RNS Number:0780E
AOI Medical, Inc.
19 September 2007
AOI Medical, Inc.
("AOI Medical" or "the Company")
Maiden Interim Results
London, UK, 19 September 2007 - AOI Medical Inc. (AIM: AOI), the medical device
company focusing on the development and commercialisation of innovative
orthopaedic medial devices for the spine and trauma markets, today announces its
interim results for the six months ended 30 June 2007, the Company's first set
of results since its IPO in June 2007.
Operational Highlights
* 510(k) submission to US Food and Drug Administration ("FDA") for
Balloon Assisted Management of Fractures ("BAMF") for spine
* BAMF Spine on track for end of year launch, subject to FDA approval
* Continued investment in product design and development
* Expansion of the Clinical Advisory Board
Financial Highlights
* Successful Initial Public Offering (IPO) on AIM, a market operated by
the London Stock Exchange, raising $15.8 million (gross)
* Increased investment in Research and Development to $0.5 million (H1
2006: $0.1 million)
* Loss before tax of $1.8 million (H1 2006: $0.9 million)
* Cash and Securities at 30 June 2007 of $13.3 million (H1 2006: $0.9
million)
Commenting on the results, Bill Christy, CEO of AOI Medical said:
"The past six months have been a period of substantial progress for the
business. We were pleased to have raised the funds in the IPO earlier this year,
and it has given us the resources to advance our strategy of becoming a leader
in the development and commercialisation of innovative orthopaedic devices for
the spine and trauma markets.
"We believe that the recent $3.9 billion acquisition of Kyphon by Medtronic
underlies the intrinsic value of this fast moving market."
Enquiries:
AOI Medical Inc. Tel: +1 407 770 1800
William J. Christy, CEO
Angela Johnston, CFO
Financial Dynamics Tel: +44 (0) 20 783 3113
Ben Atwell
John Gilbert
Numis Securities Tel: +44 (0)20 7260 1000
David Poutney
Bruce Garrow
Overview
The Company has had a very successful start to the year, highlighted by the IPO
on the AIM market of the London Stock Exchange in June 2007, raising $15.8
million (gross) for the Company. The new equity capital will enable AOI Medical
to further progress its strategy, as laid out at the time of the IPO, to
continue the development of the Company's three platform technologies, as well
as to begin the initial commercialising of the main products, BAMF Spine, BAMF
Trauma, and Cervical Plate.
BAMF Spine
BAMF Spine (Balloon Assisted Management of Spine Fractures) is a set of tools
intended to be used to address compression fractures of the spine caused by
osteoporosis, cancer or trauma. BAMF Spine will comprise two main instruments:
a cutting device that creates a cavity in cancellous bone, and a balloon-like
device which is used to restore the height of the fractured vertebra and to
deliver and contain the cement in the cavity. Current techniques used to treat
progressive vertebral compression fractures include vertebroplasty and
kyphoplasty. The Directors believe that BAMF Spine represents an enhancement
over the current techniques as they expect the process: to be accomplished
through one pedicle access port (incision) rather than two; to require fewer
steps and less time; to be less susceptible to cement leakage; and to return the
fractured vertebra to true anatomic position.
In July 2007, AOI Medical announced that, in line with the Company's commercial
strategy and timeline, it had successfully processed its 510(k) submission. The
submission was made following the development earlier this year of devices for
biomechanical tests. Subject to the FDA approving the 510(k) submission by the
fourth quarter of 2007, the BAMF Spine procedure is expected be launched by the
end of 2007. As described in the Company's Admission Document, the Directors had
anticipated the FDA regulatory path may include clinical information to support
the 510(k) application which could be satisfied by a confirmatory study. While
the current communication from the FDA is not clear on the ultimate path, AOI
Medical currently has a plan in place to respond in the event the FDA does
require clinical information.
