shares)							405,000
Expiration of warrants										4,741	(4,741)
Amortization of deferred stock compensation										88					88
Balance at Jun. 30, 2013							$ 11			$ 242,213	$ 14,411	$ (271,595)	$ (1,146)	$ (75)	$ (16,181)
Balance (in Shares) at Jun. 30, 2013							114,163,197

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Note 1 - Organization and Description of Business

6 Months Ended

Jun. 30, 2013

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Organization and Description of Business

EpiCept is a specialty pharmaceutical company focused on the development and commercialization of pharmaceutical products for the treatment of pain and cancer. The Company’s strategy is to focus on topically delivered analgesics targeting peripheral nerve receptors and on innovative cancer therapies. In November 2012, the Company entered into a definitive merger agreement with Immune Pharmaceuticals Ltd. (“Immune”), and recently filed a definitive proxy statement that contains details on Immune and the merger. The definitive proxy was mailed to shareholders on or about June 20, 2013. The transaction is anticipated to close in August 2013 and is subject to satisfaction of certain customary closing conditions, including the approval of a reverse split of EpiCept’ s common stock by a majority of EpiCept shareholders.

The combined entity, to be named Immune Pharmaceuticals, Inc., will be primarily focused on developing antibody therapeutics and other targeted drugs for the treatment of inflammatory diseases and cancer. Immune’s lead product candidate, bertilimumab, is a fully human monoclonal antibody that targets eotaxin-1, a chemokine involved in eosinophilic inflammation, angiogenesis and neurogenesis. Immune is currently initiating a placebo-controlled, double-blind Phase II clinical trial with bertilimumab for the treatment of ulcerative colitis. The following results of operations and discussion of business are of EpiCept only and do not represent the prospective combined entity.

The Company’s lead compound is AmiKet™, a topical cream consisting of a patented combination of amitriptyline and ketamine that is in late stage development for the treatment of peripheral neuropathies. In December 2011, the Company met with the Food and Drug Administration (“FDA”) and was granted permission by the FDA to begin Phase III clinical development. Fast Track designation was granted in April 2012. In June 2012, EpiCept announced that it had received formal scientific advice from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for AmiKet’s clinical and nonclinical development and subsequent Marketing Authorization Approval (MAA).

The Company’s oncology compounds include crolibulin^TM and Azixa®. Crolibulin^TM is a novel small molecule vascular disruption agent (“VDA”) and apoptosis inducer for the treatment of patients with solid tumors that is currently in a Phase Ib/II clinical trial sponsored by the National Cancer Institute (“NCI”) to assess the drug’s efficacy and safety in combination with cisplatin in patients with anaplastic thyroid cancer (“ATC”). Azixa®, an apoptosis inducer with VDA activity previously licensed by the Company to Myrexis, Inc. (“Myrexis”), as part of an exclusive, worldwide development and commercialization agreement, is currently in Phase II development for the treatment of brain cancer. In August 2012, Myrexis elected to terminate the license agreement resulting in the reversion of all rights and licenses granted under the license agreement back to the Company. In January 2013, the Company negotiated with Myrexis to license the Myriad patents and know-how as set forth in the License Agreement. Under the agreement, the Company will be responsible for paying milestone payments and royalties to Myrexis if the Company decides to further develop Azixa® itself, or to share in milestones and royalties the Company receives from a partner in the event it out-licenses the drug candidate to a third party who successfully completes product development and obtains marketing approval. The Company has no plans to pursue further development of Azixa® on its own.

Ceplene^®, when used concomitantly with low-dose interleukin-2, or IL-2, is intended as remission maintenance therapy in the treatment of acute myeloid leukemia, or AML, for adult patients who are in their first complete remission. The Company sold all of its rights to Ceplene^® in Europe and certain Pacific Rim countries and a portion of its remaining Ceplene® inventory to Meda AB for approximately $2.6 million in June 2012. Ceplene^® is licensed to MegaPharm Ltd. to market and sell in Israel, where it is currently available on a named-patient basis. The Company has retained its rights to Ceplene^® in all other countries, including countries in North and South America, but at the current time has no plans to continue clinical development.

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Note 4 - License Agreements

6 Months Ended

Jun. 30, 2013

License Agreements [Text Block]

License Agreements [Text Block]

4. License Agreements

Meda AB

The Company entered into an exclusive commercialization agreement for Ceplene^® with Meda AB (“Meda”), a leading international specialty pharmaceutical company based in Stockholm, Sweden in January 2010. Under the terms of the agreement, the Company granted Meda the right to market Ceplene^® in Europe and several other countries including Japan, China, and Australia. The Company received a $3.0 million fee on signing and an additional $2.0 million milestone payment in May 2010 upon the first commercial sale of Ceplene^® in a major European market, both of which were deferred and recognized as revenue ratably over the life of the commercialization agreement with Meda. This agreement was terminated by mutual agreement in June 2012.

The Company sold all of its rights to Ceplene^® in the territories previously licensed to Meda for $2.0 million in June 2012. In addition, Meda purchased a portion of the Company’s remaining Ceplene^® inventory for approximately $0.6 million and Meda has assumed all of EpiCept's ongoing responsibilities related to the manufacture and maintenance of the marketing authorization of Ceplene® in the European Union. The Company recognized the $2.0 million payment received from Meda as revenue in June 2012. The Company recognized $0.5 million of product revenue and $0.1 million of expense reimbursement from the sale of existing Ceplene^® inventory in June 2012, since approximately $0.1 million of the amount purchased by Meda related to the Company’s purchase of Proleukin^® that was previously recorded as clinical trial expense. The Company has retained its rights to Ceplene^® in all other countries, including countries in North and South America, but at the current time have no plans to continue development.

The Company recognized the remaining $3.8 million in deferred revenue from Meda relating to the original commercialization agreement for each of the three and six months ended June 30, 2012. The Company recognized total revenue from the original commercialization agreement of approximately zero and $3.9 million for the three months ended June 30, 2013 and 2012, respectively, and approximately $0.3 million and $4.1 million for each of the six months ended June 30, 2013 and 2012, respectively. The Company recognized revenue relating to commercial sales of Ceplene^® of approximately zero and $0.6 million for the three months ended June 30, 2013 and 2012, respectively, and approximately $0.3 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively.

Dalhousie University

The Company entered into a direct license with Dalhousie University in July 2007, under which the Company was granted an exclusive license to certain patents for the topical use of tricyclic anti-depressants and NMDA antagonists as topical analgesics for neuralgia. These, and other patents, cover the combination treatment consisting of amitriptyline and ketamine in AmiKet^TM. This technology has been incorporated into AmiKet^TM.

The Company has been granted worldwide rights to make, use, develop, sell and market products utilizing the licensed technology in connection with passive dermal applications. The Company is obligated to make payments to Dalhousie upon achievement of specified milestones and to pay royalties based on annual net sales derived from the products incorporating the licensed technology. The Company is obligated to pay Dalhousie an annual maintenance fee until the license agreement expires or is terminated, or an NDA for AmiKet^TM is filed with the FDA, or Dalhousie will have the option to terminate the contract. The license agreement with Dalhousie terminates upon the expiration of the last to expire licensed patent. The Company incurred a maintenance fee of $0.5 million with Dalhousie in 2012, of which $0.3 million is still currently payable ($0.1 million was paid to Dalhousie in 2012 and another $0.1 million was paid in July 2013). These payments were expensed to research and development in their respective years.

Myrexis, Inc.

In connection with its merger with Maxim Pharmaceuticals on January 4, 2006, EpiCept acquired a license agreement with Myrexis Inc. (“Myrexis”) under which the Company licensed the MX90745 series of caspase-inducer anti-cancer compounds to Myrexis. The Company received a milestone payment of $1.0 million in March 2008, following dosing of the first patient in a Phase II registration sized clinical trial, which was deferred and was being recognized as revenue ratably over the life of the last to expire patent that expires in July 2024.

In August 2012, Myrexis elected to terminate its efforts to develop and commercialize any product under the license agreement. As a result of the termination of the license agreement, all rights and licenses granted under the license agreement by the Company to Myrexis have reverted to the Company. In January 2013, the Company negotiated with Myrexis to license the Myriad patents and know-how as set forth in the License Agreement. Under the agreement, the Company will be responsible for paying milestone payments and royalties to Myrexis if the Company decides to further develop Azixa®. The Company is not planning to develop Azixa® at this time. The Company therefore recognized the remaining $0.7 million in deferred revenue from Myrexis relating to the license agreement in 2012 since the Company has no future performance obligations under the agreement. The Company recorded revenue from Myrexis of approximately zero and $15,000 for the three months ended June 30, 2013 and 2012, respectively. The Company recorded revenue from Myrexis of approximately zero and $31,000 for the six months ended June 30, 2013 and 2012, respectively.

