tamir_s1-043010.htm
As filed with the Securities
and Exchange Commission on April 30, 2010
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
TAMIR
BIOTECHNOLOGY, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
of incorporation or other
jurisdiction
of incorporation or organization)
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22-2369805
(I.R.S. Employer
Identification No.)
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300
Atrium Drive
Somerset,
NJ 08873
(732)
652-4525
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Charles
Muniz
Chief
Executive Officer
300
Atrium Drive
Somerset,
NJ 08873
(732)
652-4525
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
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Kevin
T. Collins, Esq.
Goodwin
Procter LLP
The
New York Times Building
620
Eighth Avenue
New
York, NY 10018-1405
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Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this Registration
Statement
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. /
/
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. /
/
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. / /
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. /
/
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer / / |
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Accelerated filer /
/ |
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Non-accelerated
filer / / (Do not check if a smaller reporting
company) |
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Smaller reporting
company /x/ |
CALCULATION
OF REGISTRATION FEE
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Proposed
Maximum
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Proposed
Maximum
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Amount
of
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Title
of Each Class of
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Offering
Price
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Aggregate
Offering
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Registration
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Securities to be
Registered
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Amount to be
Registered(1)
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per
Share
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Price
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Fee(5)
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Common
Stock issuable upon conversion of notes
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24,916,667
(2)
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$0.24
(3)
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$ 5,980,000
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$426.37
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Common
Stock issuable upon exercise of Series A warrants, execrable at $0.15 per
share.
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21,666,664
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$0.24
(4)
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$5,199,999
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$370.76
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Common
Stock issuable upon exercise of Series B warrants, execrable at $0.25 per
share
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21,666,664
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$0.25
(4)
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$5,416,666
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$386.21
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(1)
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We
are registering the resale of shares of common stock by Selling Security
Holders that we will issue to the Selling Security Holders upon the
conversion of the notes and exercise of the warrants, which were issued to
the Selling Security Holders as a result of private placements we
completed in October 2009. Pursuant to Rule 416 under the Securities Act,
this registration statement also covers such additional shares of common
stock as may hereafter be offered or issued with respect to the shares
being registered hereby as a result of stock splits, stock dividends,
recapitalization or similar adjustments.
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(2)
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Assume
the accrual of three years interest at a rate of 5% on the principal of
the notes and the payment of such accrued interest with shares of common
stock upon the maturity date of the notes.
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(3)
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Estimated
solely for the purpose of computing the registration fee pursuant to Rule
457(c) under the Securities Act. We have estimated the offering
price to be $0.24 per share based on the average of the high and low sales
prices of the registrant’s common stock as reported on the Pink Sheets
market on April 26, 2010.
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(4)
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Estimated
solely for the purpose of computing the registration fee pursuant to Rule
457(g) under the Securities Act. Represents the higher of: (a)
the exercise price of the warrants and (b) the offering price of the
securities of the same class as the common stock underlying the warrants
calculated in accordance with Rule 457(c).
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(5)
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Calculated
pursuant to Rule 457(a) based on an estimate of the proposed maximum
aggregate offering price.
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The registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said section 8(a), may
determine.
SUBJECT
TO COMPLETION, DATED ____________, 2010
TAMIR
BIOTECHNOLOGY, INC.
68,249,995
shares of Common Stock
This
prospectus relates to the offer for sale of up to 68,249,995 shares of
our common stock by certain existing holders of the securities, referred to as
Selling Security Holders throughout this document. Each of the Selling Security
Holders will receive all of the net proceeds from the sale of shares by that
holder. We will not receive any of the proceeds of this offering.
On April
27, 2010, our stockholders approved an amendment to our certificate of
incorporation which changed our name from Alfacell Corporation to Tamir
Biotechnology, Inc. This amendment to our certificate of
incorporation had been previously approved by our board of directors and was
filed with the State of Delaware on April 27, 2010.
Our
common stock is traded on the Pink Sheets market and prices are quoted under the
symbol “ACEL”. On April 26, 2010, the last reported price was
$0.25.
Investing
in our stock involves substantial risks. See “Risk Factors” beginning on page
3.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this Prospectus is _________, 2010
The
information in this prospectus is not complete and may be changed. The Selling
Security Holders will not sell these securities until after the Registration
Statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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Prospectus
Summary
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1 |
Risk
Factors
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3 |
Forward-Looking
Statements
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Use
of Proceeds
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Determination
of Offering Price
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Dilution
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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Business
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Management
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Executive
Compensation
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Certain
Relationships and Related Party Transactions
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Security
Ownership of Certain Beneficial Owners and Management
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Selling
Security Holders
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Description
of Securities Registered
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Plan
of Distribution
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Legal
Matters
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Experts
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Where
You Can Find Additional Information
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Consolidated
Financial Statements
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F-1 |
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front of this prospectus.
PROSPECTUS
SUMMARY
This
summary highlights information found elsewhere in this prospectus. Accordingly,
it does not contain all of the information which may be important to
you. Prospective purchasers should read the following summary
carefully in conjunction with the more detailed information appearing elsewhere
in this Prospectus concerning Tamir Biotechnology, Inc. and the securities being
offered, including our financial statements and related notes and the
information under “Risk Factors.” As used herein, references to “we”, “our”,
“us” and “our Company” refer to Tamir Biotechnology, Inc.
ABOUT
THIS PROSPECTUS
We have
not authorized any dealer, salesperson or other person to give any information
or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not
offer to sell or buy any securities in any jurisdiction in which it is
unlawful. The information in this prospectus is current as of the
date on the cover.
This
prospectus is part of a Registration Statement on Form S-1 that we filed with
the Securities and Exchange Commission that relates to the offer for sale of
68,249,995 shares of our common stock by certain existing holders of the
securities, referred to as Selling Security Holders throughout this document.
Each of the Selling Security Holders will receive all of the net proceeds from
the sale of shares by that holder. We will not receive any of the proceeds of
this offering. The common stock is traded on the Pink Sheets market and prices
are quoted under the symbol “ACEL.” On April 26, 2010, the last
reported price was $0.25.
You
should read both this prospectus and any prospectus supplement together with
additional information described below under the heading “Where You Can Find
More Information.”
THE
COMPANY
Tamir
Biotechnology, Inc. (formerly known as Alfacell Corporation) is a
biopharmaceutical company primarily engaged in the discovery and development of
a new class of therapeutic drugs for the treatment of cancer and other
pathological conditions. Our proprietary drug discovery and development program
consists of novel therapeutics developed from amphibian ribonucleases
(RNases).
RNases
are biologically active enzymes that split RNA molecules. RNases are enzymes
which play important roles in nature, among which is the development of an
organism and in cell functions. RNA is an essential bio-chemical cellular
component necessary to support life. There are various types of RNA, all of
which have specific functions in a living cell. They help control several
essential biological activities, namely, regulation of cell proliferation,
maturation, differentiation and cell death. Therefore, we believe they are ideal
candidates for the development of therapeutics for cancer and other
life-threatening diseases, including HIV and autoimmune diseases, that require
anti-proliferative and apoptotic, or programmed cell death,
properties.
ONCONASE®
(ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of
pancreatic ribonuclease isolated from the eggs of the Rana pipiens (the Northern
Leopard frog). Ranpirnase is the smallest known protein belonging to the
superfamily of pancreatic ribonuclease and has been shown, on a molecular level,
to re-regulate the unregulated growth and proliferation of cancer cells. Unlike
most anti-cancer agents that attack all cells regardless of phenotype (malignant
versus normal) and cause severe toxicities, ONCONASE® is
not an indiscriminate cytotoxic drug (cell killing agent). ONCONASE®
primarily affects exponentially growing malignant cells, with activity
controlled through unique and specific molecular mechanisms.
Tamir
Biotechnology, Inc. was initially incorporated in Delaware in 1981 under the
name of Alfacell Corporation. The Company changed its name to Tamir
Biotechnology, Inc. on April 27, 2010. Our principal executive
offices are located at 300 Atrium Drive, Somerset, New Jersey 08873 and our telephone number is
(732)
652-4525.
RISKS
ASSOCIATED WITH OUR BUSINESS
Our
business is subject to numerous risks and uncertainties, as more fully described
under “RISK FACTORS” beginning on page 3, which you should carefully consider
before purchasing our common stock. For example:
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We
are highly dependent on achieving success in the clinical testing,
regulatory approval and commercialization of ONCONASE®, and our other compounds
currently under development. If we fail to obtain the necessary
regulatory approvals, we will not be allowed to commercialize
ONCONASE®
and our business will be harmed.
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We
have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current
source of product revenue and may never be
profitable.
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We
will need additional financing to continue operations, which may not be
available on favorable or acceptable terms, if it is available at
all.
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We
are highly dependent on our only executive officer, Charles Muniz, our
President, Chief Executive Officer and Chief Financial
Officer. If we lose key management personnel or are unable to
attract and retain the talent required for our business, our business
could be materially harmed.
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We
are involved in several lawsuits, and unfavorable results of legal
proceedings could have a material adverse effect on
us.
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In
addition, the ability of new shareholders to influence corporate matters may be
limited because a small number of stockholders beneficially currently own a
substantial amount of our common stock. As of March 12, 2010, Mr.
Muniz owns approximately 32% of our common stock; Knoll Capital Management LP,
Fred Knoll and Europa International, Inc. own a total of approximately 30% of
our common stock; McCash Family Limited Partnership owns approximately 10% of
our common stock; James O. McCash and James O. McCash Trust own
approximately 6% of our common stock; and Unilab LP owns approximately
10% of our common stock.
RISK
FACTORS
An
investment in our common stock is speculative and involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below and the other information in this prospectus and our other SEC
filings before deciding whether to purchase shares of our common
stock. If any of the following risks actually occur, our business and
operating results could be harmed. This could cause the trading price
of our common stock to decline, and you may lose all or part of your
investment.
Risks
related to the Development of our Product Candidates
We
are highly dependent on achieving success in the clinical testing, regulatory
approval and commercialization of ONCONASE®, and our other compounds
currently under development. If we fail to obtain the necessary
regulatory approvals, we will not be allowed to commercialize ONCONASE®
and our business will be harmed.
The Food
and Drug Administration, or FDA, in the United States and comparable regulatory
agencies in foreign countries impose substantial pre-market approval
requirements on the introduction of pharmaceutical products. These requirements
involve the completion of lengthy and detailed pre-clinical and clinical testing
and other costly and time consuming procedures. Satisfaction of these
requirements typically takes several years depending on the level of complexity
and novelty of the product. The length of time required to complete a clinical
trial depends on several factors including the size of the patient population,
the ability of patients to get to the site of the clinical study, and the
criteria for determining which patients are eligible to join the study. A
significant portion of our expenditures have been devoted and, in the future
will be devoted, to the clinical trials for our lead product candidate,
ONCONASE® . Although the financing
we received in October 2009 will enable us to commence a new clinical trial for
ONCONASE®, we will be required to
obtain additional financing to complete this trial and pursue the further
development of ONCONASE®. Such
financing may not be available, and even if it is available, it may not be
available on terms favorable or acceptable to us.
All
statutes and regulations governing the conduct of clinical trials are subject to
future changes by various regulatory agencies, including the FDA, which could
affect the cost and duration of our clinical trials. Any unanticipated costs or
delays in our clinical studies would delay our ability to generate product
revenues and to raise additional capital and could cause us to be unable to fund
the completion of the studies.
We may
not market or sell any product for which we have not obtained regulatory
approval. We cannot assure you that the FDA or other regulatory
agencies will ever approve the use of our products that are under development.
Even if we receive regulatory approval, such approval may involve limitations on
the indicated uses for which we may market our products. Further, even after
approval, discovery of previously unknown problems could result in additional
restrictions, including withdrawal of our products from the market.
If we
fail to obtain the necessary regulatory approvals, we cannot market or sell our
products in the United States or in other countries and our viability would be
threatened. If we fail to achieve regulatory approval or foreign marketing
authorizations for ONCONASE®
we will not have a product suitable for sale or product revenues and may not be
able to continue operations.
Our
profitability will depend on our ability to develop, obtain regulatory approvals
for, and effectively market ONCONASE®
as well as entering into strategic alliances for the development of new drug
candidates from the out-licensing of our proprietary RNase technology. The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize
ONCONASE®
depends on the success of our clinical development programs, our efforts to
obtain regulatory approval and our sales and marketing efforts or those of our
marketing partners, directed at physicians, patients and third-party payors. A
number of factors could affect these efforts including
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our
ability to demonstrate clinically that our products are effective and
safe;
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delays
or refusals by regulatory authorities in granting marketing
approvals;
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our
limited financial resources relative to our
competitors;
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our
ability to obtain and maintain relationships with current and additional
marketing partners;
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the
availability and level of reimbursement for our products by third party
payors;
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incidents
of adverse reactions to our
products;
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misuse
of our products and unfavorable publicity that could result;
and
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the
occurrence of manufacturing or distribution
disruptions.
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Based
upon guidance provided by the FDA at a pre-NDA meeting, we decided not to file a
new drug application (NDA) for ONCONASE®
for unresectable malignant mesothelioma (UMM) and to not pursue further clinical
trials of ONCONASE®
for the treatment of UMM.
The
results of the preliminary statistical analysis of the data from the
confirmatory Phase IIIb clinical trial we conducted for ONCONASE®
in patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. Although a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a pre-defined primary data set for
this sub-group of patients in the trial, at a pre-NDA meeting with the FDA held
in January 2009, the FDA recommended that an additional clinical trial be
conducted in this sub-group of patients prior to our submitting an NDA for
ONCONASE®. Based
upon our assessment that it would be difficult to design and conduct a clinical
trial that would comply with the FDA’s recommendation and allow us to file an
NDA, we have determined at this time not to pursue further clinical trials for
the treatment of UMM. Based upon the results of certain preclinical
testing performed on ONCONASE®
we have decided to pursue a Phase II clinical trial for ONCONASE®
for the treatment of non-small cell lung cancer in patients who have reached
maximum progression on their current chemotherapy regimens. Although the
financing we received in October 2009 will enable us to initiate this Phase II
clinical trial, we will be required to obtain additional financing to complete
this clinical trial and pursue further development of ONCONASE®.
We cannot assure you that we will be able to commence or complete the new Phase
II clinical trial for ONCONASE®,
or that the results from this clinical trial will be positive. Even if the
results from this Phase II clinical trial are positive, we cannot assure you
that the results of subsequent Phase III clinical trials will be positive or
will support marketing approval of ONCONASE®
in the United States or in any other jurisdictions.
Budget
constraints may force us to delay our efforts to develop certain drug product
candidates in favor of developing others, which may prevent us from
commercializing all drug product candidates as quickly as possible.
Because
we are an emerging company with limited resources, and because developing new
drug product candidates is an expensive process, we must regularly assess the
most efficient allocation of our research and development budget. As a result,
we may have to further prioritize development activities and may not be able to
fully realize the value of some of our drug product candidates in a timely
manner, and they may be delayed in reaching the market, if at all. A reduction
in spending on our other drug product candidates could delay our
commercialization efforts and negatively impact our ability to diversify our
development risk across a broad portfolio of drug product
candidates.
Risks
Related to Our Financial Position and Need for Additional Capital
We
have incurred losses since inception and anticipate that we will incur continued
losses for the foreseeable future. We do not have a current source of product
revenue and may never be profitable.
We are a
development stage company and since our inception one of the principal sources
of our working capital has been private sales of our common
stock. Over the past three fiscal years, we have incurred aggregate
net losses of approximately $25.6 million and since our inception we have
incurred aggregate net losses of approximately $108.9 million. We expect to
incur additional losses and, as our development efforts, efforts to file an NDA
for ONCONASE® and
clinical testing activities continue, our rate of losses may increase. We also
expect to experience negative cash flows for the foreseeable future as we fund
our losses and capital expenditures. Our losses have adversely impacted, and
will continue to adversely impact, our working capital, total assets and
stockholders’ equity. To date, we have not sold or received approval to sell any
drug product candidates, and it is possible that revenues from drug product
sales will never be achieved. We cannot at this time predict when or if we will
be able to develop other sources of revenue or when or if our operations will
become profitable, even if we are able to commercialize some of our drug product
candidates.
We will
seek to generate revenue through licensing, marketing and development
arrangements prior to receiving revenue from the sale of our products.
Currently, we are party to four non-US regional marketing and distribution
agreements and we may not be able to successfully negotiate any additional
agreements. In the past, we have entered into several development arrangements
which have resulted in limited revenues for us. We cannot assure investors that
these arrangements or future arrangements, if any, will result in significant
amounts of revenue for us in the future. We, therefore, are unable to predict
the extent of any future losses or the time required to achieve profitability,
if at all.
We
will need additional financing to continue operations, which may not be
available on favorable or acceptable terms, if it is available at
all.
Based
upon our current operations and our plans for a Phase II clinical trial for
ONCONASE®
for the treatment of non-small cell lung cancer in patients who have reached
maximum progression on their current chemotherapy regimens, we expect that our
current cash reserves should be sufficient to support our activities through
July 2010. Although our current cash reserves will enable to
initiate this Phase II clinical trial, provided we obtain the required approval
from the FDA, we will need to obtain additional financing to complete the
clinical trial and pursue further development of ONCONASE®. As
a result of our continuing losses and lack of capital, the report of our
independent registered public accounting firm on our July 31, 2009 audited
financial statements included an explanatory paragraph which states that our
recurring losses from operations and negative cash flows from operating
activities raise substantial doubt about our ability to continue as a going
concern. Our financial statements at July 31, 2009 do not
include any adjustments that might result from the outcome of this
uncertainty. We will need additional financing to conduct our
business after July 2010. Factors that would affect our ability to
obtain capital in the future and the amount and timing of additional capital
required include, but are not limited to, the following:
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the
condition of the capital markets in general and the willingness of
investors to invest in development stage biotech companies, in
particular;
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the
progress and cost of research and development and clinical trial
activities relating to our drug product
candidates;
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the
costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our patent claims and other intellectual
property rights and investigating and defending against infringement
claims asserted against us by others;
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the
emergence of competing technologies and other adverse market
developments;
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changes
in or terminations of our existing licensing, marketing and distribution
arrangements;
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the
amount of milestone payments we may receive from current and future
collaborators, if any; and
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the
cost of manufacturing scale-up and development of marketing operations, if
we undertake those activities.
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our
degree of success in commercializing our drug product candidates,
including entering into additional marketing and distribution
agreements;
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our
ability to obtain marketing approval of our product
candidates
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Additional
financing may not be available when we need it or be on terms acceptable to us.
If adequate financing is not available or we are unable to conclude a strategic
transaction prior to the time our current cash reserves are exhausted we will be
required to cease operations. If additional capital is raised through
the sale of equity, our stockholders’ ownership interest could be diluted and
such newly-issued securities may have rights, preferences, or privileges
superior to those of our other stockholders. The terms of any debt securities we
may sell to raise additional capital may place restrictions on our operating
activities.
We
will need additional capital in the future and the Notes may make it more
difficult for us to obtain the needed capital.
We will
need to obtain additional financing over time to fund our
operations. The security interest in all of our assets which secures
our obligations under the Notes, the covenants in the Notes, the conversion
terms of the Notes and the exercise terms of the Warrants issued with
the Notes could make it difficult for us to obtain needed financing or could
result in our obtaining financing with unfavorable terms. Our failure
to obtain financing or obtaining financing on unattractive terms could have a
material adverse effect on our business.
A
portion of the proceeds received pursuant to our October 2009 private financing
were placed in an escrow account, and pursuant to the terms of an escrow
agreement governing the escrow account may only be used for certain limited
purposes.
In
connection with our October 2009 private financing, we entered into an escrow
agreement whereby certain investors placed $1.6 million of the proceeds paid for
their units purchased in the financing in an escrow account. The escrow
agreement shall terminate on the earlier of the date that all funds have been
disbursed from the escrow account and April 19, 2011, at which time any
remaining funds will be disbursed to us. Such amounts can be
disbursed from the escrow account only to satisfy obligations of ours owed to
clinical research organizations, hospitals, doctors and other vendors and
service providers associated with the clinical trials which we intend to conduct
for our ONCONASE®
product. Until such time that the escrow agreement terminates, we are
not permitted to use the funds in the escrow account for any other
purposes.
We
face certain litigation risks, and unfavorable results of legal proceedings
could have a material adverse effect on us.