AOI Medical has also made further developments in BAMF Spine's product design
and development. Bio-mechanical testing has evolved from initial testing on
artificial bones, to pre-clinical devices. The early stage proof-of-concept
devices ensured that we had the evidence we needed to translate the clinician's
feedback to the customers. After several iterations AOI Medical's product
development team moved to cadaveric models and crushed osteoporotic bone to
further refine the products. This feedback and validation from clinicians has
allowed us to proceed with the approval of manufacturing tools to begin
producing components for production quality products. Our product development
team will continue to improve our technology as we learn from surgeon feedback
and make modifications.
Current techniques used to treat progressive vertebral compression fractures
include vertebroplasty and kyphoplasty (so named by Kyphon, the company that
developed the technology). In July 2007, it was announced that Medtronic (NYSE:
MDT) had acquired Kyphon for $3.9 billion. This acquisition fully underpins the
market opportunity that lies within this area as patients and doctors continue
to seek modern, minimally invasive spinal treatments that enhance patient
life-styles and are simpler, faster and less-invasive than the traditional
surgical treatments. The Directors of AOI Medical believe that the Company has a
product that can significantly challenge the current products on the market.
In 2004, the worldwide market for devices targeted towards spinal conditions had
a value of around $3.5 billion and most recent estimates indicate that the
spinal products market will approach $10 billion by 2010. The growth is being
driven by increasing incidences of osteoporosis in an ageing population and a
growing number of sports related injuries as people become more active. In
2009, the BAMF Spine global market size is estimated to be over $500 million.
BAMF Trauma
BAMF Trauma (Balloon Assisted Management of Trauma Fractures) is a removable,
inflatable nail for the stabilisation of fractures of the long bones of the arms
and legs. AOI Medical's BAMF Trauma differs from the nails currently on the
market in that it is a combination of a stainless steel nail inside a balloon.
The device is inserted into the intramedullar canal of the fractured bone with
the balloon deflated. The balloon is then inflated to fill the remaining space.
The Directors believe that BAMF Trauma will have a technological advantage
over existing products in the market because it will potentially: require a
smaller gauge at the point of insertion; provide a firm structure, adapted to
the bone cavity while in place; and be easily removed by deflating the balloon,
thus narrowing the diameter of the device again. The Directors believe that
this last feature should make the device particularly interesting for treating
children, in whom growth in the affected limb is impaired if a stabilisation
device is left in place.
The development of the BAMF trauma products has progressed well this half year.
Specifically, in the design and development of the intramedullary nail,
histology examination testing models are coming off station and the initial
histological material tolerance data will be available within the coming months.
This data will give the Directors an initial evaluation of the concept design
in-vivo and allow the product to be designed in such a way for further testing.
After further laboratory testing, the Company is planning to follow the 510(k)
with clinical data route for BAMF Trauma, with clinical studies carried out
under an investigational device exemption ("IDE"). Submission to the FDA for IDE
approval is still on track for the fourth quarter of 2007, with patient
enrolment for clinical trials scheduled for the fourth quarter of 2008.
It is estimated that over 300,000 intramedullary nailing procedures were
performed in the US in 2002. This number is forecast to grow to more than
400,000 by 2009. Sales of intramedullary nails were estimated to be
approximately $378 million in 2002, and are forecast to grow to approximately
$773 million by 2009. An estimated $204 million, or 53.9 per cent. of total
revenues in 2002, was generated by the sale of nails used in the femur.
Cervical Plate
The Cervical Plate (Motion Preserving Cervical Dynamic Stabilisation Plate) is
an anterior, semi-constrained artificial ligament designed to provide some
translational and rotational motion when used subsequent to a cervical spine
disc replacement surgery. Current practice for severe intractable disc disease
is spinal fusion. Spinal fusion is a medical procedure by which two or more
vertebrae are linked together. Fusion may be carried out to treat a number of
spinal conditions; however, it causes stiffness of the spine in patients and
increases stress to the adjacent levels of the spine which may lead to
additional morbidity. The failure rate after lumbar fusion has been reported to
be as high as 37 per cent. Anterior plates provide stability following
decompression and fusion of the cervical spine. The Directors believe that the
following technical attributes of the Cervical Plate provide it with a
technological advantage over existing spinal fusion techniques: it offers a
motion preservation fusion approach that aims to promote a return to normal
range of motion when used in combination with alternatives to fusion; the
sculpted design and thickened rails of the Cervical Plate should allow the
support needed to allow multi-directional movement while ensuring disc
compression, reducing pressures across adjacent parts of the spine; and it is a
smaller device than competitive devices and should therefore be less disruptive.
