TIDMAOI
RNS Number : 4538U
AOI Medical, Inc.
24 June 2009
Press Information
AOI Medical, Inc.
("AOI" or "the Company")
Final Results
London, UK, 24 June 2009 - AOI Medical, Inc., ("AOI" or "the Company") (AIM:
AOI), a medical device company focusing on innovative orthopaedic medical
devices for the spine and trauma markets, has released final results for the
year ended 31 December 2008.
Highlights
· FDA granted AOI approval to commence a 60 patient clinical trial for
Ascendx(TM) VCF Reduction System (treatment for Vertebral Compression Fractures)
in March 2008
· Clinical trial for Ascendx(TM) commenced in June 2008
· Today AOI is pleased to announce it has successfully completed surgical
procedures on 44 patients
· As of today, of the 44 patients treated, 9 were treated in June 2009
· Cash and cash equivalents as of 31 December 2008 were $3.7 million
Bill Christy, CEO of AOI said:
"AOI continued to make great strides in 2008. We are encouraged by the results
we have witnessed through the AscendxTM clinical trial and the feedback from our
physicians. We will continue to invest the majority of our capital and resources
to driving AscendxTM towards a commercial launch. With the addition of the
seventh site, we have gained momentum with the clinical trial as evidenced by
the 9 cases performed to-date in June 2009. The AscendxTM clinical trial
progress remains on track with planned regulatory filing with the FDA later this
year, and we anticipate market launch in Q1 2010."
Enquiries:
+------------------------------------------------------------+--------------------------------------+
| AOI Medical, Inc. | Tel: +1 407 770 1800 |
+------------------------------------------------------------+--------------------------------------+
| William J. Christy, CEO | |
+------------------------------------------------------------+--------------------------------------+
| Angela Johnston, CFO | |
+------------------------------------------------------------+--------------------------------------+
| | |
+------------------------------------------------------------+--------------------------------------+
| Numis Securities Limited | Tel: +44 (0) 20 7260 1000 |
+------------------------------------------------------------+--------------------------------------+
| Nominated Adviser: Michael Meade / Brent Nabbs | |
+------------------------------------------------------------+--------------------------------------+
| Corporate Broking: David Poutney | |
+------------------------------------------------------------+--------------------------------------+
| | |
+------------------------------------------------------------+--------------------------------------+
| The Investor Relations Group | |
+------------------------------------------------------------+--------------------------------------+
| Erika Moran/Tom Caden | Tel: +1 212 825 3210 |
+------------------------------------------------------------+--------------------------------------+
| Public Relations: Susan Morgenbesser | |
+------------------------------------------------------------+--------------------------------------+
Overview
2008 was an important year in AOIs development. On 12 March 2008, AOI received
final approval from the FDA to commence a clinical trial for Ascendx(TM). This
60 patient clinical trial was designed to evaluate the safety and efficacy of
Ascendx(TM), with the primary end point being acute procedural success defined
as successful device deployment, cement delivery, and device withdrawal.The
clinical trial commenced in June 2008, with the first three patients meeting
acute procedural success criteria demanded by protocol and trial progress
consistent with planned regulatory filing with the FDA.
The clinical trial has continued apace in the months since, with the Company
announcing on 31 March 2009, the successful completion of surgical procedures on
30 patients at six sites across the United States. AOI has now successfully
completed surgical procedures on 44 patients at seven sites across the United
States. An adverse event occurred in one case, which was not a result of the
failure of the Ascendx(TM) product. Thus far, physician feedback has been
extremely encouraging; however, clinical outcomes are still being evaluated.
The study will ultimately involve 60 subjects in eight centers across the United
States. The clinical trial is expected to complete its last patient enrollment
in H2 2009, with data from the trial used as clinical support for the Companys
510(k) submission to the FDA. AOI believes that the market launch of Ascendx(TM)
in the United States will take place in Q1 2010.
In 2008 the Company has continued to build its estate of intellectual property
("IP") for other technology platforms, expanding its robust IP portfolio with
three new patent application submissions. In addition to its lead product,
AscendxTM. AOI is also developing two other orthopaedic products: BAMF Trauma, a
fracture reduction device used for the stabilization of fractures and Cervical
Plate, a flexible artificial ligament for use in combination with
motion-preserving alternatives to fusion of the cervical vertebrae. While the
Company has recently redirected resources from these products to help drive the
commercial launch of AscendxTM, we believe that they provide future growth
opportunities for AOI.
Ascendx(TM) VCF Reduction System ("Ascendx(TM)")
Ascendx(TM) is a set of tools designed to treat vertebral compression fractures
of the spine caused by osteoporosis, trauma or cancer. Ascendx(TM) is comprised
of two main instruments: a cutting device that creates a cavity in the
cancellous bone, and an expandable fracture reduction device that is used to
restore height to the fractured vertebra and delivers and controls the medical
grade bone cement (generally polymethylmethacrylate, commonly known as "PMMA")
in the cavity.
AOI received final approval from the FDA on 12 March 2008, to commence a
clinical trial for its lead product, Ascendx(TM). The clinical trial for
Ascendx(TM) commenced in June 2008. AOI announced the successful completion of
surgical procedures on ten patients with the Ascendx(TM) system in October 2008,
30 patients in March 2009, and today announces the successful completion of
surgical procedures on 44 patients. An adverse event occurred in one case, which
was not a result of the failure of the Ascendx(TM) product. The Company is on
track to complete the clinical trial in H2 2009 and expects FDA approval also in
H2 2009 with commercialization to follow in Q1 2010.
Ascendx(TM) presents an attractive market opportunity. The total worldwide
spinal and trauma device market is estimated to be $7.8 billion, a figure
expected to grow 18% annually to $12.2 billion by 2012. Treatment of Vertebral
Compression Fractures (VCF), or collapse of a vertebra due to trauma,
osteoporosis, or benign and/or malignant lesions, represents a significant share
of that figure, some $570 million in 2007 sales, or 7.3% of the total market.
BAMF Trauma (Balloon Assisted Management of Trauma Fractures)
BAMF Trauma (Balloon Assisted Management of Trauma Fractures) is a removable,
inflatable fracture reduction device used for the stabilization of fractures
across various indications. In terms of indications, AOI will initially
concentrate on the upper extremities, and in the medium term, other the long
bones of the legs. AOIs BAMF Trauma differs from the metal rods (commonly
referred to as "nails" in the industry) currently on the market in that it is
composed of a medical grade stainless steel rod inside a balloon.
AOIs BAMF Trauma product has passed Phase I pilot efficacy trial and has
returned initial histology verifying no adverse reactions to the implant,
demonstrating that the device is well tolerated. The information gained from
this pilot study has allowed us to advance development toward Phase II
functional prototypes.