As
described under the heading “LEGAL PROCEEDINGS” of this Registration Statement
on Form S-1, we are a party to certain lawsuits. Regardless of the merits of any
claim, litigation can be lengthy, time-consuming, expensive, and disruptive to
normal business operations and may divert management’s time and resources, which
may have a material adverse effect on our business, financial condition and
results of operations, including our cash flow. The results of complex legal
proceedings are difficult to predict. Should we fail to prevail in these
matters, or should any of these matters be resolved against us, we may be faced
with significant monetary damages, which also could materially adversely affect
our business, financial condition and results of operations, including our cash
flow. In addition, we may incur higher general and administrative expenses than
we have in the past in order to defend and prosecute this litigation, which
could adversely affect our operating results.
The ability of our stockholders to recover against Armus
Harrison & Co., or AHC, may be limited because we have not been able to
obtain the reissued reports of AHC with respect to the financial statements
included in our Annual Report on Form 10-K for the fiscal year ended July 31,
2009, nor have we been able to obtain AHC’s consent to the use of such report
herein.
Section
18 of the Securities Exchange Act of 1934, or Exchange Act, provides that any
person acquiring or selling a security in reliance upon statements set forth in
a Form 10-K may assert a claim against every accountant who has with its consent
been named as having prepared or certified any part of the Form 10-K, or as
having prepared or certified any report or valuation that is used in connection
with the Form 10-K, if that part of the Form 10-K at the time it is filed
contains a false or misleading statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading (unless it is proved that at the time of such acquisition such
acquiring person knew of such untruth or omission).
In June
1996, AHC dissolved and ceased all operations. Therefore, we have not been able
to obtain the reissued reports of AHC with respect to the financial statements
included in the Annual Report on Form 10-K for the fiscal year ended July 31,
2009 nor have we been able to obtain AHC’s consent to the use of such report
herein. As a result, in the event any persons seek to assert a claim against AHC
under Section 18 of the Exchange Act for any untrue statement of a material fact
contained in these financial statements or any omissions to state a material
fact required to be stated therein, such persons will be barred. Accordingly,
you may be unable to assert a claim against AHC under Section 18 of the Exchange
Act for any purchases of the Company’s common stock made in reliance upon
statements set forth in our Annual Report on Form 10-K for the fiscal year ended
July 31, 2009. In addition, the ability of AHC to satisfy any claims properly
brought against it may be limited as a practical matter due to AHC’s dissolution
in 1996.
Our
investments could lose market value and consequently harm our ability to fund
continuing operations.
The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash and cash equivalents
in a variety of securities, including government and corporate obligations and
money market funds. The market values of these investments may fluctuate due to
market conditions and other conditions over which we have no control.
Fluctuations in the market price and valuations of these securities may require
us to record losses due to impairment in the value of the securities underlying
our investment. This could result in future charges to our earnings. All of our
investment securities are denominated in US dollars.
Investments
in both fixed-rate and floating-rate interest earning instruments carry varying
degrees of interest rate risk. Fixed-rate securities may have their fair market
value adversely impacted due to a rise in interest rates. In general, securities
with longer maturities are subject to greater interest rate risk than those with
shorter maturities. While floating-rate securities generally are subject to less
interest rate risk than fixed-rate securities, floating-rate securities may
produce less income than expected if interest rates decrease. Due in part to
these factors, our investment income may fall short of expectations or we may
suffer losses in principal if securities are sold that have declined in market
value due to changes in interest rates.
Risks
Related to the Commercialization of our Product Candidates
Our
product candidates may not be accepted by the market.
Even if
approved by the FDA and other regulatory authorities, our product candidates may
not achieve market acceptance, which means we would not receive significant
revenues from these products. Approval by the FDA does not necessarily mean that
the medical community will be convinced of the relative safety, efficacy and
cost-effectiveness of our products as compared to other products. In addition,
third party reimbursers such as insurance companies and HMOs may be reluctant to
reimburse expenses relating to our products.
We
are and will be dependent upon third parties for manufacturing our products. If
these third parties do not devote sufficient time and resources to our products
our revenues and profits may be adversely affected.
We do not
have the required manufacturing facilities to manufacture our product. We
presently rely on third parties to produce ONCONASE® for
use in clinical trials. We have entered into a ten-year purchase and supply
agreement with SPL, for the manufacturing of ranpirnase (protein drug substance)
from the oocytes, or the unfertilized eggs, of the Rana pipiens frog, which is
found in the Northwest United States and is commonly called the leopard
frog.
Additionally,
we contract with Ben Venue for the manufacturing of ONCONASE® and
with Bilcare, Catalent and Aptuit for the storage, labeling and shipping of
ONCONASE® for
clinical trial use. We utilize the services of these third party manufacturers
solely on an as needed basis with terms and prices customary for our
industry.
We use
FDA CGMP licensed manufacturers for ranpirnase and ONCONASE®. We
have identified alternative providers for the manufacturing services for which
we may contract. In order to replace an existing service provider we must amend
the Investigational New Drug Application (IND) for our Product Candidate to
notify the FDA of the new manufacturer. Although the FDA generally will not
suspend or delay a clinical trial as a result of replacing an existing
manufacturer, the FDA has the authority to suspend or delay a clinical trial if,
among other grounds, human subjects are or would be exposed to an unreasonable
and significant risk of illness or injury as a result of the replacement
manufacturer.
We intend
to rely on third parties to manufacture our products if they are approved for
sale by the appropriate regulatory agencies and are commercialized. Third party
manufacturers may not be able to meet our needs with respect to the timing,
quantity or quality of our products or to supply products on acceptable
terms.
Because
we do not have in-house marketing, sales or distribution capabilities, we have
contracted with third parties and expect to contract with third parties in the
future for these functions and we will therefore be dependent upon such third
parties to market, sell and distribute our products in an effort to generate
revenues.
We
currently have no in-house sales, marketing or distribution capabilities. In
order to commercialize any product candidates for which we receive FDA or
non-U.S. approval, we expect to rely on established third parties who have
strategic partnerships with us to perform these functions. To date, we have
entered into four marketing and distribution agreements for ONCONASE® in
regions outside the United States. We cannot assure you we will be able to
maintain these relationships or establish new relationships with
biopharmaceutical or other marketing companies with existing distribution
systems and direct sales forces to market any or all of our product candidates
on acceptable terms, if at all.
In
addition, we may incur significant expenses in determining our commercialization
strategy with respect to one or more of our product candidates for regions
outside the United States. The determination of our commercialization strategy
with respect to a product candidate will depend on a number of factors,
including:
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the
extent to which we are successful in securing third parties to collaborate
with us to offset some or all of the funding obligations with respect to
product candidates;
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the
extent to which our agreement with our collaborators permits us to
exercise marketing or promotion rights with respect to the product
candidate;
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how
our product candidates compare to competitive products with respect to
labeling, pricing, therapeutic effect, and method of delivery;
and
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whether
we are able to establish agreements with third party collaborators,
including large biopharmaceutical or other marketing companies, with
respect to any of our product candidates on terms that are acceptable to
us.
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If
we are unable to obtain favorable reimbursement for our product candidates,
their commercial success may be severely hindered.
Our
ability to sell our future products may depend in large part on the extent to
which reimbursement for the costs of our products is available from government
entities, private health insurers, managed care organizations and others.
Third-party payors are increasingly attempting to contain their costs. We cannot
predict what actions third-party payors may take, or whether they will limit the
coverage and level of reimbursement for our products or refuse to provide any
coverage at all. Reduced or partial reimbursement coverage could make our
products less attractive to patients, suppliers and prescribing physicians and
may not be adequate for us to maintain price levels sufficient to realize an
appropriate return on our investment in our product candidates or to compete on
price.
In some
cases, insurers and other healthcare payment organizations try to encourage the
use of less expensive generic brands and over-the-counter, or OTC, products
through their prescription benefits coverage and reimbursement policies. These
organizations may make the generic alternative more attractive to the patient by
providing different amounts of reimbursement so that the net cost of the generic
product to the patient is less than the net cost of a prescription brand
product. Aggressive pricing policies by our generic product competitors and the
prescription benefits policies of insurers could have a negative effect on our
product revenues and profitability.
Many
managed care organizations negotiate the price of medical services and products
and develop formularies for that purpose. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization
patient population. If our products are not included within an adequate number
of formularies or adequate reimbursement levels are not provided, or if those
policies increasingly favor generic or OTC products, our market share and gross
margins could be negatively affected, as could our overall business and
financial condition.
The
competition among pharmaceutical companies to have their products approved for
reimbursement may also result in downward pricing pressure in the industry or in
the markets where our products will compete. We may not be successful in any
efforts we take to mitigate the effect of a decline in average selling prices
for our products. Any decline in our average selling prices would also reduce
our gross margins.
In
addition, managed care initiatives to control costs may influence primary care
physicians to refer fewer patients to oncologists and other specialists.
Reductions in these referrals could have a material adverse effect on the size
of our potential market and increase costs to effectively promote our
products.
We are
subject to new legislation, regulatory proposals and managed care initiatives
that may increase our costs of compliance and adversely affect our ability to
market our products, obtain collaborators and raise capital.
There
have been a number of legislative and regulatory proposals aimed at changing the
healthcare system and pharmaceutical industry, including reductions in the cost
of prescription products and changes in the levels at which consumers and
healthcare providers are reimbursed for purchases of pharmaceutical
products. These include the Affordable Health Care for America Act,
recently passed by the United States Congress and singed into law by the
President and the Prescription Drug and Medicare Improvement Act of 2003.
Although we cannot predict the full effects on our business of the
implementation of this new legislation, it is possible that current legislation,
as well as legislation that may be adopted in the future, will result in
decreased reimbursement for prescription drugs, which may further exacerbate
industry-wide pressure to reduce the prices charged for prescription drugs. This
could harm our ability to market our products and generate
revenues. As a result of current legislation, as well as legislation
that may be adopted in the future, we may determine to change our current manner
of operation, provide additional benefits or change our contract arrangements,
any of which could harm our ability to operate our business efficiently, obtain
collaborators and raise capital.
Competition
in the biopharmaceutical field is intense and subject to rapid technological
change. Our principal competitors have substantially greater resources to
develop and market products that may be superior to ours.
If we
obtain regulatory approval for any of our drug product candidates, the extent to
which they achieve market acceptance will depend, in part, on competitive
factors. Competition in our industry is intense, and it is increased by the
rapid pace of technological development. Existing drug products or new drug
products developed by our competitors may be more effective or have fewer side
effects, or may be more effectively marketed and sold, than any that we may
develop. Our principal competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial, and managerial resources than we do. Competitive drug compounds may
render our technology and drug product candidates obsolete or noncompetitive
prior to our recovery of research, development, or commercialization expenses
incurred through sales of any of our drug product candidates. The FDA’s policy
of granting “fast track” approval for cancer therapies may also expedite the
regulatory approval of our competitors’ drug product candidates.
To our
knowledge, no other company is developing a product with the same mechanism of
action as ONCONASE®.
However, there may be other companies, universities, research teams or
scientists who are developing products to treat the same medical conditions our
products are intended to treat.
We also
compete with other drug development companies for collaborations with large
pharmaceutical and other companies.
Risks
Related to this Offering and the Market for our Common Stock
Our
stock price has been and is likely to continue to be volatile, and an investment
in our common stock could decline in value.
The
market price of our common stock, like that of the securities of many other
development stage biotechnology companies, has fluctuated over a wide range and
it is likely that the price of our common stock will fluctuate in the future.
For example, over our past three fiscal years, the sale price for our common
stock has fluctuated from a low of $0.06 to a high of $4.29. The
market price of our common stock could be impacted by a variety of factors,
including:
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the
success or failure of our clinical trials or those of our
competitors;
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announcements
of technological innovations or new drug products by us or our
competitors;
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Actual
or anticipated fluctuations in our financial results;
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our
ability to obtain financing, when
needed;
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economic
conditions in the United States and abroad;
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Comments
by or changes in our assessments or financial estimates by securities
analysts;
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adverse
regulatory actions or decisions;
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Losses
of key management;
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changing
governmental regulations;
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our
ability to secure adequate third party reimbursement for products
developed by us;
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developments
or disputes concerning patents or other proprietary
rights;
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product
or patent litigation; and
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Public
concern as to the safety of products developed by
us.
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The stock
market continues to experience extreme price and volume fluctuations and these
fluctuations have especially affected the market price of many biotechnology
companies. Such fluctuations have often been unrelated to the operating
performance of these companies. Volatility or a lack of positive performance in
our stock price may adversely affect our ability to retain key employees, all of
whom have been granted stock options. These factors and fluctuations, as well as
political and market conditions, may materially adversely affect the market
price of our common stock.
A
few significant stockholders control the direction of our
business. If the ownership of our common stock continues to be highly
concentrated, it will prevent other shareholders from influencing significant
corporate actions.
The
ability of other shareholders to influence corporate matters may be limited
because a small number of stockholders beneficially currently own a substantial
amount of our common stock. As of March 12, 2010, Mr. Muniz owns
approximately 32% of our common stock; Knoll Capital Management LP, Fred Knoll
and Europa International, Inc. own a total of approximately 30% of our common
stock; McCash Family Limited Partnership owns approximately 10% of our common
stock; James O. McCash and James O. McCash Trust own approximately 6% of our
common stock; and Unilab LP owns approximately 10% of our common
stock. For more details of beneficial ownership of our shares, see
“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.” Our
significant shareholders will be able to exert a significant degree of influence
over our management and affairs and all actions requiring stockholders approval,
such as the election of directors and approval of significant corporation
transaction.
In
addition, Delaware corporate law provides that certain actions may be taken by
consent action of stockholders holding a majority of the outstanding shares. In
the event that the requisite approval of stockholders is obtained by consent
action, without any meeting of stockholders, dissenting or non-participating
stockholders generally would be bound by such vote. Through their concentration
of voting power, our significant shareholders could delay, deter or prevent a
change in control of our company or other business combinations that might
otherwise be beneficial to our other stockholders. Accordingly, this
concentration of ownership may harm the market price of our common stock. In
addition, the interest of our significant stockholders may not always coincide
with the interest of the Company’s other stockholders. In deciding how to vote
on such matters, they may be influenced by interests that conflict with our
other shareholders’.
Our
incorporation documents may delay or prevent the removal of our current
management or a change of control that a stockholder may consider
favorable.
We are
currently authorized to issue 1,000,000 shares of preferred stock. Our Board of
Directors is authorized, without any approval of the stockholders, to issue the
preferred stock and determine the terms of the preferred stock. This provision
allows the Board to affect the rights of stockholders, since the Board of
Directors can make it more difficult for common stockholders to replace members
of the Board. Because the Board is responsible for appointing the
members of our management, these provisions could in turn affect any attempt to
replace current management by the common stockholders. Furthermore, the
existence of authorized shares of preferred stock might have the effect of
discouraging any attempt by a person, through the acquisition of a substantial
number of shares of common stock, to acquire control of us. Accordingly, the
accomplishment of a tender offer may be more difficult. This may be beneficial
to management in a hostile tender offer, but have an adverse impact on
stockholders who may want to participate in the tender offer or inhibit a
stockholder’s ability to receive an acquisition premium for his or her
shares.
Events
with respect to our share capital could cause the price of our common stock to
decline.
Sales of
substantial amounts of our common stock in the open market, or the availability
of such shares for sale, could adversely affect the price of our common stock.
We had 47,313,880 shares of common stock outstanding as of the end of our most
recently completed fiscal quarter ended January 31, 2010. The following
securities that may be exercised into shares of our common stock were issued and
outstanding as of January 31, 2010:
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Options.
Stock options to purchase 3,624,267 shares of our common stock at a
weighted average exercise price of approximately $1.82 per
share.
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Warrants.
Warrants to purchase 51,183,890 shares of our common stock at a weighted
average exercise price of approximately $0.56 per share. These
warrants include warrants issued in connection with the private financing
we completed in October 2009.
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Notes.
Senior Secured Convertible Notes convertible into an aggregate of
24,916,667 shares of our common stock at a conversion price of $0.15 per
share, assuming the accrual of three years interests at a rate of 5% on
the principals of the Notes upon their maturity date and the payment of
such accrued interest with shares of our common
stock.
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The
shares of our common stock that may be issued under the options and warrants are
currently registered with the SEC, are being registered with the
SEC on a registration statement to which this prospectus forms a part,
or are
eligible for sale without any volume limitations pursuant to Rule 144 under the
Securities Act.
The
securities issued in our October 2009 private financing include the
following:
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Notes.
Senior Secured Convertible Notes, or the Notes, convertible into an
aggregate of 24,916,667 shares of our common stock at a conversion price
of $0.15 per share, assuming three-year interests will accrue in full at a
rate of 5% on the principals of the Notes upon their maturity
date.
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Series
A Warrants. Series A Warrants to purchase an aggregate of 21,666,664
shares of our common stock at an exercise price of $0.15 per share with a
three-year term.
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Series
B Warrants. Series B Warrants to purchase an aggregate of 21,666,664
shares of our common stock at an exercise price of $0.25 per share with a
five-year term (the Series B Warrants and the Series A Warrants
collectively refereed to as the
Warrants).
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Pursuant
to the terms of an investor rights agreement or the Investor Rights Agreement
entered into in connection with the financing, we must file a “resale”
registration statement covering all of the shares issuable upon conversion of
the Notes and the shares issuable upon exercise of the Warrants, up to the
maximum number of shares able to be registered pursuant to applicable SEC
regulations, by May 1, 2010 as the filing deadline and obtain the effectiveness
of such registration statement within 90 days following the filing deadline or
within 120 days following the filing deadline if the SEC reviews and has written
comments to the registration statement. If any securities
issuable upon conversion or exercise, respectively, of the Notes and Warrants
are unable to be included on the initial “resale” registration statement, we
have agreed to file subsequent registration statements until all of the
securities have been registered. We are obligated to maintain the effectiveness
of the “resale” registration statement until all securities therein are sold or
otherwise can be sold pursuant to Rule 144 under the Securities Act,
without any restrictions. A cash penalty at the rate of 1% per month will
be triggered in the event the Company fails to file or obtain the effectiveness
of a registration statement prior to the deadlines set forth in the Investor
Rights Agreement or if the Company ceases to be current in filing its periodic
reports with the SEC. The aggregate penalty accrued with respect to each
investor may not exceed 6% of the original purchase price paid by that investor,
or 12% if the only effectiveness failure is the Company’s failure to be current
in its periodic reports with the SEC.
We
have significant secured indebtedness as a result of a private financing, which
we closed in October 2009, pursuant to which we issued the Notes. If
we are unable to perform our obligations under such notes, the holders of such
notes would be entitled to realize upon their security interest by taking
control of all or a portion of our assets.
We
substantially increased our debt when we issued the Notes in the aggregate
principal amount of $3.25 million pursuant to a private financing in October
2009. The Notes mature on the earliest of (i) October 19, 2012;
(ii) the closing of a public or private offering of the Company’s debt or equity
securities subsequent to the date of issuance of the Notes resulting in gross
proceeds of at least $8,125,000, other than a transaction involving a
stockholder who holds 5% or more of the Company’s outstanding capital stock as
of the date of issuance of the Notes; or (iii) on the demand of the holder of a
Note upon the Company’s consummation of a merger, sale of substantially all of
its assets, or the acquisition by any entity, person or group of 50% or more of
the voting power of the Company. Interest accrues on the principal amount
outstanding under the Notes at a rate of 5% per annum, and is due upon maturity.
Upon an event of default under the Notes, the interest rate shall increase to
7%. The Notes are convertible into shares of the Company’s common
stock at the option of the holder of such note at a price of $0.15 per share at
any time prior to the date on which the Company makes payment in full of all
amounts outstanding under such note. The Notes are not prepayable for a period
of one year following the issuance thereof.
The Notes
are secured by a senior security interest and lien on all of the Company’s
rights, title and interest to all of the assets owned by the Company as of the
issuance of the Notes or thereafter acquired pursuant to the terms of a security
agreement entered into by the Company with each of the investors. In the case of
an event of default under the Notes, the holders of the notes would be entitled
to realize their security interests and foreclose on our assets. In addition,
the holders of the notes would be entitled to declare the principal and accrued
interest thereunder to be due and payable. Our assets may not be sufficient to
fully repay amounts outstanding under the Notes in the event of any such
acceleration upon an event of default.
The
trading market for our common stock may be limited since our common stock is no
longer listed on the Nasdaq Capital Market.
On
January 6, 2009 our common stock was delisted from the Nasdaq Capital
Market. Since then our common stock has been quoted on the Pink
Sheets and may be thinly traded at times. You may be unable to sell
our common stock during times when the trading market is limited.
We
are subject to penny stock rules. As a consequence, sale of our stock by
investors may be difficult.
The term
“penny stock” generally refers to low-priced speculative securities of very
small companies. We are subject to SEC's penny stock rules.