The Company has made steady progress with the development of the Cervical Plate.
As described in the Company's Admission Document, AOI Medical continues to watch
the clinical trial results of those competing technologies in nucleus repair,
annulus repair and facet repair that are currently under FDA investigation to
look for evidence of which technologies will be effective. This information
will allow AOI Medical to invest in R&D with our plating system to produce the
best possible solution for use in conjunction with the aforementioned therapies.
The Company is planning to obtain FDA approval via the 510(k) with clinical data
route and will apply for an IDE for the product to establish range of motion
data. Provided that an appropriate motion preserving disc or nucleus replacement
device is identified by the beginning of 2008, the Directors estimate that the
initial commercialisation of the Cervical Plate will commence in the fourth
quarter of 2008 through IDE sales. The Company aims to gain FDA approval, with
range of motion, in the fourth quarter of 2011, when full commercialisation will
begin.
Intellectual Property Portfolio Development
The Directors believe that the protection of the Company's intellectual property
is fundamental to its commercial strategy, and AOI Medical actively seeks to
protect its technologies and individual products using patents where
appropriate. During the last year, AOI Medical has continued to develop its
intellectual property position, and the Company has aggressively improved its
intellectual property portfolio as it was granted one new US patent. AOI Medical
also filed five additional US and International patents to protect the three
platform technologies and two new medical applications.
Expansion of the Clinical Advisory Board (CAB)
We are in the process of expanding our Clinical Advisory Board (CAB) to nine
individuals with six under contract and three pending contracts. We are also
evaluating and in discussions with additional clinicians in an effort to
continually add feedback to our product development programs. The current CAB
collectively covers the differing specialties that perform the current
procedures to treat Vertebral Compression Fractures (VCF). This added component
will aid the company as it further develops the BAMF system. The Directors
intend to increase this board toward a target of thirty over the next year.
Outlook
The fundraising in June 2007 has allowed us to invest in R&D, advance our key
products and prepare for the initial commercialization of BAMF Spine onto the
market. AOI Medical continues to increase headcount to support the growth of the
three platform technologies and the building of the initial sales
infrastructure. With this investment we anticipate continued progress in each
development programme. BAMF Spine will continue to progress as we move closer to
a market launch; the addition of engineering staff will allow us to further our
goals past initial histological tolerance testing of our BAMF Trauma technology
and we continue to watch the clinical developments of the cervical space to
understand the needed developmental information produced by the ongoing clinical
trials. The Company's prospects look promising and we look forward to reporting
on the progress we will make in the coming months.
Notes To Editors
Background to AOI Medical
AOI Medical is a medical device company focussing on the development and
commercialisation of innovative orthopaedic medical devices for the spine and
trauma markets. It is progressing the development of three separate technology
platforms: BAMF Spine, BAMF Trauma and Cervical Plate.
FINANCIAL REVIEW
INCOME STATEMENT
Revenue
AOI is an early stage medical device company and as such currently has no source
of direct revenue.
Expenses
Operating expenses increased by $1.1 million to $1.8 million versus the six
months ended 30 June 2006 ("H1 2006") $0.7 million. $476,000 of the increase
was due to increased investment in research and development ("R&D") activities
in the six months ended 30 June 2007 ("H1 2007"). Salaries, insurance and
travel expenses in other departments reflect an increase of $475,000 from H1
2006, with the majority of the increase related to salaries and stock option
compensation expense. H1 2007 also reported an increase in professional fees of
$83,000 over H1 2006. The increases resulted largely from increased activity in
R&D, the ramping up of sales and marketing activities, increased headcount and
expenses associated with the Company's admission to AIM in June 2007.
Net other expense decreased from $194,000 to $49,000, with an increase in
interest income largely due to an unrealized gain on trading securities of
$4,000 while H1 2006 included loss on unconsummated acquisition of $143,000.