AOI believes 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; adapt to the bone cavity while
in place (internal fixation); and is intended to be easily removed. This last
feature should make the device particularly compelling for treatment of
pediatric patients, for whom growth in the affected limb can be impaired if a
stabilization device is permanently implanted.
Sales of intramedullary rods represent a target market for AOI of over $900
million in 2009, as estimated by Frost and Sullivan
In the near term, while the Company is managing its capital, it is focusing
substantially all of its research and development efforts on its lead product,
AscendxTM. While the Company has recently redirected its resources from this
product, we believe that it provides future growth opportunities for AOI.
Currently, AOI anticipates seeking FDA approval in Q4 2013.
Cervical Plate (Motion Preserving Cervical Dynamic Stabilization Plate)
The Cervical Plate (Motion Preserving Cervical Dynamic Stabilization Plate) is
an anterior, semi-constrained artificial ligament (i.e., joins bone to bone)
providing translational and rotational stabilization at the site of an
intervertebral graft, implant or prosthesis following a cervical spine surgery.
The current practice for severe intractable disc disease is spinal fusion, with
the failure rate after lumbar fusion being reported to be as high as 40 - 50
percent (source: www.Spine-Health.com August 2007).
The Company is planning to obtain FDA approval through a 510(k) submission with
supportive clinical data and will apply for an IDE based upon range of motion
data. Clinical study data will be collected by testing the Cervical Plate in
combination with a motion preserving disc or nucleus replacement device. Further
discussions with the FDA will be necessary to confirm the study design,
requirements and timing.
The current market in the U.S. for a cervical plate featuring dynamic
stabilization is estimated at $410 million and is forecast to grow to almost
$500 million by the end of 2009 (source: Bank of America LLC, 15 February 2008
and AOI internal pricing estimates).
In the near term, while the Company is managing its capital, it is focusing
substantially all of its research and development efforts on its lead product,
AscendxTM. While the Company has recently redirected its resources from this
product, we believe that it provides future growth opportunities for AOI.
Currently, AOI anticipates seeking FDA approval in Q4 2013.
Intellectual Property (Patent) Protection
In 2008 the Company has continued to build its estate of intellectual property
("IP") for other technology platforms, expanding its robust IP portfolio with
three new patent application submissions. In addition to its lead product,
AscendxTM. AOI is also developing two other orthopaedic products: BAMF Trauma, a
fracture reduction device used for the stabilization of fractures and Cervical
Plate, a flexible artificial ligament for use in combination with
motion-preserving alternatives to fusion of the cervical vertebrae. While the
Company has recently redirected resources from these products to help drive the
commercial launch of AscendxTM, we believe that they provide future growth
opportunities for AOI.
Marketing and Commercialization
AOI intends to focus its sales efforts for AscendxTM on our clinical advisory
board physicians. This targeted product release represents a significant sales
opportunity for AOI. With our relationships with the clinical advisory board
physicians strengthened through our clinical progress, we plan on utilizing
independent sales distributors on a commission basis, as needed. We believe our
U.S.-targeted commercial product release is an efficient use of capital to gain
market share. In addition to our targeted distribution strategy, we intend to
enlist a large healthcare company as a U.S. co-marketing partner, to broaden the
scope and effectiveness of our marketing and distribution initiatives worldwide.
Going concern
The Directors regularly monitor the ability of the Company to ensure it has
adequate resources to continue in business for the foreseeable future. The
Directors adopt the going concern basis in preparing the financial statements,
if appropriate. Upon review of the financial information and resources as of 31
December 2008, the Directors have identified a potential shortfall in relation
to the Company's ability to meet the cash requirements beyond 2009. The Board
has reviewed the Company's forecast and related assumptions of the timing of the
completion of the submission of AscendxTM clinical trial data to the FDA, the
timing of the FDA review and the potential commercial launch of AscendxTM during
Q1 2010. In addition, the Directors are taking steps to raise additional
capital. Based on these factors, the Directors believe this gives the Company
the prospect of continuing in business for the foreseeable future and therefore
have continued to adopt the going concern basis in the preparation of the
financial statements. The financial information does not include any adjustments
that might result if the Directors are unsuccessful with putting these measures
in place.
Possible fundraise
After AOIs successful flotation on AIM in June 2007, we recognized that the
Company would require additional capital. On 30 April 2008, the Company
announced that it felt it would be prudent to position itself to raise
additional capital through the issue of further common shares or convertible
securities in excess of the existing issuance authorities of the Company. This
issuance was approved by the shareholders of the Company on 15 May 2008 to
support the Companys corporate goals and future capital raise efforts.
The Company is currently in discussions with its advisers in relation to the
precise nature and timing of any capital raise; however, in deciding the final
form of any such capital raise, the Directors will have regard to the best
interests of the shareholders of the Company. In the meantime, managements
deployment of capital has been judicious and has extended the timing of the
necessity of securing additional capital to the second half of 2009.
Outlook
AOI continued to make powerful strides in 2008 and the Company is encouraged by
the results it has witnessed through the AscendxTM clinical trial and the
feedback from our physicians. We believe we are well on our way to achieving our
goal of providing the next generation of care to better patients quality of
life. AOI will continue to invest the majority of its capital and resources
towards a commercial launch of AscendxTM. We see the clinical data, FDA
clearance and subsequent commercialization to be major value drives for the
Company. An aging population and decreased acceptance of current techniques
enhance the opportunity for AOI. We believe the Company is well placed to take
advantage of these trends.
About AOI Medical, Inc.
AOI is a
medical device company focusing on the development and commercialization of
innovative orthopaedic medical devices for the spine and trauma markets. It is
progressing the development of three separate technology platforms: Ascendx(TM)
VCF Reduction System, BAMF Trauma and Cervical Plate. Further information can be
found at www.aoimedical.net.
FINANCIAL REVIEW
INCOME STATEMENT
Revenue
AOI is an early stage medical device company and as such currently has not yet
derived revenue from principal operations. Revenues of $47,000 were earned in
2008 solely from the Food and Drug Administration approved clinical trial for
AscendxTM, the Companys lead product.
Expenses
Operating expenses increased by $1.3 million to $6.1 million versus the twelve
months ended 31 December 2007 $4.8 million.
Total research and development ("R&D") expenditures increased over the prior
year from $1.6 million to $2.5 million. This reflected increased investment in
the development of its product platforms, including clinical trial activities
for the lead product, Ascendx(TM). Of the total increase, clinical trial
expenditures account for $0.7 million with compensation, employee benefits and
travel expenses accounting for the remaining $0.2 million.