Before a
broker-dealer can sell a penny stock, SEC rules require the firm to first
approve the customer for the transaction and receive from the customer a written
agreement to the transaction. The firm must furnish the customer a document
describing the risks of investing in penny stocks. The firm must tell the
customer the current market quotation, if any, for the penny stock and the
compensation the firm and its broker will receive for the trade. Finally, the
firm must send monthly account statements showing the market value of each penny
stock held in the customer's account.
Penny
stocks may trade infrequently, which means that it may be difficult to sell our
shares once you own them. Because it may be difficult to find quotations for
certain penny stocks, they may be impossible to accurately price. Investors in
penny stocks should be prepared for the possibility that they may lose their
whole investment.
Risks
Related to Our Operations
Our
lack of operating experience may cause us difficulty in managing our
growth.
We have
no experience in selling pharmaceutical or other products or in manufacturing or
procuring drug products in commercial quantities in compliance with FDA
regulations and we have only limited experience in negotiating, establishing and
maintaining collaborative relationships and conducting later stage phases of the
regulatory approval process. Our ability to manage our growth, if any, will
require us to improve and expand our management and our operational and
financial systems and controls. If our management is unable to manage growth
effectively, our business and financial condition would be adversely affected.
In addition, if rapid growth occurs, it may strain our operational, managerial
and financial resources, which are limited.
If
we lose key management personnel or are unable to attract and retain the talent
required for our business, our business could be materially harmed.
We
currently have only one executive officer, Charles Muniz, our President, CEO and
CFO. We are highly dependent on Mr. Muniz, who has an employment
contract with us. During the fiscal year ended July 31, 2009, Kuslima
Shogen, our scientific founder and former CEO retired, and Lawrence A. Kenyon,
our former President, CFO and Corporate Secretary, resigned.
We do not
have key man insurance on any of our management. If we were to lose
the services of Mr. Muniz or other members of our management team, and were
unable to replace them, our product development and the achievement of our
strategic objectives could be delayed.
In
addition, our success will depend on our ability to attract and retain qualified
commercial, scientific, technical, and managerial personnel. While we have not
experienced unusual difficulties to date in recruiting and retaining personnel,
there is intense competition for qualified staff and there is no assurance that
we will be able to retain existing personnel or attract and retain qualified
staff in the future.
We
handle hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. We could
also be liable for damages, penalties, or other forms of censure if we are
involved in a hazardous waste spill or other accident.
Our
research and development processes involve the controlled storage, use, and
disposal of hazardous materials and biological hazardous materials. We are
subject to federal, state, and local laws and regulations governing the use,
manufacture, storage, handling, and disposal of hazardous materials and certain
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials comply with the standards prescribed by
law and regulation, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of
an accident, even by a third party, we could be held liable for any damages that
result, and such liability could exceed the $2,000,000 limit of our current
general liability insurance coverage and our financial resources. In the future,
we may not be able to maintain insurance on acceptable terms, or at all. We
could also be required to incur significant costs to comply with current or
future environmental laws and regulations.
We
may be sued for product liability.
Our
business exposes us to potential product liability that may have a negative
effect on our financial performance and our business generally. The
administration of drugs to humans, whether in clinical trials or commercially,
exposes us to potential product and professional liability risks which are
inherent in the testing, production, marketing and sale of new drugs for humans.
Product liability claims can be expensive to defend and may result in large
judgments or settlements against us, which could have a negative effect on our
financial performance and materially adversely affect our business. We maintain product
liability insurance to protect our products and product candidates in amounts
customary for companies in businesses that are similarly situated, but our
insurance coverage may not be sufficient to cover claims. Furthermore, liability
insurance coverage is becoming increasingly expensive and we cannot be certain
that we will always be able to maintain or increase our insurance coverage at an
affordable price or in sufficient amounts to protect against potential losses. A
product liability claim, product recall or other claim, as well as any claim for
uninsured liabilities or claim in excess of insured liabilities, may
significantly harm our business and results of operations. Even if a product
liability claim is not successful, adverse publicity and time and expense of
defending such a claim may significantly interfere with our
business.
Material
weaknesses or deficiencies in our internal control over financial reporting
could harm stockholders’ and business partners’ confidence in our financial
reporting, our ability to obtain financing, and other aspects of our
business.
Internal
control over financial reporting can provide only reasonable and not absolute
assurance that deficiencies or weaknesses are identified. Additionally,
potential control deficiencies that are not yet identified could emerge and
internal controls that are currently deemed to be in place and operating
effectively are subject to the risk that those controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Identification and corrections of these
types of potential control deficiencies could have a material impact on our
business, financial position, results of operations and disclosures and impact
our ability to raise funds.
Risks
Related to Our Intellectual Property
Our
proprietary technology and patents may offer only limited protection against
infringement and the development by our competitors of competitive
products.
We own
two patents jointly with the United States government. These patents expire in
2016. We also own eighteen other United States patents with expiration dates
ranging from 2013 to 2024, four European patents with expiration dates ranging
from 2010 to 2019, three Japanese patents with expiration dates ranging from
2010 to 2016 and one Singaporean patent with an expiration date in
2024. Of the patents we own, five of the United States patents, two
of the European patents and two of the Japanese patents have claims that cover
ONCONASE® (by
itself or together with other pharmaceuticals) or relevant manufacturing
methodology. The scope of protection afforded by patents for
biotechnological inventions is uncertain, and such uncertainty applies to our
patents as well. Therefore, our patents may not give us competitive advantages
or afford us adequate protection from competing products. Furthermore, others
may independently develop products that are similar to our products, and may
design around the claims of our patents. Patent litigation and intellectual
property litigation are expensive and our resources are limited. To date, we
have not received any threats of litigation regarding patent
issues. However, if we were to become involved in litigation, we
might not have the funds or other resources necessary to conduct the litigation
effectively. This might prevent us from protecting our patents, from defending
against claims of infringement, or both.
We
may be sued for infringing on the intellectual property rights of
others.
Our
commercial success also depends in part on ensuring that we do not infringe the
patents or proprietary rights of third parties. The biotechnology industry has
produced a proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of products. The
coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. While we have not been sued for infringing
the intellectual property rights of others, there can be no assurance that the
drug product candidates that we have under development do not or will not
infringe on the patent or proprietary rights of others. Third parties may assert
that we are employing their proprietary technology without authorization.
Moreover, United States patent applications filed in recent years are
confidential for 18 months, while older applications are not published
until the patent issues. Further, some applications are kept secret during the
entire length of their pendency by request of the applicant in special
circumstances. As a result, there may be patents of which we are unaware, and
avoiding patent infringement may be difficult. Patent holders sometimes send
communications to a number of companies in related fields, suggesting possible
infringement. If we are sued for patent infringement, we would need to
demonstrate that we either do not infringe the patent claims of the relevant
patent and/or that the patent claims are invalid, which we may not be able to
do. Proving invalidity, in particular, is difficult since it requires a showing
of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Parties making claims against us may be able to obtain
injunctive or other equitable relief that could effectively block our ability to
further develop, commercialize and sell products, and such claims could result
in the award of substantial damages against us. In the event of a successful
claim of infringement against us, we may be required to pay damages and obtain
one or more licenses from third parties. We may not be able to obtain these
licenses at a reasonable cost, if at all. In that event, we could encounter
delays in product introductions while we attempt to develop alternative methods
or products or be required to cease commercializing affected products and our
operating results would be harmed.
In the
future, others may file patent applications covering technologies that we may
wish to utilize with our proprietary technologies, or products that are similar
to products developed with the use of our technologies. If these patent
applications result in issued patents and we wish to use the claimed technology,
we would need to obtain a license from the third party, and this would increase
our costs of operations and harm our operating results.
FORWARD
LOOKING STATEMENTS
This
prospectus includes forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar
expressions, as they relate to us, our business, or our management, are intended
to identify forward looking statements. We have based these forward looking
statements largely on our current expectations and projections about future
events and financial trends affecting the financial condition of our
business. These forward looking statements are subject to a number of
risks, uncertainties and assumptions that may be beyond our
control. All of our forward looking statements are qualified in their
entirety by reference to the factors discussed in this prospectus under the
heading “RISK FACTORS”that could cause results to differ materially from those
projected in these forward looking statements.
We
caution you that the risk factors contained herein are not
exhaustive. We operate in a continually changing business climate
which can be expected to impact our forward looking statements, whether as a
result of new information, future events, or otherwise, after the date of this
prospectus. In light of these risks and uncertainties, the forward looking
events and circumstances discussed in this prospectus may not occur and actual
results could differ materially from those anticipated or implied in the forward
looking statements. Accordingly, you should not rely on forward
looking statements as a prediction of actual results.
USE
OF PROCEEDS
Each of
the Selling Security Holders will receive all of the net proceeds from the sale
of shares by that holder. We will not receive any of the net proceeds from the
sale of the shares. The Selling Security Holders will pay any underwriting
discounts and commissions and expenses incurred by the Selling Security Holders
for brokerage, accounting, tax or legal services or any other expenses incurred
by the Selling Security Holders in offering or selling their shares. We will
bear all other costs, fees and expenses incurred in effecting the registration
of the shares covered by this prospectus, including, without limitation, blue
sky registration and filing fees, and fees and expenses of our counsel and
accountants.
A
portion of the shares covered by this prospectus are, prior to their sale under
this prospectus, issuable upon conversion of the Notes or exercise of the
Warrants. When the Notes are converted we will be relieved of
our debt obligations for the Notes at the rate of $0.15 per share issued.
Assuming that the Notes are converted on October 19, 2012, the maturity
date of the Notes, and that interest will accrue at the rate of 5% through the
maturity date, a total of $3,737,500 of principal and
accrued interest would be converted into 24,916,667 shares of our
common stock. If all of the Series A Warrants are exercised for cash at the
exercise price of $0.15 per share, we will receive a total of $3,250,000 from
such exercise. If all of the Series B Warrants are exercised for cash at the
exercise price of $0.25 per share, we will receive a total of $5,416,666 from
such exercise.
The Notes
and Warrants were issued in a private placement which we closed in October
2009. We received proceeds from the Notes in the aggregate principal
amount of $3,250,000 and assuming 100% exercise of the Warrants for cash, we
will receive $8,666,666 from the payment of the exercise price. At
the time of the private placement, we intended to use the proceeds for general
corporate purposes, including the funding of research and development
activities. The use of a portion of such proceedings is subject to
certain limitations. In connection with our October 2009 private
financing, we entered into an escrow agreement whereby certain investors placed
$1.6 million of the proceeds paid for their units purchased in the financing in
an escrow account. The escrow agreement will terminate on the earlier
of the date that all funds have been disbursed from the escrow account and
April 19, 2011, at which time any remaining funds will be disbursed to
us. Such amounts can be disbursed from the escrow account only to
satisfy obligations of ours owed to clinical research organizations, hospitals,
doctors and other vendors and service providers associated with the clinical
trials which we intend to conduct for our ONCONASE® product. Until such
time that the escrow agreement terminates, we are not permitted to use the funds
in the escrow account for any other purposes.
DETERMINATION
OF OFFERING PRICE
The
securities may be sold in one or more transactions at prevailing market prices
at the time of the sale on the over-the counter bulletin board or at privately
negotiated prices determined at the time of sale.
DILUTION
We are
not selling any of the shares of common stock in this offering. All of the
shares sold in this offering will be held by the Selling Security Holders at the
time of the sale, so that no dilution will result from the sale of the
shares.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion of our financial condition and results of operations should
be read together with our consolidated financial statements and notes to those
statements included in this prospectus.
Overview
We are a
biopharmaceutical company engaged in the research, development, and
commercialization of drugs for life threatening-diseases, such as malignant
mesothelioma and other cancers. Our corporate strategy is to become a
leader in the discovery, development, and commercialization of novel
ribonuclease (RNase) therapeutics for cancer and other life-threatening
diseases.
We are a
development stage company as defined in Accounting Standards Codification (ASC)
“Development Stage Entities”. We are devoting substantially all of
our present efforts to establishing a new business and developing new drug
products. Our planned principal operations of marketing and/or licensing new
drugs have not commenced and, accordingly, we have not derived any significant
revenue from these operations.
Since our
inception in 1981, we have devoted the vast majority of our resources to the
research and development of ONCONASE®, our
lead drug candidate, as well as other related drug candidates. In
recent years we have focused our resources towards the completion of the
clinical program for ONCONASE® in
patients suffering from unresectable malignant mesothelioma, or
UMM.
During
our fiscal year ended July 31, 2009, our efforts were primarily focused on the
completion of our confirmatory Phase IIIb clinical trial for UMM and preparation
of the remaining components of our NDA. The results of the
preliminary statistical analysis of the data from the confirmatory Phase IIIb
clinical trial for ONCONASE® in
patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. However, a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a currently unmet medical need and
one of the predefined primary sub-group data sets for patients in the
trial. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an
NDA. At this time, we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to pursue,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
effected a reduction in force and reduced our operations to the minimum
sustainable level required to pursue strategic alternatives and additional
capital during the fiscal year ended July 31, 2009. Charles Muniz, a
long time supporter and significant shareholder our company, was elected to our
Board and appointed our President, CEO and CFO. Additional changes to
our executive team during the fiscal year included the resignation of James
Loughlin as a member of our Board and Chairman of the Audit Committee,
resignation of Lawrence A. Kenyon as our President, CFO, Corporate Secretary and
member of our Board and pursuant to a retirement agreement, Kuslima Shogen, our
scientific founder, retired as our CEO and scientific founder. Ms.
Shogen resigned from our Board in January 2010.
Almost
all of the $72.6 million of research and development expenses we have incurred
since our inception has gone toward the development of ONCONASE® and related drug
candidates. For the fiscal years 2009, 2008 and 2007, our research
and development expenses were approximately $3.3 million, $8.5 million, and $5.5
million, respectively, almost all of which were used for the development of
ONCONASE® and related drug
candidates.
We
have incurred losses since inception and we have not received FDA approval of
any of our drug candidates. We expect to continue to incur losses for
the foreseeable future as we continue our efforts to receive marketing approval
for our drug candidates, which includes the sponsorship of human clinical
trials. Until we are able to consistently generate revenue through
the sale of drug or non-drug products, we anticipate that we will be required to
fund the development of our pre-clinical compounds and drug product candidates
primarily by other means, including, but not limited to, licensing the
development or marketing rights to some of our drug candidates to third parties,
collaborating with third parties to develop our drug candidates, or selling
Company issued securities.
We fund
the research and development of our products primarily from cash receipts
resulting from the sale of our equity securities and convertible debentures in
registered offerings and private placements. Additionally, we have
raised capital through other debt financings, the sale of our tax benefit and
research products, interest income and financing received from Kuslima Shogen,
our former CEO. During the fiscal year ended July 31, 2009, we
received gross proceeds of $13,220 from exercises of stock options and
approximately $1.1 million from the sale of our tax benefit. In
October 2009, we received a capital infusion of $3.25 million in gross proceeds
from a private financing. These proceeds will be used to continue our
operations, explore strategic alternatives and initiate a Phase II clinical
study for non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens. We have incurred
losses since inception and, to date, we have generated only small amounts of
capital from commercial agreements for ONCONASE®.
Results
of Operations
Fiscal
Year Ended July 31, 2009, as Compared to Fiscal Year Ended July 31,
2008
We are a
development stage company as defined in ASC “Development Stage
Entities.” We are devoting substantially all our present efforts to
establishing a new business and developing new drug products. Our
planned principal operations of marketing of new drugs have not commenced and,
accordingly, we have not derived any significant revenue from these
operations. We focus most of our productive and financial resources
on the development of ONCONASE®. We
did not record any revenue in fiscal years 2009 or 2008.
Research
and development expense for fiscal year 2009 was $3.3 million compared to $8.5
million for fiscal year 2008, a decrease of approximately $5.2 million, or
61.6%. The decrease was primarily due to decreased expenses of
approximately $4.2 million related to costs incurred for the ONCONASE®
rolling NDA submission of our confirmatory Phase IIIb ONCONASE®
clinical trial for malignant mesothelioma; decreased compensation expense of
approximately $0.7 million, due to the reduction in force; and a decrease of
approximately $0.3 million in expenses due to the completion of the Phase I
component of our Phase I/II ONCONASE®
clinical trials.
General
and administrative expense for fiscal year 2009 was approximately $2.4 million
compared to approximately $5.8 million for fiscal year 2008, a decrease of
approximately $3.4 million, or 58%. This decrease was primarily due
to decreased compensation expense of approximately $2.4 million directly related
to the retirement agreement executed by Kuslima Shogen, our former CEO in fiscal
year 2008, the resignation of our President and CFO in fiscal 2009 and
share-based compensation. Additionally, a decrease in professional
fees for consultants and legal advisors of approximately $0.9 million was
related to negotiations that resulted in commercial partnerships for
ONCONASE® in fiscal year
2008 and reduced operations in fiscal year 2009. Other general and
administrative expenses also decreased by approximately $0.1 million.
Investment
income for fiscal year 2009 was approximately $26,000 compared to $228,000 for
fiscal year 2008, a decrease of $202,000. The decrease was due to
lower balances of cash and cash equivalents on hand during the fiscal year 2009
as compared to the same period in 2008.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2009 (July 1, 2008 to June 30, 2009), we had approximately
$1,274,000 of total available state tax benefit that was saleable. On
December 1, 2008, we received approximately $1,140,000 from the sale of our
total available state tax benefit, which was recognized as state tax benefit in
the fiscal year ended July 31, 2009.
We have
incurred net losses during each year since our inception. The net
loss for fiscal year 2009 was approximately $4.5 million as compared to $12.3
million in fiscal year 2008. The decreased net loss was primarily
related to the decreased research and development expenses incurred in 2009 as
compared to 2008. The cumulative loss from the date of inception,
August 24, 1981 to July 31, 2009, amounted to $108.9 million. Such
losses are attributable to the fact that we are still in the development stage
and, accordingly, have not derived sufficient revenues from operations to offset
the development stage expenses.
Fiscal
Year Ended July 31, 2008, as Compared to Fiscal Year Ended July 31,
2007
We did
not record any revenue in fiscal years 2008 and 2007.
Research
and development expense for fiscal year 2008 was $8.5 million compared to $5.5
million for fiscal year 2007, an increase of approximately $3 million, or
53.4%. The increase in research and development expenses is directly
related to increased expenses of approximately $3.2 million related to our
preparations for the completion of the ONCONASE®
rolling NDA submission, which included the required statistical analysis of the
data from our confirmatory Phase IIIb clinical trial, offset by a decrease
of approximately $0.2 million in expenses incurred from the completion of the
Phase I component of our Phase I/II ONCONASE®
clinical trials.
General
and administrative expense for fiscal year 2008 was approximately $5.8 million
compared to approximately $4.1 million for fiscal year 2007, an increase of
approximately $1.7 million, or 41.6%. This increase was primarily the
result of increased compensation expense of approximately $1.1 million directly
related to the planned retirement of Kuslima Shogen, our former CEO, in
2009. Additionally, professional service fees for consultants and
legal advisors increased approximately $0.5 million as a result of our increased
activity in pursuing and negotiating commercial agreements in fiscal year
2008. Other general and administrative expenses increased by a total
of approximately $0.1 million in 2008 as a result of increased commercial
insurance premiums.
Investment
income for fiscal year 2008 was $0.2 million compared to $0.4 million for fiscal
year 2007, a decrease of $0.2 million. The decrease was due to lower
balances of cash and cash equivalents on hand during the fiscal year 2008 as
compared to the same period in 2007.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2008 (July 1, 2007 to June 30, 2008), we had approximately
$2.5 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $2.0 million. In
December 2007, we received approximately $1.8 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2008.
For the
state fiscal year 2007 (July 1, 2006 to June 30, 2007), we had approximately
$2.3 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $0.6 million. In
December 2006, we received approximately $0.5 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2007.
The net
loss for fiscal year 2008 was $12.3 million as compared to $8.8 million in
fiscal year 2007.
Six-Month
Period Ended January 31, 2010, as Compared to Six-Month Period Ended January 31,
2009
We focus
most of our productive and financial resources on the development of
ONCONASE® and
as such, except for the sales for the six month period ended January 31, 2010 in
the amount of $18,750 which resulted from the sale on a named-patient basis of
our product ONCONASE® as
approved by the Swiss government, we did not have any material sales in the six
month periods ended January 31, 2010 and 2009.