BALANCE SHEET
Cash and cash equivalents
The Company had cash and cash equivalents of $9.3 million as at 30 June 2007
compared with $0.1 million at 30 June 2006. The increase in cash and cash
equivalents reflects the $2.8 million, net of expenses, raised via an
equity placing in August 2006 and an additional $12.7 million, net of expenses,
reflecting a placing from the Company's admission to AIM ('the IPO").
Other current assets
The Company invested $4.0 million of the $12.7 million in net proceeds from the
IPO in fixed income trading securities to achieve a greater rate of return.
Property and equipment, net
Property and equipment, net increased $86,000 to $117,000. Of this net
increase, $66,000 reflects the purchase of tooling, machinery and equipment
needed for research and development efforts. The remaining $20,000 of the
increase relates to the acquisition of furniture, fixture and equipment for the
additional leased space and headcount.
Intangible Assets, net
Intangible Assets, net is comprised of capitalized patent costs of $119,000 (H1
2006: $26,000) and capitalized license costs of $265,000 (H1 2006: $128,000),
net of accumulated amortization of $21,000 thousand (H1 2006: nil). The
increase over H1 2006 largely reflects payments of $123,000 and $31,000 to two
licensors in accordance with the achievement of certain milestones.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses increased to $881,000 in H1 2007 from
$190,000 in H1 2006 largely due to outstanding amounts relating to the
successful IPO in June 2007 as well as $233,000 in accrued wages which were paid
in August 2007.
Notes Payable and Convertible Promissory Notes
H1 2006 Notes Payable of $60,000 were repaid in H1 2007. The Convertible
Promissory notes of $1.3 million at H1 2006, together with accrued interest,
converted to ordinary share capital upon the Company's admission to AIM.
Share capital
The Company had 8.4 million USD$0.0001 ordinary shares outstanding at 30 June
2007 (H1 2006: 121,000 preferred shares, 4,790,000 ordinary shares). All
preferred shares converted to ordinary shares upon the Company's admission to
AIM.
Statements of Operations
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Notes ($'000) ($'000) ($'000)
Revenues - - -
Cost of Sales - - -
_____ _____ _____
Gross Profit - - -
_____ _____ _____
Research and Development 577 101 338
Operations 65 47 77
Sales & Marketing 172 5 30
General and Administrative 974 580 1,350
_____ _____ _____
Total operating expenses 1,788 733 1,795
_____ _____ _____
Operating income (loss) (1,788) (733) (1,795)
_____ _____ _____
Other income (expense) net: (49) (194) (314)
_____ _____ _____
Net loss and deficit accumulated during
development stage (1,837) (927) (2,109)
_____ _____ _____
Basic loss per share - dollars 2 (0.31) (0.19) (0.42)
_____ _____ _____
Diluted loss per share - dollars 2 (0.30) (0.19) (0.40)
_____ _____ _____
Balance Sheets
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Notes ($'000) ($'000) ($'000)
ASSETS
Current assets:
Cash and cash equivalents 1 9,269 87 957
Other current Assets 4,045 21 18
_____ _____ _____
Total current assets 13,314 108 975
Property and equipment, net 117 31 47
Intangible assets 384 154 297
Other Assets 18 18 16
_____ _____ _____
Total Other Assets 519 203 360
_____ _____ _____
TOTAL ASSETS 13,833 311 1,335
_____ _____ _____
LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued expenses 881 190 251
Note payable 5 1 1,365 1,204
_____ _____ _____
Total current liabilities 882 1,555 1,455
_____ _____ _____
Notes Payable 5 - 1 260
_____ _____ _____
Total long-term liabilities: - 1 260
_____ _____ _____
Stockholders' deficit:
Preferred stock 3 - - -
Common stock 3 1 - 1
Additional paid-in capital 3 17,822 608 2,654
Deficit accumulated during development stage 3 (4,872) (1,853) (3,035)
_____ _____ _____
Total Equity 12,951 (1,245) (380)
_____ _____ _____
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 13,833 311 1,335
_____ _____ _____
Statements of Cash Flows
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
($'000) ($'000) ($'000)
Cash flows from operating activities:
Net (Loss) (1,837) (927) (2,109)
Adjustments to reconcile net loss to net provided by (used
in) cash used in operating activities:
Depreciation and amortization 23 7 29
Write off of deferred charges and other costs - 50 50