Sales and marketing costs were $785,000 (2007: $607,000), largely due to an
increase in professional fees related to public relations. These fees were
incurred as a result of being a public company for all of 2008 compared to six
months in 2007. Sales and marketing costs are expected to grow in 2009 as the
Company prepares for the commercial launch of Ascendx(TM), subject to FDA
approval.
Administrative expenses were $2.6 million (2007: $2.5 million). Of this,
compensation, employee benefits and travel expenses account for $1.4 million
(2007: $1.6 million), a decrease of $0.2 million. This reflects a decrease in
salaries of $0.4 million offset by an increase in stock option compensation
expense, a non-cash item, of $0.2 million. The remaining net increase in other
administrative expenses reflects increased compliance related expenditures as a
result of being a public company including legal fees, accounting fees and
annual report expenses as well as an increase in depreciation expense as a
result of the acquisition of property and equipment during the last two years.
Net other income was approximately $8,000 (2007: $298,000) related to interest
income earned net of realized loss on the sale of fixed income trading
securities. During 2007, interest income of $318,000 and an unrealized gain on
trading securities of $45,000 were partially offset by interest expense of
$65,000. No interest expense was incurred in 2008 as all outstanding debt
converted into common shares upon the Companys IPO on AIM in June 2007.
BALANCE SHEET
Cash and cash equivalents
The Company had cash and cash equivalents of $3.7 million at 31 December 2008
compared with $3.4 million at 31 December 2007. The increase in cash and cash
equivalents is a result of net cash provided by operating activities of $1.4
million largely due to the sale of Investments of $6.9 million with the net
proceeds deposited into operating cash. As of 31 December 2008, nil cash had
been collected from the clinical trial and was reflected in accounts receivable.
The increase in net cash provided by operating activities was partially offset
by net cash used in investing and financing activities of $0.4 million and $0.6
million, respectively.
Other current assets
The Company had other current assets of $1.3 million at 31 December 2008
compared with $7.3 million at 31 December 2007. At 31 December 2008 other
current assets consist primarily of inventory of $0.5 million and deferred
charges of $0.7. At 31 December 2007 other current assets consist primarily of
investments of $7.0 million and prepaid expenses of $0.2 million. The decrease
in investments reflects the sale of fixed income trading securities subsequent
to 31 December 2007, with the proceeds transferred to accounts classified as
cash and cash equivalents at 31 December 2008. Deferred charges at 31 December
2008 are costs incurred related to the Companys potential capital raise.
Property and equipment, net
Property and equipment, net increased to $592,000 (2007: $539,000). Of this net
increase, $235,000 reflects the purchase of tooling, machinery and equipment
needed for research and development and production efforts, offset by current
year depreciation.
Intangible Assets, net
Intangible Assets, net is comprised of capitalized patent costs of $164,000
(2007: $112,000) and capitalized license costs of $387,000 (2007: $290,000), net
of accumulated amortization of $60,000 (2007: $33,000). The $52,000 increase in
capitalized patent costs is related to the Companys patent portfolio. The
increase in capitalized license costs over 2007 largely reflects payments of
$51,000 in cash and the grant of options to purchase up to 13,242 shares of
common stock in accordance with the achievement of certain milestones. The fair
market value of these options on the grant date was $41,060 and is a non-cash
item.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses decreased to $596,000 in 2008 from
$765,000 in 2007 largely due to payments subsequent to 31 December 2007 offset
by an increase in accounts payable and other accrued expenses related to
inventory, the potential capital raise and AscendxTM clinical trial costs.
Share capital
The Company had 8.4 million USD$0.0001 ordinary shares outstanding at 31
December 2008 and 31 December 2007.
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| STATEMENTS OF OPERATIONS | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Year ended 31 December | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | Audited |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | Audited | | Audited | | Cumulative |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | 2008 | | 2007 | | Since Inception |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | $000 | | $000 | | $000 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Revenues | 47 | | - | | 47 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Cost of Sales | 18 | | - | | 18 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Gross Profit | 29 | | - | | 29 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Research and development | 2,524 | | 1,578 | | 4,551 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Operations | 143 | | 113 | | 338 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Sales and marketing | 785 | | 607 | | 1,452 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| General and administrative | 2,640 | | 2,487 | | 7,091 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Total operating expenses | 6,092 | | 4,785 | | 13,432 |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Operating loss | (6,063) | | (4,785) | | (13,403) |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Other income (expense) net | 8 | | 298 | | (175) |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Net loss and deficit accumulated during | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| development stage | (6,055) | | (4,487) | | (13,578) |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Net loss per share, basic and diluted - dollars | (0.72) | | (0.63) | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| Weighted average common shares outstanding | | | | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
| basic and diluted | 8,431,479 | | 7,126,702 | | |
+----------------------------------------------------+----------------+---+--------------+---+-----------------------+
+------------------------------------------------------------+-------------+------------------+---------------+
| Balance Sheets | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Year ended 31 December | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | Audited | Audited |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | 2008 | 2007 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | Notes | $000 | $000 |
+------------------------------------------------------------+-------------+------------------+---------------+
| ASSETS | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| CURRENT ASSETS | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Cash and cash equivalents | 1 | 3,696 | 3,358 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Other current assets | | 1,341 | 7,260 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total current assets | | 5,037 | 10,618 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Property and equipment, net | | 592 | 539 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Intangible assets, net | | 554 | 402 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Other assets | | 32 | 31 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total assets | | 6,215 | 11,590 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| LIABILITIES AND STOCKHOLDERS EQUITY | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| CURRENT LIABILITIES | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Accounts payable and accrued expenses | | 596 | 765 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total current liabilities | | 596 | 765 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| LONG-TERM LIABILITIES | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Deferred rent | | 36 | 47 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total long-term liabilities | | 36 | 47 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Commitments (Notes 4 and 8) | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Stockholders Equity: | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Preferred stock | 3 | - | - |
+------------------------------------------------------------+-------------+------------------+---------------+
| Common stock | 3 | 1 | 1 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Additional paid-in capital | 3 | 19,160 | 18,300 |
+------------------------------------------------------------+-------------+------------------+---------------+
| Deficit accumulated during development stage | 3 | (13,578) | (7,523) |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total stockholders equity | | 5,583 | 10,778 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
| Total liabilities and stockholders equity | | 6,215 | 11,590 |
+------------------------------------------------------------+-------------+------------------+---------------+
| | | | |
+------------------------------------------------------------+-------------+------------------+---------------+
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| STATEMENTS OF CASH FLOWS | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Year ended 31 December | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | Audited |
| | | | Cumulative |
| | | | Since Inception |
| | | | $000 |
+-----------------------------------------------------------------+---------------+--------------+ +
| | Audited | Audited | |
| | 2008 | 2007 | |
| | $000 | $000 | |
+-----------------------------------------------------------------+ + + +
| | | | |
+-----------------------------------------------------------------+ + + +
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Net loss | (6,055) | (4,487) | (13,578) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Adjustments to reconcile net loss to net cash provided by | | | |