Research
and development expense for the six month period ended January 31, 2010 was
approximately $0.3 million compared to approximately $2.8 million for the same
period in 2009, a decrease of approximately $2.5 million, or 90%. The
decrease was primarily related to decreased expenses of approximately $1.8
million related to costs incurred for the ONCONASE®
rolling NDA submission for our Phase IIIb clinical trial for malignant
mesothelioma and decreased compensation expense of approximately $0.7 million
from the reduction in force and decreased stock-based compensation.
General
and administrative expense for the six month period ended January 31, 2010 was
approximately $0.8 million compared to $1.8 million for the same period in 2009,
a decrease of $1.0, or 54%. This decrease was primarily due to
decreased compensation expense of approximately $0.7 million from decreased
stock-based compensation expense, the retirement of Kuslima Shogen, our former
CEO and the resignation of Lawrence Kenyon, our former CFO. Public
relations related costs and other general administrative expenses also decreased
by approximately $0.3 million due to our reduced operations in fiscal year
2010.
Interest
expense for the six month period ended January 31, 2010 increased by
approximately $5.9 million compared to the same period last
year. This increase was directly due to the beneficial conversion
feature of the convertible debenture and warrants we issued in October 2009 and
the original recognition of and the change in valuation of the derivative
liability.
New
Jersey permits certain corporations located in New Jersey to sell a portion of
their state tax loss carryforwards and state research and development credits,
or state tax benefit. For the state fiscal year 2010 (July 1, 2009 to
June 30, 2010, we had approximately $723,000 of total available state tax
benefit that was saleable. On February 8, 2010, we received
approximately $647,000 from the sale of our total available state tax benefit,
which will be recognized as state tax benefit in the period it was
received. For the state fiscal year 2009 (July 1, 2008 to June 30,
2009), we had approximately $1,274,000 of total available state tax benefit that
was saleable. On December 1, 2008, we received approximately
$1,140,000 from the sale of our total available state tax benefit, which was
recognized as state tax benefit for the six months ended January 31,
2009.
The net
loss for the six month period ended January 31, 2010 was approximately $6.9
million as compared to $3.5 million for the same period last year, an increase
of $3.4 million. The cumulative loss from the date of inception,
August 24, 1981 to January 31, 2010, amounted to $115.9 million. We
have incurred net losses during each year since our inception. Such
losses are attributable to the fact that we are still in the development stage
and, accordingly, have not derived sufficient revenues from operations to offset
our development stage expenses.
Liquidity
and Capital Resources
We have
reported cumulative net losses of approximately $25.6 million for the three most
recent fiscal years ended July 31, 2009. The net losses from date of
inception, August 24, 1981, to January 31, 2010 amount to approximately $115.9
million. As of January 31, 2010, we have a working capital deficit of
approximately $10.5 million.
We have
financed our operations since inception primarily through the sale of our equity
securities and convertible debentures in registered offerings and private
placements. Additionally, we have raised capital through other debt
financings, the sale of our state tax benefit and research products, and
investment income and financing received from Kuslima Shogen, our former
CEO. As of January 31, 2010, we had approximately $0.7 million
in cash and cash equivalents. We currently believe that our cash
reserves including the proceeds received in February 2010 from the sale of our
state tax benefit of approximately $0.6 million and the $1.6 million restricted
cash intended for future clinical trials can support our activities through July
2010, based upon our reduced operations.
The
primary use of cash over the next six months will be to fund our clinical and
pre-clinical research and development efforts for ONCONASE®. The
most significant expenses will be incurred for the currently planned Phase II
clinical study for non-small cell lung cancer. Additional expenses
are also expected to be incurred as we continue to move our drug product
candidates towards the next phase of clinical and pre-clinical
development. We will need to obtain additional financing in order to
continue our operations. Given current market conditions, it may be
very difficult, if not impossible, to obtain such financing. If we
are not able to obtain additional financing, in order to continue our operations
we will need to pursue strategic alternatives for the further development of
ONCONASE®.
The audit
report of our independent registered public accounting firm on our fiscal year
ended July 31, 2009 financial statements expressed that there was substantial
doubt about our ability to continue as a going concern. Continued
operations are dependent on our ability to raise additional capital from various
sources such as those described above. Such capital raising
opportunities may not be available or may not be available on reasonable
terms. Our financial statements do not include any adjustments that
may result from the outcome of this uncertainty.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet debt, no exposure to off-balance sheet arrangements, no
special purpose entities, nor activities that include non-exchange-traded
contracts accounted for at fair value as of January 31, 2010.
Contractual
Obligations and Commercial Commitments
Our major
outstanding contractual obligations relate to our building and equipment
operating leases. During the fiscal year ended July 31, 2008, we
entered into an equipment capital lease which obligates us to pay $635 per month
for five years and during the fiscal year ended July 31, 2007, we entered into
separate building and equipment operating leases, which obligates us to pay an
average of $25,393 per month for the building and $1,866 per month for the
equipment for ten and five years, respectively. Below is a table that
presents our contractual obligations and commercial commitments as of July 31,
2009:
|
|
|
|
|
Payments
Due in Fiscal Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and Thereafter
|
|
Building
lease
|
|
$
|
2,750,685
|
|
|
$
|
302,036
|
|
|
$
|
317,446
|
|
|
$
|
317,446
|
|
|
$
|
317,446
|
|
|
$
|
332,856
|
|
|
$
|
1,163,455
|
|
Equipment
lease
|
|
|
83,612
|
|
|
|
31,024
|
|
|
|
25,976
|
|
|
|
25,976
|
|
|
|
636
|
|
|
|
-
|
|
|
|
-
|
|
Total
Contractual cash obligations
|
|
$
|
2,834,297
|
|
|
$
|
333,060
|
|
|
$
|
343,422
|
|
|
$
|
343,422
|
|
|
$
|
318,082
|
|
|
$
|
332,856
|
|
|
$
|
1,163,455
|
|
On
January 15, 2010, Charles Muniz, our President and CEO, as an individual,
entered into a quarterly lease agreement with I&G Garden State, LLC or
I&G for new office on the fourth floor of 300 Atrium Drive, Somerset, NJ,
which space we will occupy as our new office. The lease expires on
June 30, 2010, renewable for successive three-month periods upon thirty days
prior notice and payment of $15,790.50 for the following three months'
rent. Since the beginning of the lease term, we have been paying the
quarterly rent payments directly to I&G.
In
January 2010, we vacated our old facility pursuant to the complaint filed by our
landlord, I&G in November 2009. In February 2010, I&G
withdrew the remaining balance of the Company’s secured irrevocable letter of
credit which was placed in March 2007 in the amount of approximately
$81,000. On February 5, 2010, our former landlord, I&G, commenced
an action against us. The lawsuit seeks unspecified damages for
an alleged breach of a lease agreement dated March 14, 2007 between
the Company and I&G. We intend to vigorously defend this
action.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain. The accounting policies set forth below have been
considered critical because changes to certain judgments, estimates and
assumptions could significantly affect our financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles or GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those
estimates.
Cash
Equivalents
We
consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. The carrying value of
these investments approximates their fair market value due to their short
maturity and liquidity.
Property
and Equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the respective
assets. Maintenance and repairs that do not extend the life of assets
are charged to expense when incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in operations for
the period in which the transaction takes place.
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
cash flows expected to be generated by the asset. If the carrying
amount exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount exceeds the fair value of
the asset.
Income
Taxes
Income
taxes are accounted for under the provisions of ASC "Accounting for Income
Taxes". Under this method, 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 and operating loss and tax credit
carryforwards. 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. Management provides valuation allowances against the
deferred tax assets for amounts which are not considered “more likely than not”
to be realized.
Revenue
Recognition
We
recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 104,
“Revenue Recognition,” issued by the staff of the SEC. Under SAB No.
104, revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred and/or services have been rendered, the sales price is
fixed or determinable, and collectibility is reasonably assured.
We enter
into marketing and distribution agreements, which contain multiple
deliverables. Under the provisions of “Accounting for
Revenue Arrangements with Multiple Deliverables,” we evaluate whether these
deliverables constitute separate units of accounting to which total arrangement
consideration is allocated. A deliverable qualifies as a separate
unit of accounting when the item delivered to the customer has standalone value,
there is objective and reliable evidence of fair value of items that have not
been delivered to the customer, and, if there is a general right of return for
the items delivered to the customer, delivery or performance of the undelivered
items is considered probable and substantially in the control of the
company. Arrangement consideration is allocated to units of
accounting on a relative fair-value basis or the residual method if the company
is unable to determine the fair value of all deliverables in the
arrangement. Consideration allocated to a unit of accounting is
limited to the amount that is not contingent upon future performance by the
company. Upon determination of separate units of accounting and
allocated consideration, the general criteria for revenue recognition are
applied to each unit of accounting.
Research
and Development
Research
and development costs are expensed as incurred. These costs include,
among other things, consulting fees and costs related to the conduct of human
clinical trials. We also allocate indirect costs, consisting
primarily of operational costs for administering research and development
activities, to research and development expenses.
Share-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued amended guidance
on accounting for “Stock Compensation”. The amended guidance requires
all share-based payments, including stock option grants to employees, to be
recognized as an operating expense in the statement of
operations. The expense is recognized over the requisite service
period based on fair values measured on the date of grant. We adopted
the amended guidance on Stock Compensation effective August 1, 2005 using the
modified prospective method and, accordingly, prior period amounts have not been
restated. Under the modified prospective method, the fair value of
all new stock options issued after July 31, 2005 and the unamortized fair value
of unvested outstanding stock options at August 1, 2005 are recognized as
expense as services are rendered.
Leases
With
respect to our operating leases, we apply the provisions of ASC “Accounting for
Leases”, recognizing rent expense on a straight-line basis over the lease term
due to escalating lease payments and landlord incentives.
Contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Recoveries from other parties are recorded when realized.
Fair
Value of Financial Instruments
Financial
instruments consist of cash, cash equivalents, accounts receivable, and accounts
payable. The carrying value of these financial instruments is a
reasonable estimate of fair value.
Recently
Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standards Codification (the “Codification”). Effective July 1, 2009,
the Codification became the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (GAAP), superseding existing rules and
related literature issued by the FASB, American Institute of Certified Public
Accountants (AICPA) and Emerging Issues Task Force (EITF). The
Codification also eliminates the previous U.S. GAAP hierarchy and establishes
one level of authoritative GAAP. Rules and interpretive releases of
the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. All other literature is
considered non-authoritative. The Codification, which has not changed
GAAP, was effective for interim and annual periods ended after September 15,
2009. The Company adopted the Codification for the quarter ended
October 31, 2009. Other than the manner in which accounting guidance
is referenced, the adoption of the Codification had no impact on the Company’s
financial statements.
In
December 2007, the FASB issued new accounting guidance related to the accounting
for business combinations and related disclosures. This guidance
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree, and any
goodwill acquired in a business combination. It also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of a business combination. The guidance is to be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company adopted this guidance, effective August 1,
2009, and it did not have any effect on the Company’s financial
statements.
In
February 2008, the FASB issued amended guidance to delay the fair value
measurement and expanded disclosures about fair value measurements for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until fiscal years beginning after November 15,
2008. Effective August 1, 2009, the Company adopted the guidance
related to fair value measurements for nonfinancial assets and nonfinancial
liabilities and the adoption of such guidance did not have any effect on the
Company’s financial statements.
In June
2008, the FASB issued guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity’s own stock,
which would qualify as a scope exception to derivative classification under ASC
Topic 815, “Derivatives and Hedging”. The guidance is effective for
fiscal years beginning after December 15, 2008 and early adoption for an
existing instrument is not permitted. The Company adopted this
guidance, effective August 1, 2009. The adoption had no impact on the
Company’s previously accounted for equity-linked financial instruments that were
considered to be indexed to its own equity. Refer to Note 6 for the
result of the adoption on the equity-linked instruments included within the
Securities Purchase Agreement entered into on October 19, 2009.
In
May 2009, the FASB issued guidelines on subsequent event accounting which sets
forth: (1) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date and (4) requires the reporting entity to
evaluate subsequent events through the date the financial statements are
issued. The Company adopted these amendments for the fiscal year
ended July 31, 2009 and determined that it did not have a material impact on the
Company’s financial statements. The Company evaluated all events or
transactions that occurred after January 31, 2010 through the date the financial
statements were issued.
In August
2009, the FASB issued amended guidance on the measurement of liabilities at fair
value. The guidance provides clarification that in circumstances in
which a quoted market price in an active market for an identical liability is
not available, the fair value of a liability be measured using one or more of
the valuation techniques that uses the quoted price of an identical liability
when traded as an asset or, if unavailable, quoted prices for similar
liabilities or similar assets when traded as assets. If none of this
information is available, an entity should use a valuation technique in
accordance with existing fair valuation principles. This guidance is
effective for the first reporting period (including interim periods) after
issuance. The Company adopted this guidance in the quarter ended
October 31, 2009. The adoption had no impact on the Company’s
financial statements.
In
October 2009, the FASB issued amended guidance for separating consideration in
multiple-deliverable arrangements. It eliminates the requirement
under previous guidance that all undelivered elements have vendor-specific
objective evidence (VSOE) or third-party evidence (TPE) of fair value before
recognizing a portion of revenue related to the delivered items, and establishes
that revenue be allocated to each element based on its relative selling price,
as determined by VSOE, TPE, or the entity’s estimated selling price if neither
of the aforementioned is available. Additionally, the amended
guidance eliminates the residual method of allocation and expands required
disclosures about multiple-element revenue arrangements. It will be
effective prospectively for revenue arrangements entered into beginning
January 1, 2011, with early adoption permitted.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with accountants on accounting or
financial disclosures in the past two fiscal years and the subsequent interim
period thereafter.
On
December 1, 1993, certain stockholders of Armus Harrison & Co., or AHC,
terminated their association with AHC, or the AHC termination, and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on our behalf. In June 1996, AHC dissolved
and ceased all operations. The report of J.H. Cohn LLP with respect
to our financial statements from inception to July 31, 2008 is based on the
report of KPMG LLP from August 1, 1992 to July 31, 2002 and of AHC for the
period from inception to July 31, 1992, although AHC has not consented to the
use of such report herein and will not be available to perform any subsequent
review procedures with respect to such report. Accordingly, investors
will be barred from asserting claims against AHC under Section 18 of the
Exchange Act on the basis of the use of such report in any Annual Report on Form
10-K into which such report is incorporated by reference. In
addition, in the event any persons seek to assert a claim against AHC for false
or misleading financial statements and disclosures in documents previously filed
by us, such claim will be adversely affected and possibly
barred. Furthermore, as a result of the lack of a consent from AHC to
the use of its audit report herein, or to its incorporation by reference into an
Annual Report on Form 10-K, our officers and directors will be unable to rely on
the authority of AHC as experts in auditing and accounting in the event any
claim is brought against such persons under Section 18 of the Exchange Act based
on alleged false and misleading Financial Statements and disclosures
attributable to AHC. The discussion regarding certain effects of the
AHC termination is not meant and should not be construed in any way as legal
advice to any party and any potential purchaser should consult with his, her or
its own counsel with respect to the effect of the AHC termination on a potential
investment in our common stock or otherwise
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
exposed to market risks, primarily changes in U.S. interest rates. As of January
31, 2010, we held total cash and cash equivalents of approximately $0.7 million.
All cash equivalents have a maturity less than 90 days. Declines in
interest rates over time would reduce our interest income from our
investments.
CONTROLS
AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Under the
supervision and with the participation of our management, including our CEO and
CFO, we evaluated the effectiveness of the design and operation of our
“disclosure controls and procedures” (as defined in Rule 13a-15(e) under the
Exchange Act), as of January 31, 2010, the end of our most recently completed
fiscal quarter. Based on this evaluation, our CEO and CFO concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange
Commission including without limitation, controls and procedures that are
designed to ensure that the information required to be disclosed in reports by
us that we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive and principal financial
officers, as appropriate to allow timely discussion regarding required
disclosures.
(b) Changes
in internal controls.
There
have been no changes in our internal control over financial reporting during the
quarter ended January 31, 2010 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting subsequent to the date of the evaluation referred to
above.
BUSINESS
BUSINESS
OVERVIEW
Tamir
Biotechnology, Inc. is a Delaware corporation initially incorporated on August
24, 1981 under the name of Alfacell Corporation. The Company changed
its name to Tamir Biotechnology, Inc. on April 27, 2010. We are a
biopharmaceutical company primarily engaged in the discovery and development of
a new class of therapeutic drugs for the treatment of cancer and other
pathological conditions. Our proprietary drug discovery and
development program consists of novel therapeutics which is being developed from
amphibian ribonucleases (RNases).
RNases
are biologically active enzymes that split RNA molecules. RNases are
enzymes which play important roles in nature, including the embryonic
development of an organism and regulation of various cell
functions. RNA is an essential bio-chemical cellular component
necessary to support life. There are various types of RNA, all of
which have specific functions in a living cell. They help control
several essential biological activities, namely; regulation of cell
proliferation, maturation, differentiation and cell death. Therefore,
they are believed to be good candidates for the development of therapeutics for
cancer and other life-threatening diseases, including HIV and autoimmune
diseases, that require anti-proliferative and apoptotic, or programmed cell
death, properties.
ONCONASE®
(ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of
pancreatic ribonuclease, isolated from the eggs of the Rana pipiens (the Northern
Leopard frog). Ranpirnase is the smallest known protein belonging to
the superfamily of pancreatic ribonuclease and has been shown, on a molecular
level, to re-regulate the unregulated growth and proliferation of cancer
cells. Unlike most anti-cancer agents that attack all cells
regardless of phenotype (malignant versus normal) and cause severe toxicities,
ONCONASE® is not an indiscriminate
cytotoxic drug (cell killing agent). ONCONASE® primarily affects
exponentially growing malignant cells, with activity controlled through unique
and specific molecular mechanisms.
The
molecular mechanisms which determine the apoptotic cell death induced by
ranpirnase have been identified. tRNA (transfer RNA), rRNA (ribosomal
RNA), mRNA (messenger RNA) and miRNA (micro RNA) are all different types of RNA
with specific functions in a living cell. Ranpirnase preferentially
degrades tRNA and targets miRNA, leaving rRNA and mRNA apparently
undamaged. The RNA damage induced by ranpirnase appears to represent
a “death signal”, or triggers a chain of molecular events culminating in the
activation of proteolytic enzyme cascades which, in turn, induces disintegration
of the cellular components and finally leads to cell death. It has
been shown that there is a protein synthesis inhibition-independent component,
which, together with the changes induced by the protein synthesis inhibition,
results in tumor cell death.
ONCONASE®, our
lead drug product candidate, has been evaluated in human clinical trials for the
treatment of various forms of cancer. Our most recent clinical trial
for ONCONASE® was a
confirmatory Phase IIIb registration trial that was designed to evaluate the
efficacy, safety and tolerability of the combination of ONCONASE® and
doxorubicin as compared to doxorubicin alone in the treatment of patients with
unresectable (inoperable) malignant mesothelioma or UMM, a rare and deadly form
of lung cancer. Enrollment in the Phase IIIb trial was completed in
September 2007. In May 2008, we reported that the preliminary
statistical analysis of data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, a predefined primary data set for this sub-group of
patients in the trial, which represents a currently unmet medical
need. The Food and Drug Administration or the FDA, recommended that
an additional clinical trial be conducted in UMM patients that have failed one
prior chemotherapy regimen, prior to filing a New Drug Application or
NDA. At this time we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to purse,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
believe that ONCONASE®, as
well as another group of our amphibian RNases known as Amphinases, may also have
applications in a variety of other areas in addition to those being investigated
currently in our clinical development program. Amphinase is currently
in the pre-clinical research and development stage.
We are a
development stage company as defined in the ASC “Development Stage
Entities.” We are devoting substantially all of our present efforts
to establishing a new business and developing new drug products. Our planned
principal operations of marketing and/or licensing new drugs have not commenced
and, accordingly, we have not derived any significant revenue from these
operations.
MARKET
OVERVIEW
According
to the American Cancer Society (ACS) 2009 Cancer Facts and
Figures, cancer is the second leading cause of death in the United
States, accounting for one in every four deaths. The ACS 2009 Cancer Facts and Figures
also estimates that doctors will diagnose over 1.5 million new cases of cancer
in the United States in 2009. The National Institutes of Health or
NIH estimate that the annual cost of cancer in 2008 was approximately $228.1
billion, including $93.2 billion in direct medical costs and $18.8 billion for
morbidity costs, which includes the cost of lost productivity.
Cancer is
characterized by uncontrolled cell division resulting in the growth of a mass of
cells commonly known as a tumor. Cancerous tumors can arise in almost
any tissue or organ and cancer cells, if not eradicated, spread, or metastasize,
throughout the body. Cancer is believed to occur as a result of a
number of factors, including hereditary and environmental factors.