DURECT Corporation (DURECT)

The Company entered into a license agreement with DURECT Corporation (“DURECT”) in December 2006, pursuant to which it granted DURECT the exclusive worldwide rights to certain of its intellectual property for a transdermal patch containing bupivacaine for the treatment of back pain. Under the terms of the agreement, EpiCept received a $1.0 million payment which has been deferred and is being recognized as revenue ratably over the life of the last to expire patent that expires in March 2020. The Company amended its license agreement with DURECT in September 2008. Under the terms of the amended agreement, the Company granted DURECT royalty-free, fully paid up, perpetual and irrevocable rights to the intellectual property licensed as part of the original agreement in exchange for a cash payment of $2.25 million from DURECT, which has also been deferred and is being recognized as revenue ratably over the last patent life. The Company recorded revenue from DURECT of approximately $68,000 for each of the three months ended June 30, 2013 and June 30, 2012, and approximately $136,000 for each of the six months ended June 30, 2013 and June 30, 2012.

Endo Pharmaceuticals Inc. (Endo)

In December 2003, the Company entered into a license agreement with Endo Pharmaceuticals Inc. (“Endo”) under which it granted Endo (and its affiliates) the exclusive (including as to the Company and its affiliates) worldwide right to commercialize LidoPAIN BP. The Company also granted Endo worldwide rights to use certain of its patents for the development of certain other non-sterile, topical lidocaine containing patches, including Lidoderm^®, Endo’s topical lidocaine-containing patch for the treatment of chronic lower back pain. Upon the execution of the Endo agreement, the Company received a non-refundable payment of $7.5 million, which has been deferred and is being recognized as revenue on the proportional performance method. The Company is eligible to receive payments of up to $52.5 million upon the achievement of various milestones relating to product development and regulatory approval for both the Company’s LidoPAIN BP product and licensed Endo products, including Lidoderm^®, so long as, in the case of Endo’s product candidate, the Company’s patents provide protection thereof. The Company is also entitled to receive royalties from Endo based on the net sales of LidoPAIN BP. These royalties are payable until generic equivalents to the LidoPAIN BP product are available or until expiration of the patents covering LidoPAIN BP, whichever is sooner. The Company is also eligible to receive milestone payments from Endo of up to approximately $30.0 million upon the achievement of specified net sales milestones for licensed Endo products, including Lidoderm^®, so long as the Company’s patents provide protection thereof. The future amount of milestone payments the Company is eligible to receive under the Endo agreement is $82.5 million. The Company recorded revenue from Endo of approximately $3,000 and $10,000 for the three months ended June 30, 2013 and 2012, respectively and $6,000 and $20,000 for each of the six months ended June 30, 2013 and 2012, respectively.

Under the terms of the license agreement, the Company is responsible for continuing and completing the development of LidoPAIN BP, including the conduct of all clinical trials and the supply of the clinical products necessary for those trials and the preparation and submission of the NDA in order to obtain regulatory approval for LidoPAIN BP. Endo remains responsible for continuing and completing the development of Lidoderm^® for the treatment of chronic lower back pain, including the conduct of all clinical trials and the supply of the clinical products necessary for those trials. No progress in the development of LidoPAIN BP or Lidoderm with respect to back pain has been reported. Accordingly, the Company does not expect to receive any further cash compensation pursuant to this license agreement.

Shire BioChem

The Company entered into a license agreement reacquiring the rights to the MX2105 series of apoptosis inducer anti-cancer compounds from Shire Biochem, Inc (formerly known as BioChem Pharma, Inc.) in March 2004 and as amended in January 2005, which had previously announced that oncology would no longer be a therapeutic focus of the company’s research and development efforts. Under the agreement, all rights and obligations of the parties under the July 2000 agreement were terminated and Shire BioChem agreed to assign and/or license to the Company rights it owned under or shared under the prior research program. The agreement did not require any up-front payments, however, the Company is required to provide Shire Biochem a portion of any sublicensing payments the Company receives if the Company relicenses the series of compounds or make milestone payments to Shire BioChem totaling up to $26.0 million, assuming the successful commercialization of the compounds by the Company for the treatment of a cancer indication, as well as pay a royalty on product sales. A license fee of $0.5 million that became payable to Shire BioChem as a result of the commencement of a Phase I clinical trial for crolibulin^TM in December 2006, and approximately $0.2 million in accrued interest, was reversed to research and development expense in 2012 as the Company believed that this amount is no longer due.

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Note 2 - Basis of Presentation

6 Months Ended

Jun. 30, 2013

Disclosure Text Block [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

2. Basis of Presentation

The Company has prepared its condensed consolidated financial statements under the assumption that it is a going concern. The Company has devoted substantially all of its cash resources to research and development programs and general and administrative expenses, and to date it has not generated any significant revenues from the sale of products. Since inception, the Company has incurred significant net losses each year. As a result, the Company has an accumulated deficit of $271.6 million as of June 30, 2013. The Company’s recurring losses from operations and the accumulated deficit raise substantial doubt about its ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s losses have resulted principally from costs incurred in connection with its development activities and from general and administrative expenses. Even if the Company succeeds in developing and commercializing one or more of its product candidates, the Company may never become profitable. Furthermore, there can be no guarantees that the proposed merger with Immune will close, or that even if it does close, that the Company will become profitable.

The Company had cash at June 30, 2013 of $0.2 million, plus the restricted cash held with its senior secured lender of $0.6 million. In addition, EpiCept received net cash of $0.4 million from Immune in July 2013 by entering into a loan pursuant to the merger agreement with Immune.  The merger is expected to close in August 2013, before the need arises for additional funds.

The condensed consolidated balance sheet as of June 30, 2013, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012, the condensed consolidated statement of stockholders’ deficit for the six months ended June 30, 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2013 and 2012 and related disclosures contained in the accompanying notes are unaudited. The condensed consolidated balance sheet as of December 31, 2012 is derived from the audited consolidated financial statements included in the annual report filed on Form 10-K with the U.S. Securities and Exchange Commission (the “SEC”). The condensed consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States of America for interim financial information and in accordance with the instructions of the SEC on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the condensed consolidated balance sheet as of June 30, 2013 and the results of operations and cash flows for the periods ended June 30, 2013 and 2012 have been made. The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013 or for any other period. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC.

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Note 8 - Notes, Loans and Financing (Details) - Loan Agreements (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Loan Agreements [Abstract]
May 2011 senior secured term loan due May 27, 2014 (1)	$ 4,071	[1]	$ 4,071	[1]
Total notes and loans payable, before debt discount	4,071		4,071
Less: Debt discount	(31)		(96)
Total notes and loans payable	4,040		3,975
Notes and loans payable, current portion	4,040		3,975
Notes and loans payable, long-term	$ 0		$ 0

[1] The Company entered into a senior secured term loan in the amount of $8.6 million with Midcap in May 2011. The Company had the option to borrow an additional $2.0 million from Midcap on or before December 31, 2011 upon meeting certain conditions, including the commencement of a Phase III clinical trial, which it did not exercise. The interest rate on the loan is 11.5% per year. The Company incurred approximately $0.1 million in issuance costs in connection with the loan and is required to pay a $0.3 million fee on the maturity date of the loan. In addition, the Company issued five year common stock purchase warrants to Midcap granting them the right to purchase 1.1 million shares of the Company's common stock at an exercise price of $0.63 per share. The basic terms of the loan require monthly payments of interest only through November 1, 2011, with 30 monthly payments of principal and interest that commenced on December 1, 2011. Any outstanding balance of the loan and accrued interest is to be repaid on May 27, 2014. In connection with the terms of the loan agreement, the Company granted Midcap a security interest in substantially all of the Company's personal property including its intellectual property.