| (used in) | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| operating activities: | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Depreciation and amortization | 230 | 68 | 332 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Write off deferred charges and other costs | - | - | 83 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Loss on disposal of property and equipment | 5 | 2 | 7 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Loss on investments | 171 | - | 173 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Stock grants and options | 781 | 436 | 1,267 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Deferred compensation | 38 | 251 | 290 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Unrealized gain on investments | - | (45) | (45) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Changes in operating assets and liabilities: | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Sales (purchases) of investments | 6,874 | (7,000) | (126) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Inventory | (541) | - | (541) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Other current assets | 68 | (198) | (147) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Other assets | - | (15) | (18) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Accounts payable and accrued expenses | (188) | 683 | 745 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Deferred rent | (11) | 47 | 36 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Net cash provided by (used in) operating | 1,372 | (10,258) | (11,522) |
| activities | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Intangible assets | (141) | (125) | (576) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Purchase of property and equipment | (259) | (554) | (878) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Proceeds from disposition of property and equipment | - | 13 | 13 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Net cash used in investing activities | (400) | (666) | (1,441) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Borrowings on convertible promissory notes | - | - | 1,400 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Repayment of convertible promissory note | - | (25) | (25) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Issuance of stock, net | - | 13,416 | 16,001 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Payment for placement costs | - | - | (79) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Borrowings on note payable | - | - | 79 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Repayment of note payable | - | (66) | (79) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Increase in deferred charges | (634) | - | (634) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Increase in other assets | - | - | (4) |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Net cash provided by (used in) financing | (634) | 13,325 | 16,659 |
| activities | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 338 | 2,401 | 3,696 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Cash and cash equivalents, beginning of period | 3,358 | 957 | - |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| CASH AND CASH EQUIVALENTS, END OF PERIOD | 3,696 | 3,358 | 3,696 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Supplemental cash flow information: | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Cash paid during the year for interest | - | 12 | 30 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Cash paid during the year for taxes | - | - | - |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Supplemental disclosure of non-cash activity: | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Issuance of stock options and warrants | 41 | 452 | 496 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Deferred charges unpaid at end of period | 19 | - | 19 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Conversion of convertible promissory notes and related accrued | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| Interest to common shares upon IPO | - | 1,543 | 1,543 |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
| | | | |
+-----------------------------------------------------------------+---------------+--------------+-------------------+
NOTES TO THE AUDITED FINAL RESULTS
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial information has been prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
Results for the periods ended 31 December 2008 and 2007 have been extracted from
the audited financial statements.
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.
Accounts Receivable
Accounts receivable are stated at amounts management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances still
outstanding after management has used reasonable collection efforts are written
off through a charge to the valuation allowance and a credit to accounts
receivable.
Inventory
Inventory is stated at the lower of cost or market. The Company uses the average
cost method of determining cost for its inventory.
Deferred Charges
Deferred charges represent costs incurred directly related to a capital raise,
which would be offset against any proceeds raised.
During 2008 the Company incurred costs of approximately $653,000 related to a
potential capital raise. These costs are recorded as deferred charges as of
December 31, 2008.
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. Amortization of leasehold improvements
is estimated on a straight-line basis over the estimated lives of the related
asset or applicable lease term, if shorter. 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.
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets for the years ended December 31, 2008 and 2007, consist of
capitalized patent costs of $163,589 and $111,657, respectively, and capitalized
license costs of $387,023 and $290,091, respectively, net of accumulated
amortization of $59,706 and $32,513, respectively. Amortization of existing
capitalized license costs for each of the next five years will be approximately
$32,700, with approximately $223,700 of amortization to be recorded thereafter.
The Company records the acquisition and amortization of license and patent costs
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets. License costs include payments to the
licensor, grants of options to purchase shares of common stock, 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 lives ranging from 14 to 15
years.
Patent costs include legal costs incurred in the pursuit of acquiring a patent
including various patent applications and filing fees. Once a 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 costs at that time. There was no
amortization expense relating to patents for the years ended December 31, 2008
and 2007, because no Company owned patents have been granted.
The Company reviews license and patent costs for impairment in accordance with
SFAS 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 license costs and
patent costs. For the years ended December 31, 2008 and 2007, the Company had no
impairment on its unamortized license and patent costs.
Investments
Management determines the classification of their investments upon acquisition,
based upon the purpose for which the investments were acquired, and reevaluates
this designation at each reporting date. Investments include trading securities.
Such investments are accounted for under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Unrealized gains and losses are
charged to operations and the investment is carried at its new basis. The
Company recorded a realized loss on investments of $171,005 in 2008 and an
unrealized gain on investments of $45,324 in 2007.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share. SFAS No. 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of the Company. The impact of stock options was anti-dilutive,
therefore basic and diluted net loss per share are the same. All options,
warrants, and convertible debt were excluded for the year ended December 31,
2008 and 2007, due to the Companys net loss.
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Values of Financial Instruments
In accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments under this
statement and includes this additional information in the notes to financial
statements when the fair value is different than the carrying value of those
financial instruments. The estimated fair value of cash equivalents and accounts
payable approximate the carrying amounts due to the relatively short maturity of
these instruments. None of these instruments are held for trading purposes.
Revenue Recognition
Revenue is realized and earned when all of the following criteria are met:
persuasive evidence of a sales arrangement exists; delivery has occurred and the
product has been used; the price is fixed or determinable; and collectibility is
reasonably assured. Revenues of $46,680 were earned in 2008 solely from the Food
and Drug Administration approved clinical trial for AscendxTM, the Companys
lead product.
Income Taxes
Deferred income taxes are determined using the asset and liability method in
accordance with SFAS No. 109, Accounting for Income Taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, a valuation allowance is established to reduce any
deferred tax asset for which it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized (see Note 9).
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
On January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123(R), Share-Based Payment ("SFAS 123R"). Prior to January 1, 2006,
the Company accounted for share-based payments under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). In accordance with APB 25, no compensation cost was
required to be recognized for options granted that had an exercise price equal
to the market value of the underlying common stock on the date of grant.
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company adopted SFAS 123R using the modified prospective application method.
Under this method, compensation cost recognized for the years ended December 31,
2008 and 2007, includes: compensation cost for all share-based payments granted
prior to, but not yet vested, as of January 1, 2006, based on the grant-date
fair value estimated in accordance with the original provisions of SFAS 123. In
addition, deferred stock compensation related to non-vested options is required
to be eliminated against additional paid-in capital upon adoption of SFAS 123R.