For the
most part, cancer treatment depends on the type of cancer and the stage of
disease progression. Generally, staging is based on the size of the tumor and
whether the cancer has metastasized or spread. Following diagnosis,
solid tumors are typically surgically removed or the patient is given radiation
therapy. Chemotherapy is the principal treatment for tumors that are
likely to, or have, metastasized. Chemotherapy involves the
administration of drugs which are designed to kill cancer cells, affect the
growth of tumors, or reduce bloodflow to tumors, in an effort to reduce or
eliminate cancerous tumors.
Because
in most cases cancer is fatal, cancer specialists attempt to attack the cancer
aggressively, with as many therapies as available and with as high a dose as the
patient can tolerate. Since traditional chemotherapy attacks both
normal and cancerous cells, treatment often tends to result in complicating side
effects. Additionally, cells which have been exposed to several
rounds of chemotherapy develop a resistance to the cancer drugs that are being
administered. This is known as “multi-drug
resistance.” The side effects of chemotherapy often limit the
effectiveness of treatment. Cancers often recur and mortality rates
remain high. Despite large sums of money spent on cancer research,
current treatments are largely inadequate and improved anti-cancer agents are
needed.
We
believe that the products we currently have under development could be used to
target a broad range of solid tumors. The table below shows the
incidence and mortality estimated for the year 2009 for various types of solid
tumor cancers that our products could be designed to treat:
Cancer
Indication
|
|
New
Cases
|
|
Deaths
|
Lung
|
|
219,440
|
|
159,390
|
Breast
|
|
194,280
|
|
40,610
|
Brain
|
|
22,070
|
|
12,920
|
Esophageal
|
|
16,470
|
|
14,530
|
|
|
|
|
|
Source:
National Cancer Institute
|
|
|
COMPETITION
There are
many companies with resources significantly greater than ours that are currently
marketing approved drug products that treat, and are developing new drug
products that are designed to treat, several of the cancers that we may seek to
treat with our products. The drug products currently marketed or developed by
these companies may prove to be more effective that the products we seek to
develop.
We are
not aware, however, of any product currently being marketed that has the same
mechanism of action as our proposed anti-tumor agent, ONCONASE®. Search
of scientific literature reveals no published information that would indicate
that others are currently employing this method or producing such an anti-tumor
agent. However, we cannot assure you that others may not develop new
treatments that are more effective than ONCONASE®.
BUSINESS
STRATEGY
Our goal
is to become a leading biopharmaceutical company focused on discovering and
developing innovative anti-cancer treatments based on our proprietary RNase
technology platform. Our strategy consists of the following key
elements:
Focus
on the growing cancer market
Cancer is
the second leading cause of death in the United States, yet there remain unmet
needs, and current treatments remain ineffective and inadequate for some
populations. Given the life-threatening nature of cancer, the FDA has
adopted procedures to accelerate the approval of cancer drugs. We
intend to continue to use our expertise in the field of cancer research to
target this significant market opportunity for cancer drug
development.
Develop
our existing product portfolio
We
currently have a portfolio of clinical and pre-clinical drug product candidates
under development for potential use as anti-cancer, and other
therapeutics. We intend to further develop these drug product
candidates both by utilizing our internal resources and by continuing to
collaborate with other companies and leading governmental and academic research
institutions.
Commercialize
pharmaceutical products focused on cancer in selected markets
Our
current strategy is to partner with third parties to market our future products
to oncologists and other key specialists involved in the treatment of cancer
patients. We may also elect to develop an appropriately-sized internal
oncology sales and marketing capability in the United States. This group
may function as a standalone operation or in a supportive, co-promotion capacity
in collaboration with a partner.
RESEARCH
AND DEVELOPMENT PROGRAM
Research
and development expenses for the fiscal years ended July 31, 2009, 2008 and 2007
were approximately $3,268,000, $8,503,000 and $5,543,000,
respectively. Our research and development programs focus primarily
on the clinical and pre-clinical research and development of therapeutics from
our pipeline of amphibian RNases.
Clinical
Development Program
ONCONASE® was
most recently evaluated as a treatment for UMM in an international, centrally
randomized, confirmatory Phase IIIb registration trial. Malignant
mesothelioma is a rare cancer, primarily affecting the pleura (lining of the
lungs), and is usually associated with asbestos exposure. The first
Phase III trial of ONCONASE® in
UMM was completed in 2000. The most recent confirmatory Phase IIIb registration
trial was closed to patient accrual in September 2007.
The
confirmatory Phase IIIb registration trial was a randomized and controlled
clinical trial designed to evaluate the efficacy, safety and tolerability of the
combination of ONCONASE® and doxorubicin as
compared to doxorubicin alone, and powered to reach a statistically significant
difference in overall survival between the ONCONASE® +
doxorubicin treatment group and the doxorubicin treatment group at 316 evaluable
events. Patients were stratified based on Cancer Adult Leukemia Group
B (CALGB) Group (1 to 4) and histology and then assigned treatment using a
centralized randomization plan. The primary endpoint of the trial was
overall patient survival. The following data sets were analyzed for
efficacy as per the statistical analysis plan for this clinical
trial:
|
·
|
All
patients randomized who received at least one dose of study therapy
(evaluable patients),
|
|
·
|
Previously
treated patients,
|
|
·
|
All
patients randomized,
|
|
·
|
All
patients who completed 6 cycles of therapy per protocol,
and
|
|
·
|
All
patients with identical inclusion criteria as used in the Alimta
submission.
|
In
addition, secondary endpoints that were analyzed in accordance with the Phase
IIIb clinical trial statistical analysis plan included:
|
·
|
Tumor
response rates,
|
|
·
|
Progression
free survival,
|
|
·
|
Patient
assessment of symptoms associated with malignant
mesothelioma,
|
|
·
|
Investigator
assessment of malignant mesothelioma
symptoms,
|
|
·
|
Narcotic
pain medication usage,
|
|
·
|
Lung
function, and
|
In May
2008, we reported that the results of the preliminary statistical analysis of
data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, one of the predefined primary sub-group data sets
for patients in the trial, which represents a currently unmet medical
need. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an NDA.
A Phase
I/II program to evaluate a new dose and administration schedule of ONCONASE® was initiated in 2005 to
attempt to take advantage of potentially increased efficacy with higher and more
frequent doses of ONCONASE®. The
Phase I portion of this program is complete and currently, we plan to initiate a
Phase II clinical trial in non-small cell lung cancer (NSCLC) for patients who
have reached maximum progression on their current chemotherapy regimens in
2010.
Pre-Clinical
Research Program
Our drug
discovery and pre-clinical research programs form the basis for the development
of specific recombinant RNases for chemically linking drugs and other compounds
such as monoclonal antibodies, growth factors, etc., as well as developing gene
fusion products with the goal of targeting various molecular
functions. These programs provide for joint design and
generation of new products with outside collaborators. Through these
collaborations, we may own these new products along with, or we may grant an
exclusive license to, the collaborating partner(s).
The
multiple effects of biological activity of ONCONASE® has
led to research in other areas of cancer biology. Two important areas
associated with significant market opportunities are radiation therapy and
control of tumor angiogenesis, or new tumor blood vessel
formation. Many types of cancers undergo radiation therapy at early
stages of the disease; however, success of such treatment is often
limited. We believe any agent capable of enhancing tumor
radiosensitivity has great market potential. Moreover, since the
growth of essentially all types of cancer is dependent on new blood vessel
formation, any agent that has anti-angiogenic activity, we believe, is most
desirable.
Ranpirnase Conjugates and
Fusion Proteins
The
concept of targeting potent toxins as effector molecules to kill cancer or other
specifically targeted cells has been extensively evaluated over the last two
decades. An immunotoxin is an antibody linked to a toxic molecule
that is used to destroy specific cells. Several immunotoxins
containing bacterial and plant toxins or other biotoxins, have been evaluated in
human clinical trials. Efficacy has always been limited due to the
high incidence of immunogenicity, or an immune response, and other intolerable
toxicities, including death. Conjugation of ranpirnase to targeting
ligands, or binding to other molecules, appears to eliminate this safety problem
in pre-clinical studies.
A
Cooperative Research and Development Agreement (CRADA) with the National Cancer
Institute, or NCI, has produced RN321, a conjugate of ranpirnase with a
monoclonal antibody that has demonstrated activity against non-Hodgkin’s
lymphoma in preclinical studies. The relative benefit of killing
targeted tumor cells versus non-targeted healthy cells, or the therapeutic
index, is greater than 200,000-fold with this conjugate. This CRADA
has been concluded and data published.
We have
also developed a variety of uniquely designed versions of ONCONASE® and
amphinase conjugates. These compounds target the EGF receptors and
neo-vascularization (tumor blood vessel formation) which have potential clinical
application in a broad spectrum of solid tumors.
Novel Amphibian
Ribonucleases (Amphinases)
We have
also discovered another series of proteins, collectively named amphinases that
may have therapeutic uses. These proteins are
bioactive in that they have an effect on living cells and organisms and have
both anti-cancer and anti-viral activity. All of the proteins
characterized to date are RNases. Preclinical testing of the new
candidates collectively called amphinases showed them to be similarly active to
ranpirnase. Their chemical structure makes them ideal candidates for
genetic engineering of designer products.
These
compounds have undergone screening by the National Institute of Allergy and
Infectious Diseases (NIAID) against various RNA viruses and by outside
collaborators. One of these compounds, AC-03-636 has been determined
to be active in yellow fever, Hepatitis C and Dengue fever. The same
compound has been evaluated at Johns Hopkins University in a sustained time
release formulation for the treatment of brain tumors, or gliomas.
Evaluation Of
ONCONASE® As A Radiation
Enhancer
The p53
gene is a tumor-suppressor gene, which means that if it malfunctions, tumors may
be more likely to develop. Published preclinical studies have
demonstrated that ONCONASE®
causes an increase in both tumor blood flow and in median tumor oxygen partial
pressure, causing tumor cells to become less resistant to radiation therapy
regardless of the presence or absence of the functional p53 tumor-suppressor
gene. In pre-clinical research at the University of Pennsylvania,
ONCONASE®, when
combined with radiation therapy, enhanced the radiation-sensitivity to treatment
in NSCLC tumor cells without causing the common radiation-induced tissue damage
to non-tumor cells. ONCONASE®
inhibited sub-lethal damage repair, or SLDR and potentially lethal
damage repair, or PLDR in these animal models. We believe
these findings further expand the profile of ONCONASE® in vivo activities and its
potential clinical utility and market potential.
ONCONASE® As a Resistance-Overcoming
and Apoptosis-Enhancing Agent
The Fas (CD95) cell surface
receptor (and its Fas
ligand FasL) has been
recognized as an important “death” receptor involved in the induction of the
“extrinsic” pathway of apoptosis. The apoptotic pathways have been
the preferred target for new drug development in cancer, autoimmune, and other
therapeutic areas.
The
Thoracic Surgery Branch of the NCI confirmed the synergy between ranpirnase and
soluble Fas ligand, or
sFasL in inducing
significant apoptosis in sFasL-resistant Fas+tumor
cells. These results provided rationale for using ONCONASE® as a
potential treatment of FasL-resistant tumors and
possibly other disorders such as the autoimmune lympho-proliferative syndrome
(ALPS).
Evaluation Of
ONCONASE® As An Anti-Viral
Agent
The
ribonucleolytic activity was the basis for testing ONCONASE® as a
potential anti-viral agent against HIV. The NIH has performed an
independent in vitro
screen of ONCONASE®
against the HIV virus type 1. The results showed ONCONASE® to
inhibit replication of HIV by up to 99.9% after a four-day incubation period at
concentrations not toxic to uninfected cells. In vitro findings by the NIH
revealed that ONCONASE®
significantly inhibited production of HIV in several persistently infected human
cell lines, preferentially breaking down viral RNA while not affecting normal
cellular ribosomal RNA and messenger RNAs, which are essential to cell
function.
Moreover,
the NIAID also screened ONCONASE® for anti-HIV
activity. ONCONASE®
demonstrated highly significant anti-HIV activity in the monocyte/macrophage, or
anti-viral, system. Ranpirnase may inhibit viral replication at
several points during the life cycle of HIV, including its early
phases. Ranpirnase may inhibit replication of all different HIV-1
subtypes. These properties of ranpirnase are particularly relevant in
view of the extremely high and exponentially increasing rate of mutations of HIV
that occur during infection, and which are primarily responsible for the
development of resistance to several currently available anti-viral
drugs. At present, over 50% of clinical isolates of HIV are resistant
to both reverse transcriptase, mechanisms which combat viral replication, and
protease inhibitors drugs, a class of anti-viral drugs. An additional
25%, while being sensitive to protease inhibitors, are resistant to reverse
transcriptase inhibitor drugs.
COMMERCIAL
RELATIONSHIPS
License
Agreements
In
January 2008, we entered into a U.S. License Agreement for ONCONASE® with
Par Pharmaceutical, Inc. or Par. Under the terms of the License
Agreement, Strativa Pharmaceuticals or “Strativa, the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. We retained
all rights and obligations for product manufacturing, clinical development and
obtaining regulatory approvals, as well as all rights for those non-U.S.
jurisdictions in which we have not currently granted any such rights or
obligations to third parties. We received a cash payment of $5 million upon the
signing of the License Agreement and were entitled to additional development and
sales milestone payments and double-digit royalties on net sales of
ONCONASE®.
On
September 8, 2009, we entered into a Termination and Mutual Release Agreement or
Termination Agreement with Par pursuant to which our License Agreement and
Supply Agreement with Par were terminated. The License Agreement was
terminated and all rights under the license granted to Par revert back to us
under the Termination Agreement. Under the Supply Agreement, we had
agreed to supply all of Par’s requirements for ONCONASE®.
Pursuant to the Termination Agreement, Par will be entitled to a royalty of 2%
of net sales of ONCONASE® or
any other ranpirnase product developed by us for use in the treatment of cancer
in the United States and its territories commencing with the first sale of such
product and terminating upon the later to occur of the 12th anniversary of the first sale
and the date of expiration of the last valid claim of a pending application or
issued patent owned or controlled by us with respect to such
product.
Marketing
and Distribution Agreements
Megapharm
Ltd.
In May
2008, we entered into an exclusive marketing, sales and distribution agreement
with Megapharm Ltd. for the commercialization of ONCONASE® in
Israel. Under the agreement, we are eligible to receive 50% of net
sales in the territory. We will be responsible for the manufacture
and supply of ONCONASE® to
Megapharm, while Megapharm will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
BL&H
Co. Ltd.
In
January 2008, we entered into a marketing and distribution agreement with
BL&H Co. Ltd. for the commercialization of ONCONASE® in
Korea, Taiwan and Hong Kong. Under the agreement, we received a $100,000
up-front fee and are eligible to receive additional cash milestones and 50% of
net sales in the territory. We will be responsible for the manufacture and
supply of ONCONASE® to
BL&H, while BL&H will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
US
Pharmacia
In July
2007, we entered into a Distribution and Marketing Agreement or the
Distribution Agreement, with USP Pharma Spolka Z.O.O. or the Distributor, an
affiliate of US Pharmacia, pursuant to which the Distributor was granted
exclusive rights for the marketing, sales, and distribution of ONCONASE® for
use in oncology in Poland, Belarus, Ukraine, Estonia, Latvia, and Lithuania or
the Territory for an initial term that ends upon the earlier of
(i) 10 years from the first commercial sale in the Territory and (ii)
the date all of the patents covering the product in the Territory
expire. We received an up-front payment of $100,000 and will also be
entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to the Distributor. We will be responsible for making regulatory filings with
and seeking marketing approval of ONCONASE® in
the Territory and manufacturing and supplying ONCONASE® to
the Distributor. The Distributor will be responsible for all
commercial activities and related costs in the Territory.
In
connection with the Distribution Agreement, we also entered into a Securities
Purchase Agreement, with Unilab LP, an affiliate of US Pharmacia, pursuant to
which we issued a total of 553,360 shares of restricted common stock for
approximately $1.4 million, or $2.53 per share.
GENESIS Pharma
S.A.
In
December 2006, we entered into a Distribution and Marketing Agreement with
GENESIS Pharma S.A. or GENESIS, pursuant to which GENESIS was granted exclusive
rights for the marketing, sales, and distribution of ONCONASE® for use in oncology in Greece,
Cyprus, Bulgaria, Romania, Slovenia, Croatia, Serbia, and the Former Yugoslavian
Republic of Macedonia or the Region for an initial term that ends upon the
earlier of (i) 10 years from the first commercial sale in the Region
and (ii) the date all of the patents covering the product in the Region
expire. We will retain ownership of all intellectual property
relating to ONCONASE® and
responsibility for all regulatory filings with EMEA in the European Union (EU),
with GENESIS providing assistance with regard to regulatory filings in the
non-EU countries included in this agreement. We will also be
responsible for manufacturing and supplying the product to GENESIS, which will
distribute the product. GENESIS will have lead responsibility for all
ONCONASE®
commercialization activities and will manage all operational aspects of the
marketing, sales and distribution of the product in the Region. We
are entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to GENESIS.
Manufacturing
In
January 2008, we entered into a Purchase and Supply Agreement or the Supply
Agreement with Scientific Protein Laboratories LLC or SPL. Under the Supply
Agreement, SPL will manufacture and be our exclusive supplier for the bulk drug
substance used to make ONCONASE®. The
term of the Supply Agreement shall be ten years and we have the right to
terminate the Supply Agreement at any time without cause on two years prior
notice to SPL.
Additionally,
we contract with Ben Venue Laboratories Inc. or Ben Venue for vial filling and
with Bilcare Global Clinical Supplies, Americas or Bilcare, Aptuit, Inc. or
Aptuit and Catalent Pharma Solutions, Inc. or Catalent for the labeling, storage
and shipping of ONCONASE® for
use in clinical trials. Other than these arrangements we do not have
specific arrangements for the manufacture of ONCONASE®.
Products
manufactured for use in clinical trials and for commercial sale must be
manufactured in compliance with Current Good Manufacturing Practices
(CGMP). SPL, Ben Venue, Aptuit and Catalent are all licensed or
approved by the appropriate regulatory agencies and all work is performed in
accordance with CGMP. For the foreseeable future, we intend to rely
on these manufacturers and related service providers, or substitute vendors, if
necessary, to manufacture our product. We believe, however, that
there are substantial alternative providers for the services for which we
contract. For those relationships where we have not entered into
formal agreements, we utilize the services of these third party contractors
solely on an as needed basis with prices and terms customary for companies in
businesses that are similarly situated. In order to replace an
existing manufacturer, we must amend our Investigational New Drug application to
notify the appropriate regulatory agencies of the change. We are
dependent upon our contract manufacturers to comply with CGMP and to meet our
production requirements. It is possible that our contract manufacturers may not
comply with CGMP or deliver sufficient quantities of our products on schedule,
or that we may be unable to find suitable and cost effective alternative
providers if necessary.
Raw
Materials
The major
active ingredient derived from leopard frog eggs is the protein
ranpirnase. We believe we have sufficient egg inventory on hand to
produce enough ONCONASE® for
our future clinical trials and early commercialization. In addition,
we have successfully produced ranpirnase in small proof-of-concept size batches
using recombinant technology. However, this technology requires
additional testing and FDA approval and it may be determined to not be more cost
effective than current methods of production.
PATENTS
AND PROPRIETARY TECHNOLOGY
We have
sought to protect our technology by applying for, and obtaining, patents and
trademark registrations. We have also relied on trade secrets and
know-how to protect our proprietary technology. We continue to
develop our portfolio of patents, trade secrets, and know how. We
have obtained, and continue to apply for, patents concerning our RNase-based
technology.
In
addition, we have filed (and we intend to continue to file) foreign counterparts
to certain U.S. patent applications. Generally, we apply for patent protection
in the United States, Europe, Japan, and certain other foreign
countries.
We own
the following U.S. patents:
Patent
No.
|
Issue
Date
|
Subject
Matter
|
Expiration
**
|
5,529,775
|
June
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
June
2013
|
5,728,805
|
Mar.
1998
|
covers
a family of variants of ONCONASE®
|
June
2013
|
5,540,925
|
July
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
July
2013
|
5,559,212
|
Sept.
1996
|
covers
the amino acid sequence of ONCONASE®
|
Sept.
2013
|
5,595,734
|
Jan.
1997
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
Jan.
2014
|
6,649,392
B1*
|
Nov.
2003
|
covers
a family of recombinant variants of ONCONASE®
|
Apr.