Loss on investment - - 2
Stock grants and options 180 3 50
Deferred Compensation 6 - -
Increase in other current assets (4,003) - -
(Decrease) increase in note receivable (1) 2 2
Increase in prepaid expenses (24) (14) (11)
Increase in intangible assets, net (95) (121) (276)
Decrease in deposits (2) - -
Increase in accounts payable and accrued expenses 799 99 160
_____ _____ _____
Net cash used in operating activities (4,954) (901) (2,103)
_____ _____ _____
Cash flows from investing activities:
Purchase of property and equipment (84) (11) (36)
_____ _____ _____
Net cash used in investing activities (84) (11) (36)
_____ _____ _____
Cash flows from financing activities:
Borrowings and repayments on notes payable, net (89) 594 695
Issuance of stock 13,439 - 1,996
_____ _____ _____
Net cash provided by financing activities 13,350 594 2,691
_____ _____ _____
Net increase (decrease) in cash and cash equivalents 8,312 (318) 552
Cash and cash equivalents, beginning of period 957 405 405
_____ _____ _____
Cash and cash equivalents, end of period 9,269 87 957
_____ _____ _____
Supplemental disclosure of cash flow information:
Cash paid for interest 12 8 16
_____ _____ _____
Supplemental disclosure of non-cash activity
Issuance of warrants 452 3 3
_____ _____ _____
Stock grants - 13 13
_____ _____ _____
Issuance of stock options, net of rescissions 180 7 37
_____ _____ _____
Deferred Compensation 6 - -
_____ _____ _____
NOTES TO THE UNAUDITED INTERIM RESULTS
1. BASIS OF PREPARATION
The interim financial information has been prepared on the basis of the
accounting policies set out in the Company's audited financial statements for
the year ended 31 December 2006.
Results for the periods ended 30 June 2007 and 30 June 2006 have not been
audited. The results for the period ended 31 December 2006 have been extracted
from the audited financial statements and upon which the auditors reported with
a going concern qualification.
Copies of the interim results for the six months ended 30 June 2007 are being
sent to all shareholders. Details can also be found on the Company's website at
www.aoimedical.net.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the related
assets, ranging from two to seven years. Repairs and maintenance are charged to
operations as incurred, while significant improvements are capitalized.
Long-lived assets held and used by the Company are reviewed for impairment
whenever changes in circumstances indicate the carrying value of an asset may
not be recoverable.
Research and Development
Expenditures for research and development are expensed as incurred.
Intangible Assets
Intangible assets consist of capitalized patent costs and capitalized license
costs, net of accumulated amortization.
Patent costs include legal costs incurred for various patent applications and
filing fees. Once the patent is granted, the Company will amortize the
capitalized patent costs over the remaining life of the patent using the
straight-line method. If the patent is not granted, the Company will write-off
any capitalized patent cost at that time.
License costs include payments to the licensor and legal costs incurred to
obtain certain license agreements. Costs to obtain the licenses are capitalized
as incurred per the license agreements. The Company amortizes capitalized
license costs over the estimated useful life of the licenses.
The Company records the acquisition and amortization of patents and license fees
in accordance with Statement of Financial Accounting Standards No. 142, "
Goodwill and other Intangible Assets". The Company reviews patents and license
fees for impairment in accordance with statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Internal and external facts and circumstances are considered for
indication of the ability to recover the carrying value of the unamortized
patent costs and license fees.
Investments
Investments include trading securities. Such investments are carried at fair
value. Unrealized gains and losses are charged to operations and the investment
is carried at its new cost basis.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, notes payable and convertible promissory notes: The
carrying amounts reported in the balance sheets approximate fair values because
of the short maturities of those instruments and rates available for similar
notes.