Accounting for the Issuance of Debt with Warrants
The Company accounts for debt issued with warrants under the provisions of 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 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 and recorded
as interest expense. Upon the Companys IPO in June 2007 and the subsequent
conversion of the notes into common stock, the unamortized balance of the
discount was recorded as interest expense. No debt has been issued as of
December 31, 2008.
Recent Accounting Pronouncements
In July 2006 the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
This interpretation, among other things, creates a two-step approach for
evaluating uncertain tax positions. Recognition (step one) occurs when an
enterprise concludes that a tax position, based solely on its technical merits,
is more likely than not to be sustained upon examination. Measurement (step two)
determines the amount of benefit that more likely than not will be realized upon
settlement. Derecognition of a tax position that was previously recognized would
occur when a company subsequently determines that a tax position no longer meets
the more likely than not threshold of being sustained. FIN 48 specifically
prohibits the use of a valuation allowance as a substitute for derecognition of
tax positions, and it has expanded disclosure requirements. FIN 48 is effective
for fiscal years beginning after December 15, 2008, in which the impact of
adoption should be accounted for as a cumulative-effect adjustment to the
beginning balance of retained earnings. The Company is evaluating FIN 48 and has
not yet determined the impact the adoption will have on its financial
statements.
In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
157"), which defines fair value as the price that would be received to sell an
asset or that would be paid to transfer a liability in an orderly transaction
between market participants at the measurement date. SFAS 157 establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The requirements of SFAS 157 became effective for the Companys
fiscal year 2008. However, in February 2008 the FASB decided that an entity need
not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until the subsequent year. Accordingly, the Companys
adoption of this standard on January 1, 2008, was limited to financial assets
and liabilities. The financial assets and liabilities as reported in the
Companys financial statements approximate their respective fair value. The
Company is in the process of evaluating this standard with respect to its effect
on nonfinancial assets and liabilities and therefore has not yet determined the
impact that it will have on the Companys financial statements upon full
adoption.
NOTE 2 GOING CONCERN
The accompanying financial statements have been prepared on a basis of
accounting assuming that it is a going concern, which contemplates realization
of assets and satisfaction of liabilities in the normal course of business. The
Company lacks operating capital and has reported a net loss of $6,055,550 and
$4,487,325 for 2008 and 2007, respectively, which raises substantial doubt about
its ability to continue as a going concern.
The Company plans to raise additional capital in 2009. In addition, the Company
is developing products to meet its current and ongoing obligations. Continued
existence of the Company is dependent on the Companys ability to generate
revenue and obtain adequate funding. The financial statements do not include
adjustments that might result from the outcome of this uncertainty.
NOTE 3 RECONCILIATION OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) | | |
+---------------------------------------------------------------------------------------------------------------------+-------------------+---------------------+
| Year ended 31 December | | | | |
+----------------------------------------------------------------+-------------------------------+--------------------+-------------------+---------------------+
| | | | | | |
+---------------------------------+------------------------------+-------------------------------+--------------------+-------------------+---------------------+
| | | | Additional | | Total |
| | | | Paid-In | | Stockholders |
| | | | Capital | | Equity |
| | | | $000 | | (Deficit) |
| | | | | | $000 |
+---------------------------------+------------------------------+-------------------------------+ +-------------------+ +
| | Preferred Stock | Common Stock | | Accumulated | |
| | | | | Deficit | |
| | | | | $000 | |
+---------------------------------+------------------------------+-------------------------------+ + + +
| | Shares | Amount | | | | Shares | Amount |
| | '000 | $000 | | | | '000 | $000 |
+---------------------------------+ + + + + + + +
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| BALANCE, DECEMBER 31, 2006 | 121 | .01 | 5,441 | .54 | | (3,036) | (381) |
| | | | | | 2,654 | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Sale of common stock, net | | | 2,554 | .25 | 12,964 | | 12,964 |
| | - | - | | | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Conversion of preferred stock | | | | | | | |
| to | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| common shares upon IPO | (121) | (.01) | 121 | .01 | | | |
| | | | | | - | - | - |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Conversion of convertible debt | | | | | | | |
| to | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| common shares upon IPO | | | 307 | .03 | 1,543 | | 1,543 |
| | - | - | | | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Issuance and exercise of | | | | | | | |
| warrants and stock-based | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| compensation | | | 8 | .01 | 887 | | 887 |
| | - | - | | | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Deferred compensation | | | - | | 252 | | 252 |
| | - | - | | - | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Net loss | | | - | | | (4,487) | (4,487) |
| | - | - | | - | - | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| BALANCE, DECEMBER 31, 2007 | | | 8,431 | .84 | 18,300 | (7,523) | 10,778 |
| | - | - | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Exercise of warrants and stock- | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| based compensation | | | 5 | .01 | 822 | | 822 |
| | - | - | | | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Deferred compensation | | | - | | 38 | | 38 |
| | - | - | | - | | - | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| Net loss | | | - | | | (6,055) | (6,055) |
| | - | - | | - | - | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| | | | | | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
| BALANCE, DECEMBER 31, 2008 | - | | 8,436 | | 19,160 | (13,578) | 5,583 |
| | | - | | .85 | | | |
+---------------------------------+-------------+----------------+--------------+----------------+--------------------+-------------------+---------------------+
NOTE 4 COMMITMENTS
During 2007 the Company entered into a lease agreement for a period of three
years for office space which commenced October 1, 2007, when the Company had
physical control over the property. For the first year of the lease agreement,
the Company was required to pay $17,006 per month in rent, as defined in the
lease to include base rent, operating expenses, and applicable sales tax. The
terms of the lease include annual base rent increases of 3.5% upon each
anniversary of the commencement date and allow for increases to the operating
expenses. The Company has the option to renew the lease upon expiration for an
additional three-year term. The lease granted the Company $40,000 of free rent
and a leasehold improvement allowance of $10,000. The Company was also required
to pay the landlord a refundable security deposit of $16,000. The Company
records monthly rent expense of $16,555, as calculated on a straight-line basis,
net of free rent. The difference between the cash payment and the straight-line
rent expense is charged to deferred rent. The leasehold improvement allowance
was recorded to deferred lease incentive, a component of deferred rent, and is
amortized over the life of the lease as a reduction to rental expense of
approximately $278 per month.