2016
|
6,649,393
B1*
|
Nov.
2003
|
covers
nucleic acids encoding recombinant variants of ONCONASE®
and methodology for producing such variants
|
Apr.
2016
|
6,290,951
B1
|
Sept.
2001
|
covers
alteration of the cell cycle in vivo, particularly
for inducing apoptosis of tumor cells
|
Aug.
2018
|
6,239,257
B1
|
May
2001
|
covers
a family of variants of ONCONASE®
|
Dec.
2018
|
6,175,003
B1
|
Jan.
2001
|
covers
the genes of ONCONASE® and a variant of
ONCONASE®
|
Sept.
2019
|
6,423,515
B1
|
July
2002
|
covers
methodology for synthesizing gene sequences of ranpirnase and a
genetically engineered variant of ranpirnase
|
Sept.
2019
|
7,229,824
B1***
|
June
2007
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
May
2024
|
7,556,952
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,556,951
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,556,953
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,442,535
B2
|
October
2008
|
covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,585,655
B2
|
September
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding such variant
|
July
2023
|
7,442,536
B2
|
October
2008
|
covers
genetically engineered variants of ONCONASE®
|
July
2023
|
7,585,654
B2
|
September
2009
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®,
and a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,473,542
B2
|
January
2009
|
Covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
*We own
this patent jointly with the U.S. Government. We do not pay
maintenance fees to keep this patent in force.
We own
the following foreign patents in Europe (European patents are validated in
selected European nations), Japan and Singapore:
Patent
No.
|
Subject
Matter
|
Expiration
**
|
EP
0 500 589
JP
2972334
|
cover
combinations of ONCONASE® with certain other
pharmaceuticals
|
Oct.
2010
|
EP
0 656 783
JP
3655628
|
covers
combinations of ONCONASE® with certain other
pharmaceuticals
|
July
2013
|
EP
0 837 878
JP
3779999
|
covers
a variant of ONCONASE®
|
June
2016
|
EP
1 141 004
|
covers
a family of variants of ONCONASE®
|
December
2019
|
SG
118886
|
covers
variants of ONCONASE® and methods of
making them
|
May
2024
|
**Assumes
timely payment of all applicable maintenance fees and annuities; excludes term
extensions that do or may apply.
***Includes
a term extension of 312 days under 35 U.S.C. §154(b).
We also
have patent applications pending in the United States, Europe, Japan, and other
foreign countries.
The scope
of protection afforded by patents for biotechnological inventions can be
uncertain, and such uncertainty may apply to our patents as well. The
patent applications we have filed, or that we may file in the future, may not
result in patents. Our patents may not give us a competitive
advantage, may be wholly or partially invalidated or held unenforceable, or may
be held not to have been infringed by products that compete with our
products. Patents owned by others may adversely affect our ability to
do business. Furthermore, others may independently develop products
that are similar to our products or that duplicate our products, and may design
around the claims of our patents. Although we believe that our
patents and patent applications are of substantial value to us, we cannot assure
you that such patents and patent applications will be of commercial benefit to
us, will adequately protect us from competing products or will not be
challenged, declared invalid, or found not to have been infringed by competing
products. We also rely on proprietary know-how and on trade secrets
to develop and maintain our competitive position. Others may
independently develop or obtain access to such know-how or trade
secrets. Although our employees and consultants having access to
proprietary information are required to sign agreements that require them to
keep such information confidential, our employees or consultants may breach
these agreements or these agreements may be held to be
unenforceable.
GOVERNMENT
REGULATION
The
manufacturing and marketing of pharmaceutical products in the United States
require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable regulatory agencies are required
in most foreign countries. The FDA has established mandatory procedures and
safety standards that apply to the clinical testing, manufacturing and marketing
of pharmaceutical products in the United States. Obtaining FDA approval for a
new therapeutic may take many years and involve substantial
expenditures. State, local and other authorities also regulate
pharmaceutical manufacturing facilities.
As the
initial step in the FDA regulatory approval process, preclinical studies are
conducted in laboratory dishes and animal models to assess the drug's efficacy
and to identify potential safety problems. Moreover manufacturing processes and
controls for the product are required. The manufacturing information
along with the results of these studies is submitted to the FDA as a part of the
Investigational New Drug Application, or IND, which is filed to obtain approval
to begin human clinical testing. The human clinical testing program typically
involves up to three phases. Data from human trials as well as other regulatory
requirements such as chemistry, manufacturing and controls, pharmacology and
toxicology sections, are submitted to the FDA in an NDA or Biologics License
Application, or BLA. Preparing an NDA or BLA involves considerable
data collection, verification and analysis. A similar process in
accordance with EMEA regulations in Europe and with TGA regulations in Australia
is required to gain marketing approval. Moreover, a commercial entity
must be established and approved by the EMEA in a member state of the EU at
least three months prior to filing the Marketing Authorization Application, or
MAA.
We have
not received United States or other marketing approval for any of our product
candidates and may not receive any approvals. We may encounter
difficulties or unanticipated costs in our effort to secure necessary
governmental approvals, which could delay or preclude us from marketing our
products.
With
respect to patented products, delays imposed by the governmental approval
process may materially reduce the period during which we may have the exclusive
right to exploit them.
ENVIRONMENTAL
MATTERS
Our
operations are subject to comprehensive regulation with respect to
environmental, safety and similar matters by the United States Environmental
Protection Agency and similar state and local agencies. Failure to comply with
applicable laws, regulations and permits can result in injunctive actions,
damages and civil and criminal penalties. If we expand or change our existing
operations or propose any new operations, we may need to obtain additional or
amend existing permits or authorizations. We spend time, effort and
funds in operating our facilities to ensure compliance with environmental and
other regulatory requirements.
Such
efforts and expenditures are common throughout the biotechnology industry and
generally should have no material adverse effect on our financial
condition. The principal environmental regulatory requirements and
matters known to us requiring or potentially requiring capital expenditures by
us do not appear likely, individually or in the aggregate, to have a material
adverse effect on our financial condition. We believe that we are in
compliance with all current laws and regulations.
EMPLOYEES
As of
April 20, 2010, we had four full time employees of whom two were engaged in
clinical and pre-clinical research and development activities and two were
engaged in administration and management. All of our employees have
entered into confidentiality agreements with us. We consider
relations with our employees to be good. None of our employees are
covered by a collective bargaining agreement.
DESCRIPTION
OF PROPERTY
In March
2007, we entered into a lease for 15,410 square feet in an industrial office
building located in Somerset, New Jersey to replace our facility in Bloomfield,
NJ as our principal office. The lease term commenced on July 3, 2007
and is scheduled to terminate on November 30, 2017. The average
monthly rental obligation over the full term of the lease is approximately
$25,000. Currently, we are in default of our lease agreement for non
payment of rent and failure to maintain security deposit, although Landlord has
been drawing funds from our secured irrevocable letter of credit. In January
2010, the Company vacated the facility pursuant to the mutual agreement between
the Company and the landlord. The landlord is currently seeking
unspecified damage for an alledged breach of the lease agreement. For
further details, please see “Legal Proceedings” below.
LEGAL
PROCEEDINGS
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG, against the Company and certain of
its current and former directors in the United States District Court, District
of New Jersey, asserting violations of federal and state securities laws, direct
and derivative common law claims for fraud and breach of fiduciary duty, and a
direct claim for negligent misrepresentation in connection with the Company’s
Phase IIIb clinical trial for ONCONASE®. The
complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
Premier
Research Group filed and served a lawsuit against the Company in the Superior
Court of New Jersey, Law Division, Essex County, on or about July 26, 2009,
seeking the recovery of professional fees that arose from clinical trials
purportedly performed in Europe by Premier Research Group as assignee of a
contract between the Company and IMFORM GmbH dated October 27,
2005. An Answer with Separate Defenses and Counterclaim was filed on
or about July 30, 2009. This case remains in the early stages of
discovery.
I & G
Garden State, LLC filed and served a complaint against the Company in the
Superior Court of New Jersey Law Division, Special Civil Part Landlord-Tenant
Section, Somerset County, on or about October 30, 2009, for non-payment of rent
and failure to maintain security deposit. The complaint seeks to have
us vacate the property. On November 13, 2009, the Company and I &
G mutually agreed that the Company will vacate the property on or before
December 31, 2009. In January 2010, the Company vacated the facility
pursuant to the mutual agreement. In February 2010, I & G
withdrew the remaining balance of the Company’s secured irrevocable letter of
credit which was placed in March 2007 in the amount of approximately
$81,000. On February 5, 2010, I & G commenced an action against
the Company. The lawsuit seeks unspecified damage for an alleged
breach of the lease agreement entered into in March 2007 between the
Company and I & G. The Company intends to vigorously defend this
action.
COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock has been quoted on the Pink Sheets since our delisting from the
Nasdaq Capital Market, or Nasdaq, on January 6, 2009 for failure to comply with
the $35 million minimum market value requirement under Marketplace Rule
4310(c)(3)(B) or the $1 per share minimum bid price requirement under
Marketplace Rule 4310(c)(4). In addition, we also did not meet the
$2.5 million minimum stockholders’ equity requirement under Marketplace Rule
4310(c)(3)(A) or the requirement for a minimum net income from continuing
operations of $500,000 in the most recently completed fiscal year or in two of
the last three most recently completed fiscal years under Marketplace Rule
4310(c)(3)(C). Our common stock remains thinly traded at times and
you may be unable to sell our common stock during times when the trading market
is limited. As of November 10, 2009, there were
approximately 975 stockholders of record of our common stock.
Prior to
January 6, 2009, our common stock was listed on Nasdaq and had traded under the
symbol "ACEL" since September 9, 2004. Before September 9, 2004, our
common stock was traded on the OTC Bulletin Board (OTCBB).
The
following table sets forth the range of high and low sale prices of our common
stock for the two fiscal years ended July 31, 2009 and 2008. The
prices were obtained from Pink Sheets and Nasdaq, and are believed to be
representative of inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
|
|
High
|
|
|
Low
|
|
Year
Ending July 31, 2010:
|
|
|
|
|
|
|
First
Quarter
|
|
$
0.32
|
|
|
$
0.21
|
|
Second
Quarter
|
|
0.30
|
|
|
0.14
|
|
Third
Quarter
|
|
0.35
|
|
|
0.13
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2009:
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.85
|
|
|
|
0.40
|
|
Second
Quarter
|
|
|
0.54
|
|
|
|
0.08
|
|
Third
Quarter
|
|
|
0.20
|
|
|
|
0.06
|
|
Fourth
Quarter
|
|
|
0.52
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2008:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.70
|
|
|
|
1.75
|
|
Second
Quarter
|
|
|
2.69
|
|
|
|
1.45
|
|
Third
Quarter
|
|
|
2.60
|
|
|
|
1.70
|
|
Fourth
Quarter
|
|
|
2.20
|
|
|
|
0.35
|
|
STOCKHOLDER
RETURN PERFORMANCE GRAPH
The
following graph summarizes the total cumulative return experienced by our
stockholders during the five-year period ended July 31, 2009, compared to the
Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The
changes for the periods shown in the graph and table are based on the assumption
that $100.00 was invested in our common stock and in each index below on July
31, 2004 and that all cash dividends were reinvested. The table does
not forecast performance of our common stock.
DIVIDENDS
We have
not paid dividends on our common stock since inception, and we do not plan to
pay dividends in the foreseeable future. Any earnings we may realize
will be retained to finance our growth. Additionally, pursuant to the
terms of senior secured notes issued in connection with our October 2009 private
financing, we are not permitted to declare or pay any cash dividends or
distributions on its outstanding capital stock for so long as the notes are
outstanding.
MANAGEMENT
DIRECTORS
AND OFFICERS
Name
|
Age
|
Director/Officer
Since
|
Current
Position With Company
|
Charles
Muniz(1)
|
55
|
2009
|
President,
CEO, CFO and Director
|
|
|
|
|
David
Sidransky, M.D
|
49
|
2004
|
Chairman
of the Board
|
|
|
|
|
John
P. Brancaccio
|
62
|
2004
|
Director
|
|
|
|
|
Paul
M. Weiss, Ph.D.
|
52
|
2003
|
Director
|
(1) Mr. Muniz
was elected as our Company’s President, Chief Operating Officer, CFO and
director on April 3, 2009 and entered into an employment agreement with
the Company to serve as our President, CEO and CFO on October 19,
2009. Mr. Muniz
will hold office until his successor is elected and qualified or until his
earlier resignation or removal, death or
resignation.
|
Business
Experience of Directors and Executive Officers
The
Company’s directors and executive officers have provided the following
information about their principal occupation, business experience and other
matters.
Charles Muniz joined us on
April 3, 2009 as our President, COO, CFO and a member of our Board of Directors
and entered into an employment agreement with the Company to serve as our
President, CEO and CFO on October 19, 2009. From 2007 until he joined
our company, Mr. Muniz was a consultant to a wide variety of clients focusing
primarily on the strategic use of operations and technology. Prior to
consulting, he was President and Chief Executive Officer of Digital Creations
Corp., a company he founded which sold high-end systems, work stations,
peripherals, networking and software products, from 1989 to 2007. Mr.
Muniz attended Pace University in New York and majored in Business
Administration. Mr. Muniz’s extensive entrepreneurial and executive
experience and his in-depth knowledge of our company in his executive capacity
enable him to make critical contributions as a member of our Board.
David Sidransky, M.D., joined
the Board in May 2004, was elected Chairman of the Board in January 2008 and is
the Chairman of our Scientific Advisory Board. Dr. Sidransky is a founder
of several private biotechnology companies and has served on scientific advisory
boards of numerous private and public companies, including Medimmune, Telik,
Roche and Amgen. He was formerly on the board of scientific counselors at
the NIDCR and a member of the Recombinant DNA advisory committee at the National
Institute of Health NIH (RAC). He served on the board of directors of
ImClone Systems, Zila Inc, and Xenomics and is now chairman of the board of
Champions Biotechnology Inc. Dr. Sidransky is on numerous editorial
boards and has served as senior editor of several cancer related journals.
Currently, Dr. Sidransky is the director of the Head and Neck Cancer Research
Division at Johns Hopkins University School of Medicine. In addition, he
is Professor of Oncology, Otolaryngology-Head and Neck Surgery, Cellular &
Molecular Medicine, Urology, Genetics, and Pathology at John Hopkins University
and Hospital. Dr. Sidransky is certified in Internal Medicine and Medical
Oncology by the American Board of Medicine. He has over 400 peer-reviewed
publications, has contributed more than 60 cancer reviews and chapters, and also
has numerous issued biotechnology patents. He has been the recipient of
many awards and honors, including the 1997 Sarstedt International Prize from the
German Society of Clinical Chemistry, the 1998 Alton Ochsner Award Relating
Smoking and Health by the American College of Chest Physicians and the 2004
Hinda Rosenthal Award by the American Association of Cancer Research. Dr.
Sidransky received his B.A. from Brandeis University and his M.D. from the
Baylor College of Medicine. Dr. Sidransky’s extensive knowledge of,
and experience in, scientific research, our business strategy, industry and
R&D programs, experience as a founder of several biotechnology companies and
long-term medical background make him uniquely qualified to serve on our
board.
John P. Brancaccio joined the
Board in January 2004. Since April 2004, Mr. Brancaccio has been the chief
financial officer of Accelerated Technologies, Inc., an incubator for venture
backed medical device companies. He also serves on the boards of Callisto
Pharmaceuticals, Inc., Synergy Pharmaceuticals, Inc. and Xenomics, Inc., all of
which are publicly traded biopharmaceutical companies where he is chairman of
their respective audit committees and a member of their respective compensation
and nominating committees. He was the secretary and treasurer of Memory
Pharmaceuticals Corporation from December 2003 to March 2004 after serving in
the capacity of their acting chief financial officer from May 2002 to December
2003. Prior to Memory Pharmaceuticals, Mr. Brancaccio held the positions of
chief financial officer and chief operating officer of Eline Group, a publicly
traded entertainment and media company, where he oversaw the roll up of several
related companies into the group and completed private equity financing
placements. Prior to joining Eline Group, he held a number of senior executive
positions in public and private companies including Atlantic Pharmaceuticals,
Zambon Corporation, Deven International and Health Learning Systems. During his
tenure with these companies he participated in initial public offerings and
negotiation of licensing and development agreements within both the
pharmaceutical and biotechnology industries. He is a retired Certified Public
Accountant and a graduate of Seton Hall University.
Paul Weiss, Ph.D., joined the
Board in February 2003. Since October 2007, Dr. Weiss has been a
Managing Director at Venture Investors, LLC, a Madison, Wisconsin-based venture
capital group focusing on early-stage life sciences companies. Prior
to joining Venture Investors, LLC, Dr. Weiss was President of the Gala Biotech
business unit of Cardinal Health (now Catalent Pharma Solutions) from February
2002 until October 2007. He had served as a director on Gala’s Board
from 1998 to 2001, when he joined the management team as Senior Vice President
of Business Development. He later became President of Gala and
remained so during the acquisition of Gala by Cardinal Health in 2003 and then
the acquisition of Gala (and other Cardinal Health businesses) by The Blackstone
Group in 2007. Prior to joining Gala, Dr. Weiss was Vice President of
Technology and Product Licensing at 3-Dimensional Pharmaceuticals (3DP) from
1998 to 2001, which went public in 2001 and was later acquired by Johnson &
Johnson. Prior to joining 3DP, Dr. Weiss was director of Licensing
for Wyeth Pharmaceuticals. Dr. Weiss holds a Ph.D. in Biochemistry
and an MBA from the University of Wisconsin-Madison and a B.Sc. in Biochemistry
from the Carleton University Institute of Biochemistry in Ottawa,
Ontario. Dr. Weiss in-depth knowledge of our business strategy and
our industry and his extensive executive experience make him qualified to serve
on our board.
The
Company closed on a private placement of convertible promissory notes and
warrants in which the Company received $3,250,000 in gross proceeds on October
19, 2009. As a condition to such financing, each member of the Board,
other than Dr. Sidransky, Chairman of the Board and Mr. Muniz, agreed to
resign from the Board upon the request of Dr. Sidransky made at any time
following October 19, 2009 and December 31, 2009.
CORPORATE
GOVERNANCE
Family
Relationships
There are
no family relationships among any of the Company’s directors or executive
officers.
Board
Meetings
The Board
met fourteen times during the 2009 fiscal year. Each of our current
directors attended at least 75% of the meetings of the Board and committees on
which he served.
Independent
Directors
The Board
has determined that the following directors are “independent” under Nasdaq
Marketplace Rule 4200(a)(15): John P. Brancaccio, David Sidransky,
M.D. and Paul M. Weiss, Ph.D. The Board has also determined that each
of John Brancaccio and Paul M. Weiss, Ph.D (who are members of the Audit
Committee) is “independent” in accordance with Section 10A(m)(3) of the
Securities Exchange Act of 1934.
Board
Leadership Structure and Risk Oversight
Dr.
Sidransky serves as the Chairman of the Board. Dr. Sidransky has
extensive knowledge of, and experience in, scientific research and our
industry. He also has strong leadership skills as he has been founder
of several biotechnology companies and has long-term medical
background. Dr. Sidransky has been with the Company since 2004 and is
familiar with our business strategy and industry. The Board also
believes that independent oversight of management is an important component of
an effective board of directors. Therefore, the Board believes that
the most effective Board leadership structure for our company at the present
time is for Dr. Sidransky to lead the Board as the Chairman. The
Board retains its authority to modify this structure to best address the
Company’s unique circumstances, and to advance the best interest of
stockholders, as and when appropriate.
Our audit committee is responsible for
overseeing our risk management function. While the audit committee has primary
responsibility for overseeing risk management, our entire Board of Directors is
actively involved in overseeing our risk management. For example, the Board of
Directors engages in periodic discussions with such company officers as the
Board of Directors deems necessary, including our CEO, CFO and COO. We believe
that the leadership structure of our Board of Directors supports effective risk
management oversight.
Board
Committee Membership
The Board
has standing Compensation, Corporate Governance and Nominating, Audit, Research
and Clinical Oversight, and Commercial and Business Development Oversight
Committees. The current membership of the standing committees is set
forth in the following table:
Name
|
|
Compensation
Committee
|
|
Corporate
Governance
and Nominating
Committee
|
|
Audit
Committee
|
|
Research
and
Clinical
Oversight
Committee
|
|
Commercial
and Business
Development
Oversight
Committee
|
Charles
Muniz
|
|
|
|
|
|
|
|
|
|
|
John
P. Brancaccio
|
|
**
|
|
|
|
**
|
|
|
|
|
David
Sidransky, M.D.
|
|
|
|
**
|
|
|
|
**
|
|
*
|
Paul
M. Weiss, Ph.D.
|
|
*
|
|
*
|
|
*
|
|
*
|
|
**
|
Compensation
Committee. All of the members of our Compensation Committee
are considered “independent directors” in accordance with Nasdaq Marketplace
Rule 4200(a)(15). In fiscal year 2009, the Compensation Committee met
twice.