Revenue Recognition
The Company will recognize revenue upon shipment to distributors or customers.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently payable plus deferred taxes
related primarily to tax loss carryforwards. Any applicable deferred tax assets
and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Stock-Based Compensation
The Company follows SFAS No. 123R, Share Based Payment, for stock-based
compensation, which establishes a fair value based method of accounting for such
stock-based compensation. Stock-based compensation cost is measured at the
grant date based on the fair value of the award, taking into consideration
estimated forfeitures, and is recognized as compensation expense over the
vesting period. The Company provides the disclosure requirements of Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, and Amendment of FAS No.123, for employee
arrangements. Stock-based awards to non-employees are accounted for under SFAS
123, related amendments and related interpretations.
Accounting for the Issuance of Debt with Warrants
The Company accounts for debt issued with warrants under the provisions of
Accounting Principles Board (APB) Opinion No. 14, "Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants" (APB 14), as a result of the
issuance of a debt security with warrants. In accordance with APB Opinion 14,
the portion of the proceeds of debt issued with detachable warrants that is
allocable to the warrants shall be accounted for as additional paid-in capital.
The allocation is based on the relative fair values of the two securities at
time of issuance. The resulting discount on the debt securities is amortized
over the term of the debt instrument. In H1 2007, all debt securities converted
into shares of the Company's common stock upon its admission to AIM.
2. LOSS PER SHARE
Basic
Basic loss per share is calculated by dividing the loss attributable to common
shareholders by the weighted average number of common shares in issue during the
year.
Unaudited Unaudited Unaudited
six months ended six months ended year ended
30 June 2007 30 June 2006 31 December 2006
Loss attributable to common shareholders (1,837) (927) (2,109)
_____ _____ _____
Weighted average number of common shares 5,916 4,809 5,067
_____ _____ _____
Basic loss per share $ (0.31) $ (0.19) $ (0.42)
_____ _____ _____
Diluted
Diluted loss per share is calculated by dividing the loss attributable to common
shareholders by the weighted average number of common shares assuming the
exercise of share options and warrants.
Unaudited Unaudited Unaudited
six months ended six months ended year ended
30 June 2007 30 June 2006 31 December 2006
Loss attributable to common shareholders (1,837) (927) (2,109)
_____ _____ _____
Weighted average number of common shares 6,130 4,969 5,256
_____ _____ _____
Diluted loss per share $ (0.30) $ (0.19) $ (0.40)
_____ _____ _____
3. RECONCILIATION OF CHANGES IN STOCKHOLDERS' DEFICIT
Statement of Changes in Stockholders' Deficit
Additional
Preferred Common Paid-in Accumulated
Shares Shares Capital Deficit Total
($'000) ($'000) ($'000) ($'000) ($'000)
Balance 31 December 2006 0.01 0.54 2,654 (3,035) (380)
Cash paid for prior year stock grant - - - - -
Sale of common shares 04 January 2007 - 0.03 812 - 812
Sale of common shares on 22 June 2007 - 0.23 12,627 - 12,627
Conversion of convertible debt to - 0.03 1,543 - 1,543
common shares upon IPO
Conversion of preferred stock to (0.01) 0.01 - - -
common shares upon IPO
Issuance of stock options, net of - - 180 - 180
rescissions
Deferred Compensation - - 6 - 6
Net loss - - - (1,837) (1,837)
_____ _____ _____ _____ _____
Balance 30 June 2007 - 0.84 17,822 (4,872) 12,951
4. SHARE-BASED COMPENSATION
During H1 2007, the Company granted options to purchase 66,000 shares of common
stock to employees and consultants. Of these, options for 50,000 shares of
common stock were granted to an employee and a consultant at an option price
equal to a 15% discount to the placing price, or $5.85 per share. The 20,000
options granted to the consultant vested 100% upon the Company's Admission to
AIM and expire ten years from the grant date. The balance of options over
16,000 shares of common stock were granted to employees at an option price of
$7.05 per share. All 46,000 unvested options will vest 25% per year from the
grant date and have a ten year life.
In early H1 2007, options granted in December 2006 to purchase 10,000 shares of
common stock were rescinded. The value of these shares was $26,372, with $4,578
of this value being expensed at 31 December 2006.