Total rental expense for 2008 and 2007 was approximately $195,000 and $84,000,
net of deferred lease incentive amortization of approximately $3,300 and $800,
respectively.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 2008, are summarized as
follows:
+---------------------+-----------+------------------+
| Year Ending | | |
+---------------------+-----------+------------------+
| December 31, | | Total |
+---------------------+-----------+------------------+
| | | |
+---------------------+-----------+------------------+
| 2009 | | $ 197,400 |
+---------------------+-----------+------------------+
| 2010 | | 166,000 |
+---------------------+-----------+------------------+
| 2011 | | |
| | | - |
+---------------------+-----------+------------------+
| 2012 | | |
| | | - |
+---------------------+-----------+------------------+
| 2013 | | |
| | | - |
+---------------------+-----------+------------------+
| Thereafter | | |
| | | - |
+---------------------+-----------+------------------+
| | | $ 363,400 |
+---------------------+-----------+------------------+
NOTE 5 CAPITAL STRUCTURE
The Companys capital structure is as follows at December 31, 2008:
+---------------+------+----------------+-----+-------------------+-------+----------------+
| Type | | Par Value | | Authorized | | Issued and |
| | | | | | | Outstanding |
+---------------+------+----------------+-----+-------------------+-------+----------------+
| | | | | | | |
+---------------+------+----------------+-----+-------------------+-------+----------------+
| Preferred | | $ 0.0001 | | 10,000,000 | | |
| | | | | | | - |
+---------------+------+----------------+-----+-------------------+-------+----------------+
| Common | | $ 0.0001 | | 50,000,000 | | 8,436,489 |
+---------------+------+----------------+-----+-------------------+-------+----------------+
The Company designated 400,000 shares of preferred stock as Series A Convertible
Preferred Stock. Each share was convertible into one share of common stock and
was entitled to vote with common stock on an as converted basis. These shares
were originally entitled to pre-emptive rights with respect to the issuance of
any new securities by the Company. During 2006 the Board elected to delete the
pre-emptive rights for the Series A Convertible Preferred Stock in their
entirety. The Company originally intended to raise a minimum of $2,000,000 in a
Series A offering of 400,000 shares of Convertible Preferred Stock at $5.00 a
share. The Company received $605,000 in proceeds from the Series A offering of
121,000 shares in 2005, and does not intend to raise any further proceeds from
this offering. All 121,000 shares of the Companys preferred stock issued and
outstanding were converted to common stock upon the Companys Initial Public
Offering ("IPO") on the Alternative Investment Market ("AIM") in 2007 on a
one-to-one basis.
NOTE 5 CAPITAL STRUCTURE (CONTINUED)
During 2006, the Board granted 130,000 shares of common stock to certain members
of its clinical and scientific advisory board. Based on the fair market value at
the date of grant of $0.10 a share, the Company recorded compensation and
consultation expense and common stock and additional-paid-in-capital of $13,000.
During 2006 the Company entered into an agreement with an overseas investment
bank to raise up to $3 million in capital through a private placement memorandum
(the "Private Placement"). The Company issued 650,937 shares of common stock to
various stockholders for $1,996,019, net of offering expenses of approximately
$256,000. The investment bank raised an additional net $811,626 in 2007 through
the sale of 227,762 shares of common stock. Additionally, during 2007 upon the
closing of the Private Placement and pursuant to the agreement, the Company
issued a warrant to the overseas investment bank with a fair market value of
approximately $65,000.
On June 22, 2007, the Company raised approximately $15.8 million in capital
through the sale of 2,325,583 shares of common stock pursuant to an IPO on AIM,
and incurred approximately $3.6 million in total costs related to the IPO,
resulting in approximately $12.2 million of net proceeds. Costs related to the
IPO included investment bank fees and commissions paid in cash (see below) and
warrants as well as legal, audit, and professional consultancy fees.
On June 12, 2007, the Company entered into a placing agreement (the "Agreement")
with an investment bank to act as a financial advisor, broker, and joint
bookrunner in connection with its proposed IPO.
The Agreement called for payment of a corporate finance fee to the investment
bank, which totaled approximately $600,000, and $250,000 to the joint
bookrunner, reimbursement for all out-of-pocket expenses, and a cash placing
commission of 5% calculated on the basis of the aggregate value, at the placing
price, of the new common shares issued by the Company pursuant to the IPO. The
investment bank separately reached an agreement on the division of this placing
commission with another investment bank (the "Joint Bookrunner"). The total
amount paid to the investment bank and the Joint Bookrunner in connection with
the IPO, as converted to U.S. dollars, was approximately $1,100,000 and
$590,000, respectively. In addition, the Agreement called for the investment
bank and the Joint Bookrunner to receive a warrant to subscribe for 1% and
$12,500 worth of the issued and outstanding share capital of the Company,
immediately post IPO, exercisable, in whole or in part, at any time following
IPO at an exercise price equal to the placing price of the new common shares
issued by the Company pursuant to the IPO. These warrants shall expire five
years after admission to AIM or on June 22, 2012. Two separate agreements
supporting these warrants were entered into between the Company and the
investment bank and the Company and the Joint Bookrunner.
The Company entered into a separate agreement with the investment bank to serve
as nominated adviser and broker to the Company on and after admission to AIM for
a minimum initial period of 12 months for an annual fee of GBP50,000. This
agreement was renewed during 2008 with the same terms as the initial agreement,
with the GBP50,000 fee valued at approximately $72,000 at December 31, 2008.
In January 2007 pursuant to the Private Placement, the Company entered into an
agreement with the investment bank to grant them a warrant for 0.5% of the share
capital of the Company following the Private Placement equating to 28,948 common
shares at an exercise price of GBP1.82 ($2.64 at December 31, 2008), the price
at which the common shares were issued in the private placement. This warrant is
exercisable in whole or in part at any time from January 4, 2007 until January
4, 2012.
NOTE 5 CAPITAL STRUCTURE (CONTINUED)
Upon the IPO, the Company converted all outstanding convertible promissory notes
together with accrued interest to 307,287 shares of common stock (see Note 7).
Certain convertible promissory notes included detachable warrants, which when
the underlying notes converted, became exercisable into common shares. During
2008 and 2007 warrants to purchase 5,769 and 8,151 shares of common stock,
respectively, were exercised.
In January 2008 the Company engaged a domestic investment bank to act as its
placement agent in connection with a potential capital raise. The term of the
arrangement was for one year and was renewed for a one year term subsequent to
December 31, 2008 (see Note 10).
NOTE 6 STOCK BASED COMPENSATION
Common stock may, at the discretion of the Board of Directors, be granted.
Common stock grants require no payment from the employee and compensation cost
is recorded based on the fair market value on the grant date over the related
vesting period. The Board approves the fair market value, which is determined by
using an appropriate valuation method, including a comparable transaction
approach. Vesting periods are determined by the Board.