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Note 2 - Basis of Presentation (Details) (USD $)			1 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jul. 31, 2013 Immune [Member]
Note 2 - Basis of Presentation (Details) [Line Items]
Retained Earnings (Accumulated Deficit)	$ (271,595,000)	$ (268,811,000)
Cash	200,000
Restricted Cash and Cash Equivalents (in Dollars)	600,000
Proceeds from Loans			$ 400,000

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Note 3 - Significant Accounting Policies (Details) - Interest Expense (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Note 3 - Significant Accounting Policies (Details) - Interest Expense [Line Items]
Interest expense	$ (175)	$ (380)	$ (363)	$ (743)
Interest Expense, Other [Member]
Note 3 - Significant Accounting Policies (Details) - Interest Expense [Line Items]
Interest expense	(125)	(208)	(247)	(447)
Amortization of Debt Issuance Costs and Discount [Member]
Note 3 - Significant Accounting Policies (Details) - Interest Expense [Line Items]
Interest expense	(50)	(172)	(116)	(296)
Interest and Amortization Expense (Member)
Note 3 - Significant Accounting Policies (Details) - Interest Expense [Line Items]
Interest expense	$ (175)	$ (380)	$ (363)	$ (743)

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Note 5 - Property and Equipment (Details) - Property and equipment (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Property and equipment [Abstract]
Furniture, office and laboratory equipment	$ 582	$ 582
Leasehold improvements	760	760
	1,342	1,342
Less accumulated depreciation	(1,306)	(1,286)
	$ 36	$ 56

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Note 12 - Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Estimated Total Future Milestone Payment (Member)
Note 12 - Commitments and Contingencies (Details) [Line Items]
Effect on Future Cash Flows, Amount	$ 1.7
Estimated Amount Payable during 2013 (Member)
Note 12 - Commitments and Contingencies (Details) [Line Items]
Effect on Future Cash Flows, Amount	0.5
Estimated Payable from 2014 - 2016 (Member)
Note 12 - Commitments and Contingencies (Details) [Line Items]
Effect on Future Cash Flows, Amount	$ 1.2

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Note 11 - Share-Based Payments (Details) - Stock-Based Compensation Expense (USD $)	3 Months Ended				6 Months Ended				12 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012		Dec. 31, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation Expense									$ 23,000
Benefit for income taxes (1)		[1]		[1]		[1]		[1]
Net compensation expense	41,000		159,000		88,000		404,000
General and Administrative Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation Expense	30,000		130,000		66,000		317,000
Other Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation Expense	11,000		29,000		22,000		87,000
Stock-based Compensation Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation Expense	$ 41,000		$ 159,000		$ 88,000		$ 404,000

[1] The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Preferred stock, shares authorized (in Shares)	5,000,000
Common stock, par value (in Dollars per share) (in Dollars per share)	$ 0.0001	$ 0.0001
Common stock, authorized shares (in Shares)	225,000,000	225,000,000
Common stock, issued shares (in Shares)	114,159,030	93,645,376
Treasury stock, shares (in Shares)	4,167	4,167
Convertible Preferred Stock [Member]
Par Value (in Dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in Shares)	5,000,000	5,000,000
Series A Preferred Stock [Member]
Preferred stock, shares authorized (in Shares)	2,000	2,000
Preferred Stock, Shares Issued (in Shares)	2,000	2,000
Preferred Stock, Shares Outstanding (in Shares)	0	576
Series B Preferred Stock [Member]
Preferred stock, shares authorized (in Shares)	1,065	1,065
Preferred Stock, Shares Issued (in Shares)	1,065	1,065
Preferred Stock, Shares Outstanding (in Shares)	0	1,065

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Note 7 - Related Party Loan

6 Months Ended

Jun. 30, 2013

Related Party Transactions Disclosure [Text Block]

Related Party Transactions Disclosure [Text Block]

7. Related Party Loan

The Company is party to a related party loan pursuant to the merger agreement with Immune. The Company has borrowed approximately $0.6 million from Immune at June 30, 2013. The loan bears interest at a rate of 3.27%, which equates to an immaterial amount at June 30, 2013. The loan is expected to be eliminated in consolidation upon the close of the merger with Immune in August 2013.

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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other comprehensive income (loss), income tax expense (in Dollars)	$ 0	$ 0	$ 0	$ 0

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Condensed Consolidated Balance Sheets (Unaudited) (USD $)	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 200,000	$ 172,000
Restricted cash	601,000	909,000
Prepaid expenses and other current assets	99,000	116,000
Total current assets	900,000	1,197,000
Property and equipment, net	36,000	56,000
Deferred financing costs	24,000	75,000
Total assets	960,000	1,328,000
Accounts payable	2,304,000	1,349,000
Accrued research contract costs	0	120,000
Other accrued liabilities	2,497,000	2,043,000
Related party loan	638,000	0
Notes and loans payable, net of discount	4,040,000	3,975,000
Deferred revenue	294,000	314,000
Total current liabilities	9,773,000	7,801,000
Deferred revenue, net of current portion	7,368,000	7,496,000
Total liabilities	17,141,000	15,297,000
Commitments and contingencies
Convertible preferred stock
Common stock, $.0001 par value; authorized 225,000,000 shares; issued 114,159,030 shares and 93,645,376 shares at June 30, 2013 and December 31, 2012, respectively	11,000	9,000
Additional paid-in capital	242,213,000	236,886,000
Warrants	14,411,000	19,152,000
Accumulated deficit	(271,595,000)	(268,811,000)
Accumulated other comprehensive loss	(1,146,000)	(1,130,000)
Treasury stock, at cost (4,167 shares)	(75,000)	(75,000)
Total stockholders’ deficit	(16,181,000)	(13,969,000)
Total liabilities and stockholders’ deficit	960,000	1,328,000
Series B Preferred Stock [Member]
ASSETS
Convertible preferred stock	$ 0	$ 0

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Note 13 - Subsequent Events (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	1 Months Ended
	Jun. 30, 2013	Jul. 31, 2013 Subsequent Event [Member]
Note 13 - Subsequent Events (Details) [Line Items]
Proceeds from Issuance of Common Stock	$ 500	$ 400

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Note 3 - Significant Accounting Policies (Details) (USD $)	6 Months Ended		9 Months Ended			6 Months Ended		12 Months Ended		12 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Released from Restricted Cash (Member)	Jun. 30, 2012 Series A Convertible Preferred Stock [Member]	Jun. 30, 2012 Series B Convertible Preferred Stock (Member)	Dec. 31, 2012 Deemed Dividend (Member)	Jun. 30, 2013 Lease Payable [Member]	Dec. 31, 2012 Unpaid Rent (Member)	Jun. 30, 2013 Minimum [Member]	Jun. 30, 2013 Maximum [Member]	Jun. 30, 2013 Midcap [Member]
Note 3 - Significant Accounting Policies (Details) [Line Items]
Equity Method Investment, Ownership Percentage	100.00%
Letters of Credit Outstanding, Amount (in Dollars)				$ 100,000
Convertible Subordinated Debt, Noncurrent (in Dollars)					100,000
Operating Leases, Rent Expense (in Dollars)										100,000
Restricted Cash and Cash Equivalents (in Dollars)	600,000												600,000
Property, Plant and Equipment, Useful Life											5 years	7 years
Deferred Finance Costs, Noncurrent, Net (in Dollars)	24,000			75,000
Amortization of Deferred Charges (in Dollars)	0.1	6,000,000
Preferred Stock, Dividend Rate, Percentage	0.00%					0.00%	0.00%
Debt Instrument, Convertible, Beneficial Conversion Feature (in Dollars)		(1,925,000)	1,600,000					1,900,000
Other Liabilities, Noncurrent (in Dollars)	800,000
Deferred Rent (in Dollars)	0			300,000
Other Accrued Liabilities, Current (in Dollars)	2,497,000			2,043,000					1,500,000
Accumulated Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Net of Tax (in Dollars)	$ (1,100,000)

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Note 5 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment Disclosure [Text Block]

Property, Plant and Equipment [Table Text Block]

	June 30,			December 31,
	2013			2012
	(in thousands)
Furniture, office and laboratory equipment	$	582		$	582
Leasehold improvements		760			760
		1,342			1,342
Less accumulated depreciation		(1,306	)		(1,286	)
	$	36		$	56

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Note 11 - Share-Based Payments (Details) (USD $)	1 Months Ended	6 Months Ended	12 Months Ended		12 Months Ended		1 Months Ended		6 Months Ended			6 Months Ended	12 Months Ended
	Sep. 30, 2005	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013	Dec. 31, 2009 Scenario i (Member)	Dec. 31, 2009 Scenario ii (Member)	Sep. 30, 2005 Employee Stock Option [Member]	Sep. 30, 2005 Maximum Maturity (Member)	Jun. 30, 2012 Restricted Stock 2 (Member)	Sep. 30, 2005 2005 Equity Incentive Plan [Member]	Dec. 31, 2009 2009 Employee Stock Purchase Plan [Member]	Jun. 30, 2013 Weighted-average remaining service period (Member)	Dec. 31, 2012 Minimum [Member]
Note 11 - Share-Based Payments (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized										13,000,000	1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Number of Shares Per Employee	1,500,000
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Term								10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year					4 years						1 year
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)		$ 0.35
Allocated Share-based Compensation Expense (in Dollars)			$ 23,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)				$ 100,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition												1 year 29 days
Stock Issued During Period, Shares, Restricted Stock Award, Gross									100,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent					85.00%	85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				78,267