On June
28, 2004, the Board adopted a Compensation Committee Charter, a copy of which is
maintained on our website at www.alfacell.com. According to its
charter, the Compensation Committee shall consist of at least three members,
each of whom shall be a non-employee director who has been determined by the
Board to meet the independence requirements of the Nasdaq Stock
Market. Given the reduction in the size of the Board, the
Compensation Committee currently has only two members.
The
Compensation Committee Charter describes the primary functions of the
Compensation Committee as follows:
|
·
|
Review
and approve executive compensation on an annual basis, including the
corporate goals and objectives to be used in evaluating the performance of
the CEO and determining the CEO’s compensation;
|
|
·
|
Review
trends in management compensation, oversee the development of new
compensation plans and, when necessary, approve the revision of existing
plans;
|
|
·
|
Oversee
management’s decisions concerning compensation and performance for
non-executive officers;
|
|
·
|
Review
our incentive compensation and other stock-based plans and recommend
change to such plans to the Board as
needed;
|
|
·
|
Administer
stock plans and benefit programs and approve any amendments to existing
plans;
|
|
·
|
Recommend
director compensation;
|
|
·
|
Evaluate
compliance with our compensation plans and policies;
and
|
|
·
|
Review
the compensation policy for all of our
employees.
|
Corporate Governance and Nominating
Committee. All of the members of our Corporate Governance and
Nominating Committee are considered “independent directors” in accordance with
Nasdaq Marketplace Rule 4200(a)(15). In fiscal year 2009, the
Corporate Governance and Nominating Committee did not meet.
The
Corporate Governance and Nominating Committee was formed by the Board for the
purpose of considering future nominees to the Board. On November 28,
2007, the Board adopted a Corporate Governance and Nominating Committee Charter,
a copy of which is maintained on our website at
www.alfacell.com. According to its charter, the Corporate Governance
and Nominating Committee shall be comprised of at least three directors, each of
whom shall meet the independence requirements of the Nasdaq Stock
Market. Given the reduction in the size of the Board, the Corporate
Governance and Nominating Committee currently has only two members.
The
Corporate Governance and Nominating Committee Charter describes the primary
functions of the Corporate Governance and Nominating Committee as
follows:
|
·
|
Identify
and evaluate individuals qualified to serve as members of the Board
(including individuals nominated by stockholders in proposals made in
writing to the Company’s Secretary that are timely received and that
contain sufficient background information concerning the nominee to enable
proper judgment to be made as to the nominee’s
qualifications);
|
|
·
|
Recommend
for the Board’s selection nominees for election as directors of the
Company at the next annual or special meeting of stockholders at which
directors are to be elected or to fill any vacancies then existing on the
Board;
|
|
·
|
Cause
to be prepared and recommend to the Board the adoption of corporate
governance guidelines and from time to time, review and assess the
guidelines and recommend changes for approval by the
Board;
|
|
·
|
From
time to time, review and assess the Code of Business Conduct and Ethics
and recommend changes for approval by the
Board;
|
|
·
|
Make
recommendations to the Board regarding issues of management succession;
and
|
|
·
|
Conduct
annual reviews and assessments of the adequacy of the Corporate Governance
and Nominating Committee Charter and recommend any proposed changes to the
Board for approval.
|
Audit
Committee. All of the members of our Audit Committee are
considered “independent directors” in accordance with Nasdaq Marketplace Rule
4200(a)(15) and Section 10A(m)(3) of the Securities Exchange Act. Our
Board has determined that Mr. Brancaccio qualifies as an “audit committee
financial expert” as defined by Item 407 of Regulation S-K. In fiscal
year 2009, the Audit Committee met five times.
On
November 25, 2008, the Board adopted the Amended and Restated Audit Committee
Charter, a copy of which is maintained on our website at
www.alfacell.com. According to its charter, the Audit Committee shall
be comprised of at least three directors, each of whom shall meet the
independence requirements of the Nasdaq Stock Market and Section 10A(m)(3) of
the Exchange Act, and each of whom shall not have participated in the
preparation of the financial statements of the Company at any time during the
past three years. The Audit Committee’s purpose, duties and
responsibilities under its charter include those specified in the listing
standards of the Nasdaq Stock Exchange for audit committees. Given
the reduction in the size of the Board, the Audit Committee currently has only
two members.
The Audit
Committee Charter describes the primary functions of the Audit Committee as
follows:
|
·
|
Appoint,
evaluate and, as the Committee may deem appropriate, terminate and replace
our independent registered public accounting firm;
|
|
·
|
Monitor
the independence of our independent registered public accounting
firm;
|
|
·
|
Determine
the compensation to be paid to our independent registered public
accounting firm;
|
|
·
|
Review
with management and our independent registered public accounting firm the
effect of regulatory and accounting initiatives as well as off-balance
sheet structures on the Company’s financial
statements;
|
|
·
|
Review
the experience and qualifications of the Company’s senior finance
executives as well as senior members of the independent registered public
accounting firm team and the quality control procedures
thereof;
|
|
·
|
Pre-approve
all audit services and permitted non-audit services to be performed by our
independent registered public accounting firm and establish policies and
procedures for the engagement of our independent registered public
accounting firm to provide permitted non-audit
services;
|
|
·
|
Conduct
annual reviews and assessments of the adequacy of the Audit Committee
Charter and the continued independence of the independent registered
public accounting firm and recommend any proposed changes to the Board for
approval;
|
|
·
|
Advise
the Board with respect to the Company’s policies and procedures regarding
compliance with applicable laws and regulations and with the Company’s
Code of Business Conduct and
Ethics;
|
|
·
|
Review
all related-party transactions for potential conflict of interest
situations and approve such related-party transactions;
|
|
·
|
Establish
procedures for the confidential and anonymous receipt, retention and
treatment of complaints regarding the Company’s accounting, internal
controls and auditing matters; and
|
|
·
|
Report
to the Board on all of the foregoing
matters.
|
Research and Clinical Oversight
Committee. The Research and Clinical Oversight Committee, or Research
Committee, was established in February 2007 and is chaired by David Sidransky,
M.D. All of the members of our Research Committee are considered
“independent directors” in accordance with Nasdaq Marketplace Rule
4200(a)(15).
The
primary function of the Research Committee is to work closely with management
and the Scientific Advisory Board to provide support and direction to the
Company’s research and development programs. The Research Committee functions as
an advisory committee and does not hold formal committee meetings or take formal
committee actions.
Commercial and Business Development
Oversight Committee. The Commercial and Business Development
Oversight Committee, or the Development Committee, was established in February
2007 and is chaired by Paul Weiss, Ph.D. All of the members of our
Development Committee are considered “independent directors” in accordance with
Nasdaq Marketplace Rule 4200(a)(15).
The
primary function of the Development Committee is to assist management in
pursuing commercial and business development opportunities for the products
currently in development. The Development Committee functions as an
advisory committee and does not hold formal committee meetings or take formal
committee actions.
Code
of Ethics
We have
adopted a written Code of Business Conduct and Ethics, or Code of Ethics, that
applies to the Company’s principal executive officer, principal financial
officer, principal accounting officer, and controller and to all its other
employees. These standards are a guide to help ensure that all our
employees live up to our high ethical standards. A copy of the Code
of Ethics is maintained on our website at www.alfacell.com.
We intend
to post on our website, any amendment to or waiver from any provision in our
Code of Ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, and that relates to any element of the standards
enumerated in the rules of the SEC.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
Our
compensation program is based on the philosophy that the interests of our
employees should be closely aligned with those of our
stockholders. The Company’s compensation program is based on the
following principles:
·
|
Compensation
opportunities should attract the best talent, motivate individuals to
perform at their highest levels, reward outstanding achievement and retain
the leadership and skills necessary for building long-term stockholder
value;
|
·
|
Compensation
should include a bonus potential which is tied directly to operating
objectives; and
|
·
|
Compensation
should include a long-term incentive award generally in the form of stock
option grants to increase ownership in the Company and encourage
executives to manage from the perspective of owners of the
Company.
|
The
Compensation Committee believes that the compensation program for executive
officers should reward the achievement of the short-term and long-term
objectives of the Company, and that compensation should be related to the value
created for its stockholders. However, given the highly volatile
nature of biotechnology company stocks it would be impracticable for the Company
to tie executive compensation solely to stock performance. In making
its compensation decisions, the Compensation Committee generally reviews the
progress made by the individual officer in attaining his or her individual
performance goals and the progress made by the Company in its drug development
programs, while keeping the Company’s stock performance in
mind. Generally, performance tied to the long-term objectives of the
Company or the overall business objectives of the Company are rewarded with
equity compensation, whereas performance tied to short-term goals of the Company
or individual performance. As different elements of the Company’s
compensation have different underlying rationale and policy, determinations the
Compensation Committee made with regard to one compensation element have not
influenced decisions it made with respect to other compensation elements it
contemplated or awarded. For example, the factor that our CEO may
receive a bonus if the performance objectives are satisfied and may receive
additional value through his stock options if the Company’s stock performs well
has not influenced the determination as to the base salary of our
CEO.
The
Company’s compensation philosophy was last reviewed by the Board in May 2007, at
which time two new
compensation programs were approved by the Board, the Incentive Bonus Program
and the Annual Milestones bonus program. These two bonus programs
were approved by the Board because they each met the Company’s desire to reward
and encourage executive officers and employees for not only causing the Company
to meet its primary objectives but also to meet certain short-term objectives
within a timeline prescribed by management. See “Incentive Compensation” below
for details relating to these two programs.
Role
of the Compensation Committee
The
Compensation Committee in our fiscal year 2009 consisted of Messrs. John P.
Brancaccio, Chairman, Donald R. Conklin (resigned subsequently), and Paul M.
Weiss Ph.D. All committee members had been and were non-employee
directors as defined under Rule 16b-3 of the Exchange Act and satisfy the
director independence standards of the Nasdaq Stock Market and the definition of
“outside director” under Section 162(m) of the Internal Revenue
Code. No special expertise in compensation matters is required for
appointment to the Compensation Committee.
The
Compensation Committee is responsible for all components of the Company’s
executive compensation program and for administering all stock option plans
including the 2004 Stock Incentive Plan, under which stock option grants may be
made to executive officers. On an annual basis, the Compensation
Committee reviews and approves the corporate goals and objectives relevant to
the compensation for the CEO and other executive officers, if
any. The Compensation Committee evaluates at least once a year, the
CEO and executive officers’ performance in light of these established goals and
objectives and based upon these evaluations will set the CEO’s and executive
officers’ annual compensation, including salary, bonus, incentive and equity
compensation.
Role
of Consultants and Market Review
The
Compensation Committee possesses the authority under its charter to hire
advisors to provide it with information as needed in making compensation
decisions. The Compensation Committee did not use a compensation
consultant for fiscal year 2009.
Role
of Management
While the
Compensation Committee determines overall compensation philosophy, it relies on
the CEO and other executive officers, if any, to make recommendations in
accordance with such compensation philosophy. The Company’s CEO and
CFO, if any, provide the Board and the Compensation Committee with feedback on
the performance of the Company’s non-executive officers and make compensation
recommendations to the Compensation Committee for its approval. In
2009, the CEO attended the Compensation Committee’s meetings to provide the
CEO’s perspectives on competition in the industry and the needs of the business,
information regarding the Company’s performance and other advice specific to the
CEO’s areas of expertise. However, the CEO did not attend meetings
where the CEO’s compensation and/or performance was discussed. Once a
recommendation has been approved by the Compensation Committee, it is sent to
the Board for ratification. Upon ratification by the Board, the
execution and administration of the recommendation may be delegated by the
Compensation Committee to management as the Compensation Committee deems
appropriate.
On April
3, 2009, Mr. Muniz joined our company and acted as our President, COO and
CFO. With the retirement of Kuslima Shogen as our CEO in March 2009
and the departure of our former CFO, Lawrence Kenyon, in December 2008, Mr.
Muniz has been our only executive officer since he joined the
Company. At the time he joined the Company, the Compensation
Committee agreed to pay him a consulting fee of $3,500 per week plus cost of
travel between his home state of Florida and New Jersey. On October
19, 2009, the Company entered into an Employment Agreement with Mr. Muniz to
serve as the Company’s President, CEO and CFO. Under his Employment
Agreement, Mr. Muniz will receive an annual base salary of $300,000 and is
entitled to receive cash incentive compensation or annual stock option awards as
determined by the
Board or the Compensation Committee of the Board from time to time. In addition,
Mr. Muniz is entitled to participate in any and all employee benefit plans
established and maintained by the Company for executive officers of the Company.
Pursuant to the Employment Agreement, Mr. Muniz received an Option granted under
and in accordance with the Company’s 2004 Stock Incentive Plan, to purchase an
aggregate of 500,000 shares of common stock exercisable for ten years from the
date the Option is granted. The Option shall vest in equal amounts on each of
the first, second and third year anniversary of the grant so long as Mr. Muniz
remains employed by the Company. The exercise price of the Option equals the
fair market value of the common stock on the date of grant.
The
Employment Agreement continues in effect for two years following the date of the
agreement and automatically renews for successive one-year periods, unless Mr.
Muniz’s employment is terminated by him or by the Company. In the event that
Mr. Muniz’s employment is terminated by the Company for any reason, then
Mr. Muniz is entitled to receive his earned but unpaid base salary and
incentive compensation, unpaid expense reimbursements, accrued but unused
vacation and any vested benefits under any employee benefit plan of the Company.
In the event that Mr. Muniz’s employment is terminated by the Company without
“Cause” or by Mr. Muniz for “Good Reason” (as such terms are defined in the
Employment Agreement), and provided Mr. Muniz executes a release in favor of the
Company, then in addition to the above mentioned payments and benefits, Mr.
Muniz is entitled to receive an amount equal to his then current annual base
salary, payable in equal installments over 12 months in accordance with the
Company’s payroll practice, and all medical and health benefits for 18 months
following the termination date. In addition, in the event Mr. Muniz’s
employment is terminated without Cause or for Good Reason within 12 months
following a Change in Control (as defined in the Employment Agreement), and
provided Mr. Muniz executes a release in favor of the Company, in lieu of the
severance described above, Mr. Muniz is entitled to receive a lump cash payment
equal to his then current annual base salary, all medical and health benefits
for 18 months following the termination date and full acceleration of vesting of
all unvested stock options and other stock-based
awards. Mr. Muniz’s Employment Agreement requires him to refrain
from competing with the Company and from hiring our employees and soliciting our
customers for a period of one year following the termination of his employment
with the Company for any reason.
Executive
Compensation Components
Compensation
for the Company’s executive officers includes the following
components:
Base Salary. Fixed
annual compensation that is certain as to payment and provides continuous income
to meet ongoing living costs. This component is intended to ensure
that we are able to retain executives capable of achieving the Company’s
strategic and business objectives. The Compensation Committee reviews
executive officers’ salaries annually and will make adjustments based on its
expectations of that officer’s performance as compared to the officer’s actual
performance and what the Compensation Committee’s expectations are for that
officer’s future performance. Additionally, the Compensation
Committee factors in cost of living adjustments as well as the Company’s overall
performance and stock performance. In 2008, the Compensation
Committee also utilized a study of market compensation levels prepared by an
independent compensation consultant in order to evaluate the executive’s
compensation, including base salaries. Such a study was used by the
Compensation Committee in setting base salaries for the Company’s fiscal year
2008. Such a study was not used in previous years and was not used in
fiscal year 2009.
In the
fiscal year 2009, in light on the Company’s financial difficulties, lack of
executive leadership and inability to conduct a thorough market-based analysis
of executive compensation, the Compensation Committee determined that Mr. Muniz,
the Company’s sole executive officer, should receive the same base compensation
package, in all material respects, as his predecessor, Kuslima
Shogen.
Stock Option
Grants. Long-term incentive plan which offers eligible Company
officers and employees incentives to put forth maximum efforts for the success
of the Company’s business, to afford executive officers an opportunity to
acquire a proprietary interest in the Company and to relate the compensation of
officers to the value they create for the Company’s
stockholders. Currently, all stock-based awards are granted under the
2004 Stock Incentive Plan, which was approved by the Board of Directors and
stockholders of the Company in November 2003 and in January 2004,
respectively. The 2004 Stock Incentive Plan provides for the grant of
stock options and other stock-based awards to employees, officers, consultants,
independent contractors and directors providing services to us and our
subsidiaries as determined by the Board or by the Compensation
Committee. The types of awards that may be granted under the 2004
Stock Incentive Plan are stock options, stock appreciation rights, restricted
stock, restricted stock units, performance awards, dividend equivalents, other
stock grants, other stock-based awards and any combination
thereof. Stock options are granted based on the fair market value of
a share on the date of grant of such option. The terms, time and
method of the options are determined at the sole discretion of the Compensation
Committee.
At the
time he joined in the Company in April 2009, Mr. Muniz did not receive any
stock-based compensation. After completion of the Company’s financing
in October 2009, pursuant to his Employment Agreement, Mr. Muniz received stock
options to purchase a total of 500,000 shares of common stock. The
Compensation Committee determined that this was an appropriate grant in light of
prior grants made to the Company’s former CEO, Mr. Muniz’s success in obtaining
financing for the Company in very difficult market conditions and the need to
provide Mr. Muniz with additional incentive to create further value for the
Company’s stockholders.
Incentive
Compensation. The primary purpose is to align the interests of
the executive officers with those of the stockholders by rewarding executive
officers for creating stockholder value over the long-term. The 2004
Stock Incentive Plan provides for the award of stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, dividend
equivalents, and other stock grants or stock based awards.
Other
Benefits. The CEO is eligible to participate in the Company’s
401(k) plan, health and dental coverage, life insurance, disability insurance,
paid time off and paid holidays on the same terms as are available to all
employees generally. Other benefits available to the CEO are the
payment of reasonable costs of temporary housing, reasonable airfare associated
with relocation and relocation assistance. The CEO’s compensation is
designed to be competitive with overall market practices, and is in place to
attract and retain the personnel needed in the business.
Post-termination
Agreements. Other than severance payments provided for in Mr.
Muniz’s Employment Agreement and Ms. Shogen’s Retirement Agreement, as described
below, the Company does not utilize post-termination agreements. In
addition, under grants awarded pursuant to the 2004 Stock Incentive Plan,
the recipients of such grants have received Stock Option Agreements
which contain provisions that allow for the awarded options to become fully
vested and immediately exercisable or exercisable during the six months
following a change in control but in no event beyond the option period provided
in the Stock Option Agreement; provided, however, that the terms of Mr. Muniz’s
Employment Agreement, as described above, supersede the terms set forth in his
Stock Option Agreement. Per the Company’s standard Stock Option
Agreement, a change in control is deemed to occur if (i) a person, as defined by
Section 13 (d) and 14 (d) of the Exchange Act, becomes the beneficial owner,
directly or indirectly, of securities representing 20% or more of the combined
voting power of the Company’s then outstanding shares (except that ownership by
the McCash Family Limited Partnership must be 50% to qualify as a change in
control); (ii) during any 12 month period, the individuals who were, at the
beginning of such period, a majority of the Board cease to be a majority of the
Board; (iii) the Company’s stockholders approve a merger or consolidation with
another corporation except where the Company remains in control after such
merger or consolidation or where the merger or consolidation was effected to
recapitalize the Company and no one person acquired more than 50% of the
combined voting power of the Company; or (iv) the stockholders of the Company
approve a plan of complete liquidation or enter into an agreement for the sale
or disposition of all or substantially all of the assets of the
Company.
Additionally,
under the terms of the Stock Option Agreements issued under the 2004 Stock
Incentive Plan, if there is a termination of service due to the death, total
disability or retirement of the optionee on or after age 65 after seven years of
service with the Company, then the options become fully exercisable at the time
of death, total disability or retirement, as the case may be, and may be
exercised by the optionee or optionee’s estate during the six months following
the month of optionee’s death, total disability or retirement but in no event
beyond the option period provided in the Stock Option Agreement. If
there is a termination of employment due to voluntary resignation then to the
extent options are exercisable as of the date of the termination, such options
may be exercised within six months of the date of termination of
employment. If there is termination for cause, then to the extent
options are exercisable as of the date of the termination, such options may be
exercised within 30 days of the date of termination. “Cause” is
defined as (i) frequent and unjustifiable absenteeism other than optionee’s
illness or physical or mental disability; (ii) fraud or dishonesty materially
injurious to the Company; (iii) gross or willful misconduct or willful neglect
to act which is committed or omitted by optionee in bad faith; (iv) gross breach
of optionee’s fiduciary duties which has a materially injurious effect on the
Company; (v) optionee’s conviction as a felon; or (vi) optionee’s willful or
continuous neglect or refusal to perform his or her duties. If there
is termination for any reason other than those described above, then to the
extent options are exercisable as of the date of the termination, such options
may be exercised within 12 months of the date of termination of
employment.