During 2006, the Company granted options to purchase 165,000 shares of common
stock to employees and consultants. All options vested immediately upon the
Companys IPO (the "2006 grant").
The Company reserved 10% of the issued shares of common stock for issuance under
the 2007 Incentive Plan (the "2007 Plan"), excluding any awards granted prior to
the Companys IPO on June 22, 2007. Of those shares, 500,000 are reserved for
issuance of incentive stock options. Under the 2007 Plan, the Compensation
Committee is authorized to issue incentive stock options to employees and
nonqualified stock options to consultants or employees of the Company.
During 2008 and 2007 the Company granted options to purchase 156,977 and 358,917
shares of common stock, respectively, to employees and consultants (the "2008
grant" and the "2007 grant", respectively). As of December 31, 2008 and 2007,
the Company had 642,894 and 502,917 options outstanding, respectively, net of
rescissions of 38,000 and 21,000 options, respectively. Of these, 345,226 and
181,306 were fully vested at December 31, 2008 and 2007, respectively. Options
to purchase 215,000 shares of common stock were granted prior to the Companys
IPO (the "pre-IPO options"), with 10,000 options rescinded during 2007. All of
these options were outstanding at December 31, 2008.
The 2008 grant and the 2007 grant each included a grant to a certain licensor,
pursuant to the license agreement, to purchase 13,242 and 6,306 shares of common
stock, respectively. These options were fully vested upon issuance and their
fair value of $41,060 and $27,908, respectively, was recorded in intangible
assets and additional paid-in capital.
Options expire five to ten years from the grant date and outstanding options are
exercisable at $0.01 to $7.07 per share. The remaining unvested options to
purchase up to 297,668 shares of common stock will vest over a period of one
month to 3.78 years and are exercisable at $3.40 to $6.75 per share. All options
vest immediately upon a change of control, as defined in the Companys 2007
Plan.
The following table summarizes the plan's stock option activity during the years
ended December 31, 2008 and 2007:
+-----------------------------------------------+-------------------+--------+------------------+
| | Number of Options | | Weighted |
| | | | Average |
| | | | Exercise Price |
+-----------------------------------------------+-------------------+--------+------------------+
| | | | |
+-----------------------------------------------+-------------------+--------+------------------+
| Outstanding at December 31, 2006 | 165,000 | | $ 1.37 |
+-----------------------------------------------+-------------------+--------+------------------+
| Granted | 358,917 | | 6.18 |
+-----------------------------------------------+-------------------+--------+------------------+
| Forfeited | (21,000) | | 5.34 |
+-----------------------------------------------+-------------------+--------+------------------+
| Outstanding at December 31, 2007 | 502,917 | | 4.64 |
+-----------------------------------------------+-------------------+--------+------------------+
| Granted | 156,977 | | 3.79 |
+-----------------------------------------------+-------------------+--------+------------------+
| Forfeited | (17,000) | | 5.10 |
+-----------------------------------------------+-------------------+--------+------------------+
| Outstanding at December 31, 2008 | 642,894 | | 4.42 |
+-----------------------------------------------+-------------------+--------+------------------+
| | | | |
+-----------------------------------------------+-------------------+--------+------------------+
| Exercisable at December 31, 2008 | 345,226 | | $ 3.96 |
+-----------------------------------------------+-------------------+--------+------------------+
NOTE 6 STOCK BASED COMPENSATION (CONTINUED)
The following table shows total stock-based compensation expense:
+----------------------------------------+---+----------------+--------+--------------------------------+
| | Year Ended December 31, |
+----------------------------------------+--------------------------------------------------------------+
| | | 2008 | | 2007 |
+----------------------------------------+---+----------------+--------+--------------------------------+
| | | | | |
+----------------------------------------+---+----------------+--------+--------------------------------+
| Research and development | | $ 315,389 | | |
| | | | | $ |
| | | | | 179,070 |
+----------------------------------------+---+----------------+--------+--------------------------------+
| Sales and marketing | | 80,818 | | 78,813 |
+----------------------------------------+---+----------------+--------+--------------------------------+
| General and administrative | | 385,240 | | 149,960 |
+----------------------------------------+---+----------------+--------+--------------------------------+
| | | | | |
+----------------------------------------+---+----------------+--------+--------------------------------+
| | | $ 781,447 | | |
| | | | | $ |
| | | | | 407,843 |
+----------------------------------------+---+----------------+--------+--------------------------------+
The options outstanding and exercisable at December 31, 2008, are as follows:
+----------------+---+-------------+---+----------------+---+----------------+
=-+-------------+---+-------------+---+-----------------+---+-------------+
|
| | Options Outstanding
| | Options Exercisable
|
+----------------+---+-----------------------------------------------------
=------------------+---+-----------------------------------------------------+
| Range of | | Number | | Weighted | | Weighted |
| Aggregate | | Options | | Weighted | | Aggregate |
|
Exercise | | Outstanding | | Average | | Average | |
Intrinsic | | Exercisable | | Average | | Intrinsic |
|
Prices | | | | Remaining | | Exercise | |
Value | | | | Exercise | | Value |
|
| | | | Life | | Price | |
| | | | Price | | |
|
| | | | in Years | | | |
| | | | | |
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| | | | | | | |
| | | | | | |
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| $0.01 - $3.70 | | 253,235 | | 2.7 | $ | |
$ | $ | | 158,679 | $ | $ | $ | $ |
|
| | | | | | $2.08 | |
307,000 | | | | 1.28 | | 307,000
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| $4.03 - $5.99 | | 160,742 | | 3.6 | | 4.92 |
| | | 53,742 | | 5.23 | | |
|
| | | | | | | |
- | | | | | | -
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| $6.63 - $6.75 | | 222,611 | | 4.0 | | 6.63 |
| | | 126,499 | | 6.63 | | |
|
| | | | | | | |
- | | | | | | -
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| $7.07 | | 6,306 | | 3.6 | | 7.07 |
| | | 6,306 | | 7.07 | | |
|
| | | | | | | |
- | | | | | | -
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| | | | | | | |
| | | | | | |
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
| | | 642,894 | | 3.4 | $ | |
$ | $ | | 345,226 | $ | $ | $ | $ |
|
| | | | | | $4.42 | |
307,000 | | | | 3.96 | | 307,000
|
+----------------+---+-------------+---+----------------+---+--------------
-+---+-------------+---+-------------+---+-----------------+---+-------------+
The fair value of the options issued in 2008 and 2007 using the Black-Scholes
Options Pricing Model was determined to be $385,327 and $1,381,994,
respectively, using a weighted average forfeiture rate of 5.3% and 0%,
respectively. At December 31, 2008, approximately $517,000 of unrecognized
compensation expense remained to be expensed over a weighted average period of
2.7 years.