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Note 7 - Related Party Loan (Details) (USD $) In Millions, unless otherwise specified		0 Months Ended
	May 31, 2011	Jun. 30, 2013 Immune [Member]
Note 7 - Related Party Loan (Details) [Line Items]
Related Party Transaction, Amounts of Transaction (in Dollars)		$ 0.6
Debt Instrument, Interest Rate, Stated Percentage	11.50%	3.27%

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Note 4 - License Agreements (Details) (USD $)	3 Months Ended		6 Months Ended		3 Months Ended				6 Months Ended		12 Months Ended				1 Months Ended				6 Months Ended			12 Months Ended	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended	1 Months Ended		3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended	1 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Revenue Relating to Signing Fee and Milestone Payment [Member] Meda AB [Member]	Jun. 30, 2012 Revenue Relating to Signing Fee and Milestone Payment [Member] Meda AB [Member]	Jun. 30, 2013 Revenue Relating to Commercial Sales [Member] Meda AB [Member]	Jun. 30, 2012 Revenue Relating to Commercial Sales [Member] Meda AB [Member]	Jun. 30, 2013 Revenue Relating to Commercial Sales [Member] Meda AB [Member]	Jun. 30, 2012 Revenue Relating to Commercial Sales [Member] Meda AB [Member]	Dec. 31, 2012 Portion Payable in 2012 [Member] Current Payable [Member] Epitome/Dalhousie (Member)	Dec. 31, 2012 Upon Achievement of Product Development and Regulatory Approval Milestones [Member] Endo Pharmaceuticals Inc. [Member]	Dec. 31, 2012 Upon Attainment of Sales-based Milestones [Member] Endo Pharmaceuticals Inc. [Member]	Dec. 31, 2012 Epitome/Dalhousie (Member) Current Payable [Member]	Jun. 30, 2012 Reimbursement Revenue (Member) Meda AB [Member]	Jun. 30, 2012 Reimbursement Revenue - Clinical Trials (Member) Meda AB [Member]	Jul. 31, 2013 Current Payable [Member] Epitome/Dalhousie (Member)	Jun. 30, 2012 Meda AB [Member]	Jun. 30, 2013 Meda AB [Member]	Jun. 30, 2012 Meda AB [Member]	May 31, 2010 Meda AB [Member]	Dec. 31, 2012 Epitome/Dalhousie (Member)	Mar. 31, 2008 Myrexis, Inc [Member]	Jun. 30, 2013 Myrexis, Inc [Member]	Jun. 30, 2012 Myrexis, Inc [Member]	Jun. 30, 2013 Myrexis, Inc [Member]	Jun. 30, 2012 Myrexis, Inc [Member]	Dec. 31, 2012 Myrexis, Inc [Member]	Sep. 30, 2008 DURECT [Member]	Dec. 31, 2006 DURECT [Member]	Jun. 30, 2013 DURECT [Member]	Jun. 30, 2012 DURECT [Member]	Jun. 30, 2013 DURECT [Member]	Jun. 30, 2012 DURECT [Member]	Dec. 31, 2003 Endo Pharmaceuticals Inc. [Member]	Jun. 30, 2013 Endo Pharmaceuticals Inc. [Member]	Jun. 30, 2012 Endo Pharmaceuticals Inc. [Member]	Jun. 30, 2013 Endo Pharmaceuticals Inc. [Member]	Jun. 30, 2012 Endo Pharmaceuticals Inc. [Member]	Dec. 31, 2012 Endo Pharmaceuticals Inc. [Member]	Dec. 31, 2006 Shire BioChem (Member)	Jun. 30, 2013 Shire BioChem (Member)	Dec. 31, 2012 Shire BioChem (Member)
Note 4 - License Agreements (Details) [Line Items]
Cash Received for Signing Fee from Agreement																					$ 3,000,000
Cash Received for Milestone Payment																					2,000,000
Proceeds from Sale of Intangible Assets																		2,000,000
Cost of Goods Sold	0	396,000	143,000	396,000														600,000
Licenses Revenue					0	3,900,000	0	600,000	300,000	600,000								2,000,000	300,000	4,100,000				0	15,000	0	31,000				68,000	68,000	136,000	136,000		3,000	10,000	6,000	20,000
Sales Revenue, Goods, Net	0	577,000	283,000	583,000														500,000
Reimbursement Revenue															100,000	100,000
Deferred Revenue, Revenue Recognized		3.8																		3,800,000
License Costs											100,000			300,000			100,000					500,000																			500,000
Proceeds from License Fees Received																							1,000,000						2,250,000	1,000,000					7,500,000
Total Revenue Under License Agreement																												700,000
Effect on Future Cash Flows, Amount												52,500,000	30,000,000																											82,500,000		26,000,000
Debt Instrument, Increase, Accrued Interest																																											$ 200,000

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Note 5 - Property and Equipment (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Property, Plant and Equipment Disclosure [Text Block]
Depreciation	$ 12,000	$ 17,000	$ 20,000	$ 36,000

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Note 6 - Other Accrued Liabilities

6 Months Ended

Jun. 30, 2013

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

6. Other Accrued Liabilities

Other accrued liabilities consist of the following:

	June 30, 2013		December 31, 2012
	(in thousands)
Accrued professional fees	$	342	$	304
Accrued salaries and employee benefits		300		465
Accrued financing expenses		301		301
Accrued rent		1,480		916
Other accrued liabilities		74		57
Total other accrued liabilities	$	2,497	$	2,043

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Note 3 - Significant Accounting Policies (Details) - Antidilutive Securities	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities	23,996,903	37,730,141	23,996,903	48,712,200
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities	0	2,325,000	0	2,730,000
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities	21,718,914	31,088,705	21,718,914	34,221,058
Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities	0	0	0	7,444,706
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities	2,277,989	4,316,436	2,277,989	4,316,436

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Note 9 - Preferred Stock (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended			6 Months Ended	12 Months Ended		1 Months Ended		6 Months Ended	0 Months Ended	1 Months Ended		6 Months Ended	1 Months Ended	6 Months Ended	12 Months Ended	1 Months Ended	6 Months Ended	12 Months Ended
	Apr. 30, 2012	Feb. 28, 2012	May 31, 2011	Jun. 30, 2013	Dec. 31, 2012	Sep. 24, 2012	Sep. 30, 2012 Series A Convertible Preferred Stock [Member]	Feb. 28, 2012 Series A Convertible Preferred Stock [Member]	Jun. 30, 2013 Series A Convertible Preferred Stock [Member]	Jun. 30, 2013 Series B Convertible Preferred Stock (Member)	Sep. 30, 2012 Series B Convertible Preferred Stock (Member)	Apr. 30, 2012 Series B Convertible Preferred Stock (Member)	Jun. 30, 2013 Series B Convertible Preferred Stock (Member)	Sep. 30, 2012 New Price - Series A Convertible Preferred Stock (Member)	Jun. 30, 2012 Series A Convertible Preferred Stock [Member]	Dec. 31, 2012 Series A Convertible Preferred Stock [Member]	Dec. 31, 2012 Series B Convertible Preferred Stock (Member)	Jun. 30, 2012 Series B Convertible Preferred Stock (Member)	Dec. 31, 2012 Series B Convertible Preferred Stock (Member)	Jun. 30, 2013 Series A Convertible Preferred Stock [Member]	Jun. 30, 2013 Series B Convertible Preferred Stock (Member)
Note 9 - Preferred Stock (Details) [Line Items]
Preferred Stock, Shares Authorized				5,000,000					2,000	1,065			1,065
Preferred Stock, Dividend Rate, Percentage				0.00%									0.00%		0.00%			0.00%
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)								$ 1,000.0000				$ 1,000.0000
Proceeds from Issuance of Convertible Preferred Stock (in Dollars)								$ 1.8				$ 1.0
Payments of Stock Issuance Costs (in Dollars)								0.2				0.1
Convertible Preferred Stock, Shares Reserved for Future Issuance								10,000,000				6,300,000
Convertible Preferred Stock, Terms of Conversion							$0.08	$0.20			$0.08	$0.17
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term								5 years				5 years
Proceeds from Issuance or Sale of Equity (in Dollars)								2.0				1.1
Fair Value Assumptions, Expected Volatility Rate	110.00%	110.00%	110.00%		110.00%
Fair Value Assumptions, Risk Free Interest Rate	1.01%	0.82%	1.71%		0.01%
Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%		0.00%
Fair Value Assumptions, Expected Term	5 years	5 years	5 years		3 months
Proceeds from Issuance of Warrants (in Dollars)								0.6				0.3
Dividends, Preferred Stock (in Dollars)							$ 0.4									$ 1.2	$ 0.8		$ 1.2
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			1,100,000			8,132,353	5,000,000				3,100,000	3,100,000
Investment Warrants, Exercise Price (in Dollars per share)							$ 0.20				$ 0.10	$ 0.17		$ 0.10
Conversion of Stock, Shares Converted (in Shares)									2,000
Convertible Preferred Stock, Shares Issued upon Conversion				13,300,000					11,800,000
Preferred Stock, Shares Outstanding																				0	0
Stock Issued During Period, Shares, Conversion of Convertible Securities										1,065