The following table summarizes the activity related to stock options outstanding
as of 30 June 2007:
Outstanding at 31 December 31 2006 165,000
Granted 66,000
Forfeited (10,000)
_____
Outstanding at 30 June 2007 221,000
_____
H1 2007 H1 2006
Option Shares Exercise Price Remaining Life Remaining Life
100,000 $ .01 7.9 years 8.4 years
55,000 $ 3.45 9.5 years unissued
20,000 $ 5.85 9.8 years unissued
30,000 $ 5.85 9.8 years unissued
16,000 $ 7.05 10.0 years unissued
At 30 June 2007 and 2006, 175,000 and 33,333 options were vested, respectively.
These options are summarized below:
Vested Range of Weighted Average Weighted Average
Option Shares Exercise Price Exercise Price Remaining Life
H1 2007 175,000 $0.01 - $5.85 $ 1.76 9.1 years
H1 2006 33,333 $ 0.01 $ 0.01 8.4 years
The fair value of the options issued in H1 2007 and 2006 was determined to be
$224,395 and $49,078, respectively. The following assumptions were used to
determine the fair value of the stock options:
2007 2006
Risk free interest rate 4.76% 4.75%
Expected life of options 10 years 10 years
Expected dividends 0% 0%
Volatility 76% 65%
At H1 2007 and 2006, respectively, $180,252, and $3,530 of expense associated
with vested options was recorded in the accompanying statements of operations.
Subsequent to 30 June 2007, options to purchase 15,000 shares of common stock
were granted.
5. CONVERTIBLE PROMISSORY NOTES
During the year ended 31 December 2006 and the period ended 30 June 2005, the
Company entered into several convertible promissory notes totaling $1,070,000
with detachable warrants. In addition, during 2006 the Company entered into
several convertible promissory notes totaling $330,000 without detachable
warrants. Pursuant to note amendments entered into during H1 2007 by all
noteholders, these notes, together with accrued interest, became convertible
into common stock in the event of an IPO. On 22 June 2007 upon the Company's
Admission to AIM, the outstanding convertible promissory note and related
interest payable balance of $1,543,160 converted into 307,287 common shares of
the Company.
During H1 2007, the Company issued warrants over 114,991 shares of common stock
("the H1 2007 warrants") for consultation services during the Company's private
equity raise and the Company's IPO which were completed in H1 2007. The fair
value of these warrants issued in H1 2007 was $451,640. The fair value of the
warrants issued in H1 2006 was $3,242. The fair value of all warrants was
estimated at the date of issuance utilizing the Black Scholes pricing model.
The following assumptions were used to determine the fair value of the warrants
issued in H1 2007 and H1 2006:
2007 2006
Risk free interest rate 4.75% - 5.03% 4.75%
Expected life of options 5 years 5 years
Expected dividends 0% 0%
Volatility 76% 65%
In H1 2007, the value of the warrants was recorded in Additional Paid in Capital
("APIC"). As the warrant issuance represents expenses pursuant to stock
issuances, their value was recorded as a reduction to APIC while the issuance of
the warrants themselves increased APIC in the accompanying balance sheets for
the period ended 30 June 2007. $540 and $1,081 of interest expense was recorded
at 30 June 2007 and 2006, respectively, for the warrants issued in 2006, based
upon the original maturity date of the convertible promissory note and the
average life of the notes with detachable warrants.
6. LEASE COMMITMENTS
The Company leases office space under an operating lease. In September 2006,
the Company renewed the lease agreement through 31 August 2007. The lease was
further amended in 2006 to include additional office space. Through 31 August
2007, the Company is required to pay $3,124 per month, which includes $802 per
month for twelve months that the Company is required to reimburse for build-out
costs to the University of Central Florida. In September 2007, the Company
renewed the lease for a one-year period. Under the new lease, which can be
cancelled without penalty upon giving thirty days notice, the Company is
required to pay $2,322 per month. The Company fulfilled its reimbursement
obligation for the build-out costs with its August 2007 payment.
In September 2007, the Company entered into a separate operating lease for new
office space needed due to expansion. It is expected the company will move into
this space in November 2007 upon completion of build out.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKFKNBBKBCCD
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