The following weighted average assumptions were used to determine the fair value
of the stock options:
+------------------------------------+----------------+-----+----------------+
| | 2008 | | 2007 |
+------------------------------------+----------------+-----+----------------+
| | | | |
+------------------------------------+----------------+-----+----------------+
| Risk free interest rate | 2.7% | | 4.6% |
+------------------------------------+----------------+-----+----------------+
| Expected life of options | 3.5 years | | 5.2 years |
+------------------------------------+----------------+-----+----------------+
| Expected dividends | 0% | | 0% |
+------------------------------------+----------------+-----+----------------+
| Volatility | 99% | | 78% |
+------------------------------------+----------------+-----+----------------+
Subsequent to December 31, 2008, options to purchase 35,875 shares of common
stock from the 2006, 2007 and 2008 grants were rescinded.
NOTE 7 CONVERTIBLE PROMISSORY NOTES
During 2006 and 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. The notes had an interest rate at 10% per annum and
were payable on demand at any time on or after the first anniversary date of the
note.
The notes were convertible into common stock in the event of: (1) a private
equity offering of at least $20 million, (2) an initial public offering of at
least $25 million, (3) a merger, acquisition, or consolidation of the Company,
as defined, or (4) maturity.
The December 31, 2006 balance included a $25,000 convertible promissory note due
to an entity related to an Officer of the Company. During 2007 this note,
together with $2,445 in related accrued interest, was repaid in full.
NOTE 7 CONVERTIBLE PROMISSORY NOTES (CONTINUED)
During 2007 the Company amended all convertible promissory notes to provide for
the notes, together with accrued interest, to be automatically converted into
shares of common stock of the Company upon an IPO, without regard to the amount
of the offering. Accordingly, upon the IPO, the outstanding convertible note
balance of $1,375,000, together with approximately $168,000 in accrued interest,
converted into 307,287 shares of common stock.
NOTE 8 LICENSE AGREEMENTS
During 2006 the Company entered into two license agreements with unrelated
parties. In consideration of the rights and licenses granted under the first
agreement, the Company must award the licensor $275,000, $168,055 which is
payable in cash and $106,945 which is payable in stock options. As of December
31, 2008 and 2007, $61,110 was paid in cash to the licensor and no stock options
were granted.
In consideration of the rights and licenses granted under the second agreement,
the Company must award the licensor $725,000, $423,612 which is payable in cash
and $301,388 which is payable in stock options. These payments are made based on
a function of time and the achievement of certain milestones, as defined in the
agreement. The total number of options granted is a function of the option value
divided bythe then current fair market value of common stock of the Company as
each milestone is achieved. As of December 31, 2008 and 2007, $288,695 and
$208,556 was paid in cash to the licensor, respectively. During 2008 and 2007
options to purchase up to 13,242 and 6,306 shares of common stock, respectively
were granted. The fair market value of these options on the grant date was
$41,060 and $27,908, respectively.
The current fair market value of common stock of the Company is determined by
the Companys stock price on AIM at the date of milestone achievement. In
addition, the Company is required to pay royalties under these agreements. As of
December 31, 2008, approximately $2,800 in royalties were due pursuant to the
second license agreement.
The Company has capitalized approximately $447,000 and $323,000 associated with
these agreements as of December 31, 2008 and 2007, respectively. These costs are
associated with the payments defined in the agreements and the costs to acquire
the agreements.
NOTE 9 INCOME TAXES
The reconciliation of the benefit for income taxes based on the U.S. statutory
federal income tax rate (34%) to the Companys income tax benefit is as follows
for the years ended December 31, 2008 and 2007:
+---------------------------------------------+----------------+---+----------------+
| | 2008 | | 2007 |
+---------------------------------------------+----------------+---+----------------+
| | | | |
+---------------------------------------------+----------------+---+----------------+
| Computed federal tax benefit | $ (2,058,887) | | $ (1,525,691) |
+---------------------------------------------+----------------+---+----------------+
| State income taxes, net of federal | (218,000) | | (161,544) |
| income tax benefit | | | |
+---------------------------------------------+----------------+---+----------------+
| Costs incurred but not deductible for tax | 5,107 | | |
| purposes | | | 8,365 |
+---------------------------------------------+----------------+---+----------------+
| Deferred tax asset valuation allowance | 2,271,780 | | 1,678,870 |
+---------------------------------------------+----------------+---+----------------+
| | | | |
+---------------------------------------------+----------------+---+----------------+
| Total income tax benefit | $ | | $ |
| | - | | - |
+---------------------------------------------+----------------+---+----------------+
NOTE 9 INCOME TAXES (CONTINUED)
As of December 31, deferred income tax assets (liabilities) resulted from the
following temporary differences:
+----------------------------------------------------+---+-------------------+--------+-------------------+
| | | 2008 | | 2007 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Current: | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Net operating loss carryforward | | $ 4,293,807 | | $ |
| | | | | 2,409,775 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| R&D expenditures, net related amortization | | 211,518 | | 108,135 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Other | | 16,036 | | 830 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Noncurrent: | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Stock compensation | | 570,355 | | 234,291 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Property and equipment depreciation | | (4,954) | | (7,312) |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Net deferred tax asset before valuation | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| allowance | | 5,086,762 | | 2,745,719 |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Valuation allowance | | (5,086,762) | | (2,745,719) |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| | | | | |
+----------------------------------------------------+---+-------------------+--------+-------------------+
| Total | | $ | | $ |
| | | - | | - |
+----------------------------------------------------+---+-------------------+--------+-------------------+
For financial statement purposes, no tax benefit has been reported in 2008 and
2007 because realization of the tax benefit is uncertain. Accordingly, a
valuation allowance has been established for the full amount of the net deferred
tax asset.
Deferred income tax items result from future utilization of net operating losses
generated. Federal and state income tax loss carryforwards of approximately
$11,411,000 are available to offset future federal and state taxable income.
These tax loss carryforwards begin expiring in 2024.
The utilization of the net operating loss carryforward is dependent upon the
Companys ability to generate sufficient taxable income during the carryforward
period.
NOTE 10 SUBSEQUENT EVENTS
In February 2009 the Company renewed its January 2008 engagement with a domestic
investment bank for an additional one year term (see Note 5). The terms of the
engagement remained the same.
Mr. John D. Feltman resigned as Company Chairman of the Board and Non-executive
Director on February 26, 2009. Mr. Feltman served in these positions since the
Companys inception. Mr. Johnson, formerly the Deputy Chairman, was subsequently
appointed Non-executive Chairman of the Board.
During 2009 options over 35,875 shares of common stock were rescinded.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FIMATMMTTBIL
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