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Note 9 - Preferred Stock

6 Months Ended

Jun. 30, 2013

Preferred Stock [Text Block]

Preferred Stock [Text Block]

9. Preferred Stock

The Company has authorized 5.0 million preferred shares, of which 2,000 shares designated as Series A preferred stock and 1,065 shares designated as Series B preferred stock were previously issued. All shares of Series A and Series B preferred stock were subsequently converted into shares of the Company's common stock in 2012 and 2013, cancelled and may not be re-issued. As of June 30, 2013, the Company had no shares of preferred stock outstanding.

Series A 0% Convertible Preferred Stock (“Series A Preferred”)

The Company issued 2,000 shares of Series A Preferred at a price of $1,000 per share and warrants to purchase 5.0 million shares of the Company’s common stock in February 2012 for net proceeds of approximately $1.8 million, net of $0.2 million in transactions costs. The Shares of Series A Preferred were convertible into an aggregate of 10.0 million shares of the Company’s common stock. Each share of Series A Preferred was convertible, at the option of the holder thereof, into that number of shares of Common Stock (subject to certain limitations set forth in the Certificate of Designation) determined by dividing the stated value of such share of Series A Preferred, which was initially $1,000, by the conversion price. The initial conversion price, which was subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices, was $0.20.

The Warrants had an initial exercise price of $0.20 per share, were immediately exercisable, and had a term of five years from the date of issuance. The exercise price and number of shares issuable upon exercise of the warrants were subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices. The Company allocated the $2.0 million in gross proceeds between the preferred stock and the warrants based on their relative fair values. Based on the Black-Scholes option pricing model (volatility – 110%, risk free rate – 0.82%, dividends – zero, weighted average life – 5 years), we allocated approximately $0.6 million to the warrants. The warrants met the requirements of and were being accounted for as equity in accordance with ASC 815-40.

The convertible feature of the Series A Preferred provided for a rate of conversion that was below market value at the commitment date. Such feature is normally characterized as a BCF. Pursuant to ASC 470-20, the estimated fair value of the BCF is recorded as a dividend if it is related to preferred stock. The Series A Preferred was immediately convertible and contained a BCF. Therefore, the Company recorded a BCF of approximately $1.2 million as a deemed dividend in 2012.

In September 2012, the Company agreed to reduce the conversion price of the Series A Preferred, which was originally convertible at $0.20 per share, to $0.08 per share. The Company also reduced the exercise price of its outstanding common stock purchase warrants that were issued in connection with the Series A Preferred, exercisable for 5.0 million shares of common stock, from $0.20 per share to $0.10 per share. The reduction in conversion price of the Company’s Series A Preferred and exercise price of the common stock purchase warrants resulted in approximately $0.4 million being recorded as a deemed dividend in 2012.

As of June 30, 2013, all 2,000 shares of the Series A Preferred had been converted into approximately 11.8 million shares of the Company’s common stock. As a result, there are no shares of the Series A Preferred outstanding at June 30, 2013.

Series B 0% Convertible Preferred Stock (“Series B Preferred”)

The Company issued 1,065 shares of Series B Preferred at a price of $1,000 per share and warrants to purchase approximately 3.1 million shares of the Company’s common stock in April 2012 for net proceeds of approximately $1.0 million, net of $0.1 million in transactions costs. The shares of Series B Preferred were convertible into an aggregate of approximately 6.3 million shares of the Company’s common stock. Each share of Series B Preferred was convertible, at the option of the holder thereof, into that number of shares of common stock (subject to certain limitations set forth in the Certificate of Designation) determined by dividing the stated value of such share of Series B Preferred, which was initially $1,000, by the conversion price. The initial conversion price, which was subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices, was $0.17.

The Warrants had an initial exercise price of $0.17 per share, were immediately exercisable, and had a term of five years from the date of issuance. The exercise price and number of shares issuable upon exercise of the warrants were subject to adjustment in the event of stock splits or dividends, business combinations, sale of assets or other similar transactions but not as a result of future transactions at lower prices. The Company allocated the $1.1 million in gross proceeds between the preferred stock and the warrants based on their relative fair values. Based on the Black-Scholes option pricing model (volatility – 110%, risk free rate – 1.01%, dividends – zero, weighted average life – 5 years), we allocated approximately $0.3 million to the warrants. The warrants met the requirements of and were being accounted for as equity in accordance with ASC 815-40.

The convertible feature of the Series B Preferred was a BCF, which the Company recorded as a deemed dividend of approximately $0.8 million in 2012.

In September 2012, the Company agreed to reduce the conversion price of the Series B Preferred to $0.08 per share. The Company also reduced the exercise price of its outstanding common stock purchase warrants that were issued in connection with the Series B Preferred, exercisable for approximately 3.1 million shares of common stock, from $0.17 per share to $0.10 per share. The reduction in conversion price of the Series B Preferred and exercise price of the common stock purchase warrants resulted in approximately $1.2 million being recorded as a deemed dividend in 2012.

As of June 30, 2013, all 1,065 shares of the Series B Preferred had been converted into approximately 13.3 million shares of the Company’s common stock. As a result, there are no shares of the Series B Preferred outstanding at June 30, 2013.

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Note 5 - Property and Equipment

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment Disclosure [Text Block]

Property, Plant and Equipment Disclosure [Text Block]

5. Property and Equipment

Property and equipment consist of the following:

	June 30,			December 31,
	2013			2012
	(in thousands)
Furniture, office and laboratory equipment	$	582		$	582
Leasehold improvements		760			760
		1,342			1,342
Less accumulated depreciation		(1,306	)		(1,286	)
	$	36		$	56

Depreciation expense was approximately $12,000 and $17,000 for the three months ended June 30, 2013 and 2012, respectively, and $20,000 and $36,000 for the six months ended June 30, 2013 and 2012, respectively.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net loss	$ (2,784)	$ (569)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	20	36
Foreign exchange (gain) loss		264
Stock-based compensation expense	88	404
Warrant amendment expense		936
Amortization and write-off of deferred financing costs and discount on loans	116	307
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	15	(68)
Decrease in inventory		354
Decrease in prepaid expenses and other current assets	2	153
Increase (decrease) in accounts payable	955	(292)
Decrease in accrued research contract costs	(120)	(17)
Increase in other accrued liabilities	454	252
Recognition of deferred revenue	(148)	(4,247)
Decrease in other liabilities		(112)
Net cash used in operating activities	(1,402)	(2,599)
Cash flows from financing activities:
Proceeds from exercise of warrants		728
Proceeds from issuance of preferred stock and warrants, net of issuance costs		2,834
Proceeds from issuance of common stock to related party, net of issuance costs	500
Proceeds from related party loan	638
Repayment of loans		(2,559)
Net cash provided by financing activities	1,138	1,003
Effect of exchange rate changes on cash and cash equivalents	(16)	(9)
Net increase in cash and cash equivalents	28	(1,605)
Cash and cash equivalents at beginning of year	172	6,378
Cash and cash equivalents at end of period	200	4,773
Supplemental disclosure of cash flow information:
Cash paid for interest	237	448
Cash paid for income taxes	5	2
Supplemental disclosure of non-cash financing activities:
Conversion of preferred stock to common stock	2	1
Beneficial conversion feature in connection with issuance of preferred stock		1,925
Unpaid costs associated with issuance of preferred stock		1
Unpaid financing costs		301
Release of Restricted Cash - Subordinated Notes (Member)
Cash flows from investing activities:
Release of restricted cash	308
Net cash provided by investing activities	$ 308

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Note 11 - Share-Based Payments (Details) - Black-Scholes Option Pricing Model Assumptions for Stock Option Grants (2005 Equity Incentive Plan [Member])	6 Months Ended
	Jun. 30, 2012
2005 Equity Incentive Plan [Member]
Note 11 - Share-Based Payments (Details) - Black-Scholes Option Pricing Model Assumptions for Stock Option Grants [Line Items]
Expected volatility	110.00%
Risk free interest rate	0.89%
Expected life (Years)	5 years

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Note 3 - Significant Accounting Policies (Details) - Prepaid Expenses and Other Current Assets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Prepaid Expenses and Other Current Assets [Abstract]
Prepaid expenses	$ 30	$ 43
Prepaid insurance	64	53
Other	5	20
Total prepaid expenses and other current assets	$ 99	$ 116

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Note 12 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies Disclosure [Text Block]

12. Commitments and Contingencies

The Company is a party to a number of research, consulting, and license agreements, which require the Company to make payments to the other party upon the other party attaining certain milestones as defined in the agreements. The Company may be required to make future milestone payments as of June 30, 2013, totaling approximately $1.7 million, under these agreements, of which approximately $0.5 million is payable during 2013 and approximately $1.2 million is payable from 2014 through 2016.

Litigation

On September 5, 2012, plaintiffs Kenton L. Crowley and John A. Flores filed an appeal against EpiCept in the United States District Court for the Southern District of California. The Company filed an Answering Brief in October 2012. The Company continues to believe this complaint is entirely without merit and that incurrence of a liability is not probable.

On November 25, 2008 plaintiffs Kenton L. Crowley and John A. Flores filed a complaint against EpiCept in the United States District Court, New Jersey, which was transferred on March 20, 2009 to the United States District Court for the Southern District of California. The complaint alleges breach of contract, breach of covenant of good faith and fair dealing, fraud, and rescission of contract with respect to the development of a topical cream containing ketamine and butamben, known as EpiCept NP-2. Discovery was conducted in 2010 and 2011. The Company filed a motion for summary judgment, which was granted on January 24, 2012.

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Note 8 - Notes, Loans and Financing

6 Months Ended

Jun. 30, 2013

Debt Disclosure [Text Block]

Debt Disclosure [Text Block]

8. Notes, Loans and Financing

The Company is party to a loan agreement as follows:

	June 30, 2013			December 31, 2012
	(in thousands)
May 2011 senior secured term loan due May 27, 2014 (1)	$	4,071		$	4,071
Total notes and loans payable, before debt discount		4,071			4,071
Less: Debt discount		(31	)		(96	)
Total notes and loans payable	$	4,040		$	3,975
Notes and loans payable, current portion	$	4,040		$	3,975
Notes and loans payable, long-term		—			—

(1) The Company entered into a senior secured term loan in the amount of $8.6 million with Midcap in May 2011. The Company had the option to borrow an additional $2.0 million from Midcap on or before December 31, 2011 upon meeting certain conditions, including the commencement of a Phase III clinical trial, which it did not exercise. The interest rate on the loan is 11.5% per year. The Company incurred approximately $0.1 million in issuance costs in connection with the loan and is required to pay a $0.3 million fee on the maturity date of the loan. In addition, the Company issued five year common stock purchase warrants to Midcap granting them the right to purchase 1.1 million shares of the Company’s common stock at an exercise price of $0.63 per share. The basic terms of the loan require monthly payments of interest only through November 1, 2011, with 30 monthly payments of principal and interest that commenced on December 1, 2011. Any outstanding balance of the loan and accrued interest is to be repaid on May 27, 2014. In connection with the terms of the loan agreement, the Company granted Midcap a security interest in substantially all of the Company’s personal property including its intellectual property.

The Company allocated the $8.6 million in proceeds between the term loan and the warrants based on their relative fair values. The Company calculated the fair value of the warrants at the date of the transaction at approximately $0.5 million with a corresponding amount recorded as a debt discount. The debt discount is being accreted over the life of the outstanding term loan using the effective interest method. At the date of the transaction, the fair value of the warrants of $0.5 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: dividend yield of 0%, risk free interest rate of 1.71%, volatility of 110% and an expected life of five years. The Company recognized approximately $0.1 million and $0.2 million of non-cash interest expense during the first six months of 2013 and 2012, respectively, related to the accretion of the debt discount.

The Company entered into a consent agreement with Midcap in June 2012 with respect to the sale of its Ceplene^® asset to Meda. As a result of entering into this consent agreement, the Company paid Midcap $0.8 million as a partial payment of principal on the loan in return for Midcap’s release of security interest in certain assets sold to Meda.

The Company entered into an amendment to the loan agreement with Midcap in August 2012. The amendment was not a result of a default under the loan agreement. Under the amendment, the Company agreed to make a principal prepayment of $1.2 million, which approximates the scheduled principal payments due under the loan agreement from September 1, 2012 through December 31, 2012. As a result of the prepayment, the current principal balance of the loan was reduced to $4.1 million. The Company will continue to make monthly payments of interest to Midcap as per the loan agreement while principal payments are currently being deferred.

The Company also agreed, pursuant to the amendment, to maintain a cash balance of $1.1 million in a bank account that is subject to the security interest maintained by Midcap under the loan agreement. Midcap deducted interest payable under the loan agreement and advanced the Company $0.1 million to cover operating expenses in 2012, resulting in a cash balance of $0.6 million at June 30, 2013. Further, the Company committed to signing a definitive agreement, acceptable to Midcap, by November 15, 2012 with respect to a sale or partnering transaction (which the Company satisfied by entering into a definitive merger agreement with Immune Pharmaceuticals, Ltd. on November 8, 2012).

In July 2013, the Company and Midcap executed a Second Amendment to the Loan and Security Agreement in which the parties agreed that interest payments will continue to be made monthly and one half of the cash that is subject to the security interest maintained by Midcap will be returned to the Company upon the favorable stockholder vote to approve the final conditions to the closing of the merger. Any past defaults under the loan agreement have been waived and principal payments on the loan are scheduled to begin September 1, 2013 unless the loan agreement restructuring the loan has been executed.

The Company’s term loan with Midcap contains a subjective acceleration clause, which allows the lender to accelerate the loan’s due date in the event of a material adverse change in the Company’s ability to pay its obligations when due. The Company believes that its losses from operations, its stockholders’ deficit and a cash balance that is lower than its loan payable collectively increase the likelihood of the due date being accelerated in this manner, and therefore the Company has classified loan repayments due more than twelve months from the date of these financial statements as a short term liability. The original deferred financing fees and debt discount continue to be amortized over the life of the debt that was assumed when the obligation was originally recorded.

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Note 3 - Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Significant Accounting Policies [Text Block]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Common stock options		2,277,989		4,316,436		2,277,989		4,316,436
Restricted stock units		—		2,325,000		—		2,730,000
Shares issuable upon conversion of preferred stock		—		—		—		7,444,706
Warrants		21,718,914		31,088,705		21,718,914		34,221,058
Total shares excluded from calculation		23,996,903		37,730,141		23,996,903		48,712,200

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
EPS Numerator – Basic:
Net income (loss)	$	(1,684	)	$	2,209	$	(2,784	)	$	(2,495	)
EPS Numerator – Diluted:
Net income (loss)	$	(1,684	)	$	2,959	$	(2,784	)	$	(2,495	)
EPS Denominator:
Weighted-average common shares outstanding––Basic		113,639,424			83,772,960		110,158,277			80,414,692
Common stock equivalents: convertible preferred stock, restricted stock units and warrants		—			7,818,933		—			—
Weighted-average common shares outstanding––Diluted		113,639,424			91,591,893		110,158,277			80,414,692

Interest Expense [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in $000s)						(in $000s)
Interest expense	$	(125	)	$	(208	)	$	(247	)	$	(447	)
Amortization of debt issuance costs and discount		(50	)		(172	)		(116	)		(296	)
Interest and amortization of debt discount and expense	$	(175	)	$	(380	)	$	(363	)	$	(743	)

Schedule of Other Current Assets [Table Text Block]

	June 30,		December 31,
	2013		2012
	(in thousands)
Prepaid expenses	$	30	$	43
Prepaid insurance		64		53
Other		5		20
Total prepaid expenses and other current assets	$	99	$	116

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]

	June 30, 2013				December 31, 2012
	Carrying Amount		Level 2 Fair Value		Carrying Amount		Level 2 Fair Value
	(In millions)
Non-convertible loans	$	4.1	$	4.0	$	4.1	$	4.0

XML

Note 13 - Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Text Block]

Subsequent Events [Text Block]

13. Subsequent Events

The Company raised $0.4 million in gross proceeds in July 2013 by entering into a loan pursuant to the merger agreement with Immune.

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 31, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	EPICEPT CORP
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		114,159,030
Amendment Flag	false
Entity Central Index Key	0001208261
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2013

Jun. 30, 2012

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Consolidation

The accompanying consolidated financial statements include the accounts of EpiCept Corporation and the Company’s 100%-owned subsidiaries, Maxim Pharmaceuticals, Inc., Cytovia, Inc. and EpiCept GmbH (in liquidation). All inter-company transactions and balances have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period, including stock –based compensation. Actual results could differ from those estimates.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue relating to its collaboration agreements in accordance with the SEC Staff Accounting Bulletin No. 104, Revenue Recognition, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-25, “Revenue Recognition - Multiple Element Arrangements” (“ASC 605-25”), and Accounting Standards Update (“ASU”) 2009-13, "Multiple Revenue Arrangements - a Consensus of the FASB Emerging Issues Task Force" (“ASU 2009-13”). ASU 2009-13 supersedes certain guidance in ASC 605-25, and requires an entity to allocate arrangement consideration to all of its deliverables at the inception of an arrangement based on their relative selling prices (i.e., the relative-selling-price method). The Company adopted the provisions of ASU 2009-13 beginning on January 1, 2011. The adoption of ASU 2009-13 did not have a material effect on the Company’s financial statements.

Revenue under collaborative arrangements may result from license fees, milestone payments, research and development payments and royalty payments. The Company’s application of these standards requires subjective determinations and requires management to make judgments about the value of the individual elements and whether they are separable from the other aspects of the contractual relationship. The Company evaluates its collaboration agreements to determine units of accounting for revenue recognition purposes. For collaborations containing a single unit of accounting, the Company recognizes revenue when the fee is fixed or determinable, collectibility is reasonably assured and the contractual obligations have occurred or been rendered. For collaborations involving multiple elements, the Company’s application requires management to make judgments about value of the individual elements and whether they are separable from the other aspects of the contractual relationship. To date, the Company has determined that its upfront non-refundable license fees cannot be separated from its ongoing collaborative research and development activities and, accordingly, does not treat them as a separate element. The Company recognizes revenue from non-refundable, upfront licenses and related payments, not specifically tied to a separate earnings process, either on the proportional performance method with respect to the Company’s license with Endo, or ratably over either the development period in which the Company is obligated to participate on a continuing and substantial basis in the research and development activities outlined in the contract, or the later of 1) the conclusion of the royalty term on a jurisdiction by jurisdiction basis or 2) the expiration of the last EpiCept licensed patent as we do with respect to our license with DURECT, Myrexis and GNI, Ltd.

Proportional performance is measured based on costs incurred compared to total estimated costs to be incurred over the development period which approximates the proportion of the value of the services provided compared to the total estimated value over the development period. The proportional performance method currently results in revenue recognition at a slower pace than the ratable method as many of the Company’s costs are incurred in the latter stages of the development period. The Company periodically reviews its estimates of cost and the length of the development period and, to the extent such estimates change, the impact of the change is recorded at that time. The Company increased the estimated development period with respect to its license with Endo by an additional twelve months to reflect additional time required to obtain clinical data from our partner during each of the years 2012 and 2011.

EpiCept recognizes milestone payments as revenue upon achievement of the milestone only if (1) it represents a separate unit of accounting as defined in ASC 605-25; (2) the milestone payments are nonrefundable; (3) substantive effort is involved in achieving the milestone; and (4) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions is not met, EpiCept will recognize milestones as revenue in accordance with its accounting policy in effect for the respective contract. For current agreements, EpiCept recognizes revenue for milestone payments based upon the portion of the development services that are completed to date and defers the remaining portion and recognizes it over the remainder of the development services on the proportional or ratable method, whichever is applicable. When payments are specifically tied to a separate earnings process, revenue will be recognized when the specific performance obligation associated with the payment has been satisfied. Deferred revenue represents the excess of cash received compared to revenue recognized to date under licensing agreements.

Revenue from the sale of product is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry, if any, are provided for in the same period the related sales are recorded.

Royalty revenue is recognized in the period in which the sales occur, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and the Company has no remaining performance obligations under the arrangement providing for the royalty. If royalties are received when the Company has remaining performance obligations, they would be attributed to the services being provided under the arrangement and, therefore, recognized as such obligations are performed under either the proportionate performance or ratable methods, as applicable.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-Based Payments

The Company records stock-based compensation expense at fair value in accordance with the FASB issued ASC 718-10, “Compensation – Stock Compensation” (“ASC 718-10”). The Company utilizes the Black-Scholes valuation method to recognize compensation expense over the vesting period. Certain assumptions need to be made with respect to utilizing the Black-Scholes valuation model, including the expected life, volatility, risk-free interest rate and anticipated forfeiture of the stock options. The expected life of the stock options was calculated using the method allowed by the provisions of ASC 718-10. In accordance with ASC 718-10, the simplified method for “plain vanilla” options may be used where the expected term is equal to the vesting term plus the original contract term divided by two. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the options. Estimates of pre-vesting option forfeitures are based on the Company’s experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

The Company accounts for stock-based transactions with non-employees in which services are received in exchange for the equity instruments based upon the fair value of the equity instruments issued, in accordance with ASC 718-10 and ASC 505-50, “Equity-Based Payments to Non-Employees.” The two factors that most affect charges or credits to operations related to stock-based compensation are the estimated fair market value of the common stock underlying stock options for which stock-based compensation is recorded and the estimated volatility of such fair market value. The value of such options is periodically remeasured and income or expense is recognized during the vesting terms.

Accounting for stock-based compensation granted by the Company requires fair value estimates of the equity instrument granted or sold. If the Company’s estimate of the fair value of stock-based compensation is too high or too low, it will have the effect of overstating or understating expenses. When stock-based grants are granted in exchange for the receipt of goods or services, the Company estimates the value of the stock-based compensation based upon the value of its common stock.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Exchange Gains and Losses

EpiCept’s 100%-owned subsidiary in Germany, EpiCept GmbH, is currently in in the process of liquidating its assets and liabilities. EpiCept GmbH performed certain commercialization activities on the Company’s behalf and has generally been unprofitable since its inception. Its functional currency is the euro. The process by which EpiCept GmbH’s financial results are translated into U.S. dollars is as follows: income statement accounts are translated at average exchange rates for the period and balance sheet asset and liability accounts are translated at end of period exchange rates. Translation of the balance sheet in this manner affects the stockholders’ deficit account, referred to as the cumulative translation adjustment account. This account exists only in EpiCept GmbH’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet stated in U.S. dollars in balance.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Expenses

The Company expects that a large percentage of its future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. The Company tests its product candidates in numerous preclinical studies for toxicology, safety and efficacy. The Company then conducts early stage clinical trials for each drug candidate. As the Company obtains results from clinical trials, it may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years but the length of time generally varies according to the type, complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including:

● the number of sites included in the trials;

● the length of time required to enroll suitable patients;

● the number of patients that participate in the trials;

● the number of doses that patients receive;

● the duration of follow-up with the patient;

● the product candidate’s phase of development; and

● the efficacy and safety profile of the product.

Expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, estimates of expenses are modified accordingly on a prospective basis.

Other than Ceplene^®, none of the Company’s drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that its clinical data and that of its collaborators establish the safety and efficacy of our drug candidates. Furthermore, the Company’s strategy includes entering into collaborations with third parties to participate in the development and commercialization of its products. In the event that third parties have control over the preclinical development or clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under the Company’s control. The Company cannot forecast with any degree of certainty which of its drug candidates will be subject to future collaborations or how such arrangements would affect its development plan or capital requirements.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” The Company files income tax returns in the U.S. federal jurisdiction, New York, California and Germany. The Company’s income tax returns for tax years after 2008 are still subject to review. Since the Company incurred losses in the past, all prior years that generated losses are open and subject to audit examination in relation to the losses generated from those years.

The Company accounts for its income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based upon the differences arising from carrying amounts of the Company’s assets and liabilities for tax and financial reporting purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period when the change in tax rates is enacted. A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance has been applied against the Company’s net deferred tax assets at June 30, 2013 and December 31, 2012, because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets. Upon completion of the merger with Immune, the Company’s deferred tax assets and net operating loss carry-forwards  will be reevaluated to determine any limitations due to change in control under Internal Revenue Code Section 382.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense. The Company did not have any liabilities, accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarters ended June 30, 2013 and 2012. Income tax expense for the three and six months ended June 30, 2013 and 2012 is primarily due to minimum state and local income taxes.

Earnings Per Share, Policy [Policy Text Block]

Income (loss) per Share:

Basic and diluted loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted weighted average shares outstanding for the three months ended June 30, 2013 and the six months ended June 30, 2013 and 2012 excludes shares underlying convertible preferred stock, stock options, restrictive stock and warrants, since the effects would be anti-dilutive. Accordingly, basic and diluted loss per share is the same.

Interest Expense, Policy [Policy Text Block]

restrictive stock and warrants, because these shares were out of the money. Such excluded shares are summarized as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Common stock options		2,277,989		4,316,436		2,277,989		4,316,436
Restricted stock units		—		2,325,000		—		2,730,000
Shares issuable upon conversion of preferred stock		—		—		—		7,444,706
Warrants		21,718,914		31,088,705		21,718,914		34,221,058
Total shares excluded from calculation		23,996,903		37,730,141		23,996,903		48,712,200

Basic and diluted earnings per share (EPS) were computed using the following data (in thousands, except share and per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
EPS Numerator – Basic:
Net income (loss)	$	(1,684	)	$	2,209	$	(2,784	)	$	(2,495	)
EPS Numerator – Diluted:
Net income (loss)	$	(1,684	)	$	2,959	$	(2,784	)	$	(2,495	)
EPS Denominator:
Weighted-average common shares outstanding––Basic		113,639,424			83,772,960		110,158,277			80,414,692
Common stock equivalents: convertible preferred stock, restricted stock units and warrants		—			7,818,933		—			—
Weighted-average common shares outstanding––Diluted		113,639,424			91,591,893		110,158,277			80,414,692

Interest Expense:

Interest expense consisted of the following for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in $000s)						(in $000s)
Interest expense	$	(125	)	$	(208	)	$	(247	)	$	(447	)
Amortization of debt issuance costs and discount		(50	)		(172	)		(116	)		(296	)
Interest and amortization of debt discount and expense	$	(175	)	$	(380	)	$	(363	)	$	(743	)

Amortization of debt issuance costs in 2013 and 2012 was primarily related to issuance costs in connection with the Company’s senior secured term loan that was entered into in May 2011.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents 

The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash 

The Company has lease agreements for the premises it occupies. A letter of credit in lieu of a lease deposit for leased facilities totaling $0.1 million was secured by restricted cash in the same amount at December 31, 2012. The letter of credit was not renewed in 2013, resulting in the release of restricted cash totaling $0.1 million. The Company has failed to make payments on its lease agreement for the premises located in San Diego, California since April 2012. As a result, the landlord applied approximately $0.1 million to unpaid rent in 2012 (see Deferred Rent and Other Noncurrent Liabilities). The Company also has a restricted cash balance of $0.6 million being held by Midcap Financial, LLC., (“Midcap”) at June 30, 2013 (see Note 8).

Prepaid Expenses and Other Current Assets, Policy [Policy Text Block]

Prepaid Expenses and Other Current Assets: 

As of June 30, 2013 and December 31, 2012, prepaid expenses and other current assets consist of the following:

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment consists of furniture, office and laboratory equipment, and leasehold improvements stated at cost. Furniture and office and laboratory equipment are depreciated on a straight-line basis over their estimated useful lives ranging from five to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repairs are charged to expense as incurred.

Deferred Charges, Policy [Policy Text Block]

Deferred Financing Costs

Deferred financing costs represent legal and other costs and fees incurred to negotiate and obtain debt financing. Deferred financing costs are capitalized and amortized using the effective interest method over the life of the applicable financing. Deferred financing costs were approximately $24,000 and $0.1 million at June 30, 2013 and December 31, 2012, respectively. Amortization expense was $0.1 million for each of the six months ended June 30, 2013 and 2012, respectively.

Debt, Policy [Policy Text Block]

Beneficial Conversion Feature of Certain Instruments

The convertible feature of certain financial instruments provided for a rate of conversion that was below market value at the commitment date. Such feature is normally characterized as a beneficial conversion feature (“BCF”). Pursuant to ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), the estimated fair value of the BCF is recorded as a dividend if it is related to preferred stock. Our Series A 0% Convertible Preferred Stock and Series B 0% Convertible Preferred Stock were each immediately convertible and contained a BCF. Therefore, the Company initially recorded a BCF of approximately $1.9 million as a deemed dividend in 2012. As the result of the Reset Offer in September 2012, the Company recorded an additional BCF of $1.6 million. (see Note 8).

Deferred Rent and Other Noncurrent Liabilities, Policy [Policy Text Block]

Deferred Rent and Other Noncurrent Liabilities

Deferred rent and other noncurrent liabilities represents deferred rent expense on the Company’s facilities in Tarrytown, NY and San Diego, CA. In accordance with accounting principles generally accepted in the U.S., the Company recognizes rental expense, including tenant improvement allowances, on a straight-line basis over the life of the leases or useful life, whichever is shorter, irrespective of the timing of payments to or from the lessor. The Company ceased use of its discovery research facility in San Diego, CA as a result of the Company’s decision to discontinue its drug discovery activities in 2009. In accordance with ASC 420-10, “Exit or Disposal Cost Activities” (“ASC 420-10”), the Company recorded a liability of $0.8 million, included in research and development expense on the consolidated statements of operations and comprehensive loss, on the cease-use date based on the fair value of the costs that are expected to be incurred under the lease of the facility. The fair value of the liability at the cease-use date was determined based on the remaining rental payments, reduced by estimated sublease rental income that could be reasonably obtained for the property. The Company had deferred rent of zero and $0.3 million at June 30, 2013 and December 31, 2012, respectively. The Company accrued $1.5 million payable under this lease at June 30, 2013.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets

The Company performs impairment tests on its long-lived assets when circumstances indicate that their carrying amounts may not be recoverable. If required, recoverability is tested by comparing the estimated future undiscounted cash flows of the asset or asset group to its carrying value. If the carrying value is not recoverable, the asset or asset group is written down to fair value. No such impairments have been identified with respect to the Company’s long-lived assets, which consist primarily of property and equipment at June 30, 2013.

Derivatives, Policy [Policy Text Block]

Derivatives

The Company accounts for its derivative instruments in accordance with ASC 815-10, “Derivatives and Hedging” (“ASC 815-10”). ASC 815-10 establishes accounting and reporting standards requiring that derivative instruments, including derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value. ASC 815-10 also requires that changes in the fair value of derivative instruments be recognized currently in results of operations unless specific hedge accounting criteria are met. The Company does not have derivatives in the current quarter and has not entered into hedging activities to date.

Comprehensive Income, Policy [Policy Text Block]

Accumulated Other Comprehensive Loss

The Company’s only element of accumulated other comprehensive loss was foreign currency translation adjustments of ($1.1) million at June 30, 2013 and December 31, 2012.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to all financial instruments that are being measured and reported on a fair value basis, non-financial assets and liabilities measured and reported at fair value on a non-recurring basis, and disclosures of fair value of certain financial assets and liabilities.

The following fair value hierarchy is used in selecting inputs for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:

● Level 1 — Quoted prices in active markets for identical assets or liabilities.

● Level 2 — Inputs other than Level 1 that are observable for similar assets or liabilities either directly or indirectly.

● Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The financial instruments recorded in the Company’s consolidated balance sheets consist primarily of cash and cash equivalents, accounts payable and the Company’s debt obligations. The carrying amounts of the Company’s cash and cash equivalents and accounts payable approximate fair value due to their short-term nature. The fair market value of the Company’s convertible and non-convertible loans is based on the present value of their cash flows discounted at a rate that approximates current market returns for issues of similar risk.

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) – Presentation of Comprehensive Income" which amends ASC 220, “Comprehensive Income”. ASU 2011-05 gives an entity the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-05 on a retrospective basis in the year ended December 31, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred. In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Company’s consolidated financial statements.