Under
grants awarded pursuant to the Company’s 1997 and 1993 Stock Option Plans, prior
to a dissolution or liquidation of the Company or a merger or consolidation
where the Company is not the surviving corporation, the optionee has the right
to exercise all outstanding options. If the optionee terminates
employment, then to the extent options are exercisable as of the date of
termination, such options may be exercised within 190 days of the date of
termination of employment. If the Board determines that the optionee
engaged in activities or employment contrary to the best interest of the
Company, then the Board can cancel the options within 190 days of the
termination of employment. If an optionee dies while still in service
to the Company, then to the extent options are exercisable as of the date of
death, such options may be exercised.
The
rationale for the acceleration of the options under the 2004 Stock Incentive
Plan, and the 1997 and 1993 Stock Option Plans upon a change in control of the
Company is to ensure that officers are motivated to pursue creating or obtaining
the maximum value for stockholders and to encourage officers to remain with the
Company after a change in control has occurred.
Kuslima
Shogen, the Company’s former CEO and scientific founder, retired on March 31,
2009. On April 25, 2008, we entered into a Retirement Agreement with
Ms. Shogen. Under the terms of the Retirement Agreement, during the
two year period commencing April 1, 2008, Ms. Shogen was entitled to receive
periodic payments at the rate of $300,000 per year. The options to
purchase the Company’s common stock held by Ms. Shogen on the date of her
retirement remained exercisable after Ms. Shogen’s retirement in accordance with
their terms. No change was made to the terms of such existing options under the
Retirement Agreement, except the Compensation Committee of the Company’s Board
of Directors amended the Company’s 1993 Stock Option Plan and 1997 Stock Option
Plan to allow such options to be transferred by Ms. Shogen to members of her
family. The Compensation Committee agreed to give Ms. Shogen the ability to
transfer her existing options granted under the 2004 Stock Incentive Plan to
members of her family. If Ms. Shogen elects COBRA continuation
coverage after her retirement date, the Company will pay for Ms. Shogen’s COBRA
insurance continuation premiums until the earliest of the second anniversary of
her retirement date and the date Ms. Shogen is no longer eligible for COBRA
insurance overage under applicable law or the date on which Ms. Shogen becomes
eligible for Medicare. In the event Ms. Shogen becomes ineligible for COBRA
coverage under the Company’s insurance plans for any reason other than her death
prior to the second anniversary of her retirement date, the Company will make a
lump sum cash payment to Ms. Shogen equal to the amount of the premiums the
Company would have had to pay to maintain Ms. Shogen’s coverage under the
Company’s insurance plans had Ms. Shogen remained eligible for coverage under
such plans for the period commencing on the date Ms. Shogen became ineligible
for such coverage and ending on the second anniversary of her retirement
date.
Pursuant
to the terms of the Retirement Agreement, Ms. Shogen also agreed to terminate
the Royalty Agreement dated July 24, 1991, as amended on April 16, 2001 by and
between the Company and Ms. Shogen. In exchange for termination of the Royalty
Agreement, the Company agreed to make the following payments and awards to Ms.
Shogen:
|
·
|
A
lump sum payment of $500,000 made within ten business days of the date of
the Retirement Agreement, from which we were entitled to deduct the amount
of the outstanding principal and accrued interest of $187,410 owed by Ms.
Shogen to us as of the date of the Retirement
Agreement.
|
|
·
|
If
the NDA for ONCONASE®for
the treatment of malignant mesothelioma is approved by the FDA, Ms. Shogen
would receive a one time payment equal to 5% of the initial milestone
payment payable to the Company by Par Pharmaceutical Inc. or Par pursuant
to the License Agreement dated as of January 14, 2008 by and between the
Company and Par, or the License
Agreement.
|
|
·
|
If
the NDA for ONCONASE®
for the treatment of malignant mesothelioma is approved by the FDA, Ms.
Shogen would also receive a payment of $350,000 on each of the first and
second anniversaries of the date of such approval for a total payment of
$700,000.
|
|
·
|
An
option to purchase an aggregate of 1,000,000 shares of the Company’s
common stock under the 2004 Stock Incentive Plan at an exercise price
equal to the fair market value of the common stock as of the date of the
Retirement Agreement as determined under such plan. The option has a term
of ten years and will become exercisable only upon the approval by the FDA
of the NDA for ONCONASE® for the treatment of
malignant mesothelioma. As the result of the option to purchase 250,000
shares of common stock granted under the 2004 Stock Incentive Plan to Ms.
Shogen on March 5, 2008 in connection with the Company’s execution of the
License Agreement and in order to enable the Company to grant this option
to Ms. Shogen, the Board of Directors amended the annual award limitation
for a participant in the 2004 Stock Incentive Plan for 2008 as it relates
to Ms. Shogen from 1,000,000 shares to 1,250,000
shares.
|
|
·
|
Payments
equal to 15% of any royalties payable with respect to net sales which are
received by us pursuant to any and all license agreements entered into by
us for the marketing and distribution of ONCONASE®
and any other products derived from amphibian source extract, produced
either as a natural, synthesized, and/or genetically engineered drug which
are covered by the claims of any issued patent owned or controlled by us
which is issued and valid as of December 31, 2007, or the Licensed
Products, and 5% of net sales of Licensed Products which we book on our
financial statements but only to the extent that the aggregate annual net
sales of Licensed Products upon which such royalty payments are received
by us and annual net sales of Licensed Products booked by us when combined
are in excess of $100 million in a year. In the event either or both of
the aggregate annual net sales of Licensed Products upon which we receive
royalties and the annual net sales of Licensed Products which we book on
our financial statements are less than $100 million, but when combined
such aggregate annual net sales exceed $100 million, the payments to be
received by Ms. Shogen in that year will be paid with respect to the
amount of such aggregate net sales that exceeds $100 million and pro rated
between the 15% Ms. Shogen is entitled to receive on royalties received by
us and the 5% Ms. Shogen is entitled to receive on net sales booked by us
based upon the percentage of the total net sales of the Licensed Products
that year represented by aggregate net sales upon which we receive a
royalty and the net sales booked by us. Ms. Shogen’s rights to receive
these payments shall terminate when all claims under the relevant patents
which cover the Licensed Products have
expired.
|
On
September 14, 2009, the Company entered into an amendment to the Retirement
Agreement amending certain terms. Under the Retirement Agreement, Ms.
Shogen was entitled to receive periodic payments during the two year period
commencing April 1, 2008 at the rate of $300,000 per year. Pursuant
to the amendment, the periodic payments were reduced to $150,000 per
year. Under the Retirement Agreement, Ms. Shogen was entitled
to receive continuing payments equal to 15% of any royalties received by us
pursuant to any and all license agreements entered into by us for the marketing
and distribution of Licensed Products. Under the amendment, the amount of such
royalties related to net sales of Licensed Products to be received by Ms. Shogen
has been reduced to 5%. Under the Retirement Agreement, Ms. Shogen
was entitled to receive continuing payments equal to 5% of net sales of Licensed
Products booked by us on our financial statements. Under the
amendment, the amount of such net sales booked by us has been reduced to 2% of
net sales. Under the amendment, in the event we obtain marketing approval for
ONCONASE® from
the FDA or the European Medicines Agency, Ms. Shogen will be entitled to receive
an additional payment equal to the difference between the continuing payments
actually paid to Ms. Shogen during the two year period commencing April 1, 2008
and $600,000, the original aggregate amount of continuing payments to which Ms.
Shogen was entitled under the Retirement Agreement. Such additional
payment may be made by us, at our option, in cash, common stock or a combination
of both. Except as specifically amended in the Amendment, all
terms and conditions of the Retirement Agreement remain in full force and
effect.
The
following table summarizes the estimated value of the stock options for each
named executive officer derived from the terms of the 2004 Stock Incentive Plan,
the 1997 Stock Option Plan and the 1993 Stock Option Plan assuming that a
triggering event took place on the last business day of our most recently
completed fiscal year, July 31, 2009 and that the price per share of our common
stock is the closing market price as of that date.
Name
|
Death
or Total
Disability(1)
|
Voluntary
Termination or
Termination
for Cause(1)
|
Change
in
Control(1)
|
Charles
Muniz
|
$0
|
$0
|
$0
|
Kuslima
Shogen(2)
|
$1,380
|
$1,380
|
$1,380
|
Lawrence
Kenyon(3)
|
$0
|
$0
|
$0
|
(1)
|
These
amounts represent the aggregate in-the-money value of stock options which
would become vested as a direct result of the termination event or change
in control before the applicable stated vesting date. The stated vesting
date is the date at which an award would have vested absent such
termination event or change in control. This calculation of
value does not attribute any additional value to stock options based on
their remaining terms and does not discount the value of awards based on
the portion of the vesting period elapsed at the date of the termination
event or change in control. These amounts represent the
intrinsic value of stock options, based on a closing stock price of $0.28
on July 31, 2009.
|
(2)
|
Kuslima
Shogen retired from the Company in March 31, 2009 and resigned from the
Board on January 29, 2010.
|
(3)
|
Lawrence
Kenyon resigned as the Company’s President and CFO on December 12, 2008
and as Corporate Secretary and member of the Board on April 2,
2009.
|
Pension Plans. The Company
does not have pension plans for its employees, executive officers or
directors.
Non-Qualified Deferred Compensation
Plans. The Company does not have non-qualified deferred
compensation plans for its employees, executive officers or
directors.
Tax
and Accounting Considerations
Deductibility of Executive
Compensation. In making compensation decisions affecting the
executive officers, the Compensation Committee considers the Company’s ability
to deduct under applicable federal corporate income tax law compensation
payments made to executives. Specifically, the Compensation Committee
considers the requirements and impact of Section 162(m) of the Internal Revenue
Code, which generally disallows a tax deduction for annual compensation in
excess of $1 million paid to our named executive officers. Certain
compensation that qualifies under applicable tax regulations as
“performance-based” compensation is specifically exempted from this deduction
rule. The Compensation Committee cannot assure that it will be able
to fully deduct all amounts of compensation paid to persons who are named
executive officers in the future. Further, because the Compensation
Committee believes it is important to preserve flexibility in designing its
compensation programs, it has not adopted a policy that all compensation must
qualify as deductible under Section 162(m). The cash compensation
that the Company paid to each of its named executive officers during 2009 was
below $1 million. We believe that stock options granted to named
executive officers under the 1997 Stock Option Plan and the 2004 Stock Incentive
Program would qualify as “performance-based compensation” and therefore are
Section 162(m) qualified.
Accounting for Stock Based
Compensation. On August 1, 2005, the Company adopted the fair
value recognition provisions of the amended guidance on ASC Stock Compensation
to account for all stock grants under all of its stock plans.
COMPENSATION
OF EXECUTIVE OFFICERS
Summary
Compensation Table
The
following table provides a summary of cash and non-cash compensation for each of
the last three fiscal years ended July 31, 2009, 2008 and 2007 with respect to
the one person who served as our CEO and the two other people who served as our
only other executive officers during the year ended July 31, 2009, collectively
referred to as the Named Executive Officers.
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)(1)
|
|
Non-Equity
Incentive Plan Compensation
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)(2)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
Muniz
President,
CEO and CFO (3)
|
|
2009
|
|
87,500
(4)
|
|
-
|
|
|
|
-
|
|
-
|
|
-
|
|
11,041(5)
|
|
98,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kuslima
Shogen
Former
CEO (6)
|
|
2009
|
|
207,692
|
|
-
|
|
|
|
-
|
|
-
|
|
-
|
|
139,241(7)
|
|
346,933
|
|
2008
|
|
278,877
|
|
-
|
|
|
|
2,305,000
|
|
-
|
|
-
|
|
525,514(8)
(9)
|
|
3,109,391
|
|
2007
|
|
233,688
|
|
-
|
|
|
|
565,460
|
|
-
|
|
-
|
|
24,026(10)
|
|
823,174
|
Lawrence
A. Kenyon
Former
President, CFO and Corporate Secretary (11)
|
|
2009
|
|
109,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,615
|
|
2008
|
|
215,231
|
|
42,000
|
|
|
|
-
|
|
-
|
|
-
|
|
6,990(12)
|
|
264,221
|
|
2007
|
|
104,192(13)
|
|
-
|
|
|
|
666,875
|
|
-
|
|
-
|
|
38,157(14)
|
|
809,224
|
(1)
|
These
amounts represent the dollar amount recognized for financial statement
reporting purposes the grant date fair value of stock options granted to
the named executive officers in accordance with ASC Stock
Compensation. The grant date fair value was estimated using the
Black-Scholes stock option pricing model in accordance with ASC Stock
Compensation. Pursuant to the SEC rules, the amounts exclude
the impact of estimated forfeitures related to service-based vesting
conditions. Valuation assumptions used in the calculation are
as disclosed in Note 7 to the financial statements for the year ended July
31, 2009 filed with this prospectus.
|
(2)
|
Excludes
perquisites and other personal benefits that in the aggregate do not
exceed $10,000. These amounts consist of our annual
contributions to a 401(k) plan unless otherwise noted.
|
(3)
|
Mr.
Muniz was appointed as the Company’s President, COO and CFO and director
to the Board on April 3, 2009.
|
(4)
|
Mr.
Muniz initially began consulting with the Company on February 9,
2009. On April 3, 2009, Mr. Muniz was appointed as the
Company’s President, COO and CFO. Given the Company’s difficult
financial condition, Mr. Muniz continued to receive consulting payments
from the date he first began consulting with the Company continuing
through October 19, 2009. This amount represents consulting
fees from his first day of employment through July 31,
2009.
|
(5)
|
This
amount consists of travel cost between Mr. Muniz’ home state of Florida
and New Jersey for a period of six months totaling $5,218 and health
insurance reimbursement of $5,823 for fiscal year 2009.
|
(6)
|
Ms.
Shogen retired from the Company on March 31, 2009 and resigned from the
Board on January 29, 2010.
|
(7)
|
This
amount consists of post-retirement payments of $126,923, our annual
contribution to a 401(k) plan totaling $3,461 and a monthly auto allowance
totaling $8,857 for fiscal year
2009.
|
(8)
|
$500,000
of this amount a lump sum payment as part of Ms. Shogen’s Retirement
Agreement in exchange for the termination of the Royalty
Agreement.
|
(9)
|
$25,514
of this amount consists of our annual contribution to a 401(k) plan
totaling $9,999, a monthly auto allowance totaling $12,997 for fiscal year
2008 and premiums paid by the Company on a life insurance policy on Ms.
Shogen totaling $2,518. The Company is not the beneficiary of
the life insurance policy.
|
(10)
|
This
amount consists of our annual contribution to a 401(k) plan totaling
$6,738, a monthly auto allowance totaling $13,000 for fiscal year 2007 and
premiums paid by the Company on a life insurance policy on Ms. Shogen
totaling $4,288. The Company is not the beneficiary of the life
insurance policy.
|
(11)
|
Mr. Kenyon
resigned as the Company’s President and CFO on December 12, 2008 and as
Corporate Secretary and director on the Board on April 2,
2009.
|
(12)
|
This
amount consists of our annual contribution to a 401(k) plan.
|
(13)
|
Represents
salary for period commencing on January 16, 2007, Mr. Kenyon’s first
day of employment with the Company, through July 31,
2007.
|
(14)
|
As
part of Mr. Kenyon’s employment arrangements approved by the Board, the
Company provided for moving expenses totaling $9,146 and cost
of travel between his home state of Illinois and New Jersey for a period
of 12 months totaling $29,011. We made no contributions to Mr.
Kenyon’s 401(k) plan during the fiscal year ended July 31,
2007.
|
Grants
of Plan-Based Awards in Fiscal Year 2009
There
were no grant of stock options under equity and non-equity incentive plans to
the Named Executive Officers during the fiscal year ended July 31,
2009.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth the information with respect to the Named Executive
Officers concerning the exercisable and unexercisable stock option awards held
as of July 31, 2009
Name (1)
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Kuslima
Shogen(2)
|
23,000(3)
|
-
|
-
|
$0.85
|
8/21/09
|
|
23,000(3)
|
-
|
-
|
$0.49
|
10/4/09
|
|
23,000(3)
|
-
|
-
|
$0.49
|
10/7/09
|
|
69,000(3)
|
-
|
-
|
$0.26
|
10/7/09
|
|
30,000(3)
|
-
|
-
|
$1.58
|
9/19/09
|
|
90,000(3)
|
-
|
-
|
$1.58
|
10/7/09
|
|
150,000(3)
|
-
|
-
|
$6.73
|
10/7/09
|
|
100,000(3)
|
-
|
-
|
$6.73
|
3/31/10
|
|
100,000(3)
|
-
|
-
|
$1.61
|
10/7/09
|
|
72,000(3)
|
-
|
-
|
$1.29
|
10/7/09
|
|
250,000(3)
|
-
|
|
$2.18
|
3/31/10
|
|
|
|
1,000,000(4)
|
$2.00
|
4/25/18
|
Lawrence
A. Kenyon(5)
|
225,000(3)
|
-
|
-
|
$1.55
|
8/17/09
|
(1)
|
The
Company does not have stock awards as part of its compensation program,
therefore the columns entitled “Stock Awards” have been omitted from this
table.
|
(2)
|
Ms.
Shogen retired from the Company on March 31,
2009.
|
(3)
|
These
options expired on their respective expiration dates.
|
(4)
|
These
performance options are only exercisable upon the meeting of the
conditions set out in Ms. Shogen’s Retirement Agreement as described
above.
|
(5)
|
Mr.
Kenyon resigned as the Company’s President and CFO on December 12, 2008
and as Corporate Secretary and director on April 2,
2009.
|
Option
Exercises and Stocks Vested
The Named
Executive Officers did not exercise options during fiscal year 2009 and the
Company did not grant stock awards as part of its compensation
program.
NON-EMPLOYEE
DIRECTORS’ COMPENSATION
In
February 2007, the Board adopted a non-employee director compensation policy
whereby each member of the Board who was not an employee of our company will
receive $15,000 per year in consideration of the member’s serving on the Board,
payable in four equal quarterly installments. In addition, each
non-employee director will be granted an annual retainer of 20,000 options on
the last trading day of December for each year under the 2004 Stock Incentive
Plan. The Chairman of the Board will receive an option bonus equal to
the number of options received by the Chairman for his board and committee
memberships. Committee chairpersons receive 10,000 options for each
committee chaired while each committee member receives 5,000 options for each
committee on which he serves. The exercise price of the options will
be equal to the closing price of the common stock on the date of the
grant. The options will vest on the first anniversary of the date of
the grant provided that the option holder remains a director as of such
anniversary date and the options will terminate on the sixth anniversary of the
date of the grant.
On
October 20, 2009, the Company closed on a private placement of convertible
promissory notes and warrants in which the Company received $3,250,000 in gross
proceeds on October 19, 2009. As a condition to the closing of such
financing, each member of the Board other than David Sidransky, Chairman of the
Board, and Mr. Muniz agreed to resign from the Board upon the request of Dr.
Sidransky made at any time following the closing and December 31,
2009. In connection with such condition, the Board amended the
vesting of the options granted on December 31, 2008 to non-employee directors,
except for Dr. Sidransky, to be accelerated in full upon their resignation as
requested by the Chairman of the Board. Additionally, with the
exception of Dr. Sidransky, the terms of the options granted to non-employee
directors on February 8, 2007, December 31, 2007 and December 31, 2008 were
amended to provide that if the non-employee director leaves the Board, the
option will be exercisable for two years, instead of one year, from the date
such non-employee director leaves the Board any time between October 19, 2009
and December 31, 2009.
In
January 2009, the Board ceased the non-employee director compensation; however,
on April 27, 2010, the Board made the following option grants to our
non-employee directors as compensation for their service on the Board: (i)
options to purchase 180,000 shares of common stock to Dr. Sidransky, (ii)
options to purchase 125,000 shares of common stock to Mr. Brancaccio, and (iii)
options to purchase 125,000 shares of common stock to Dr. Weiss, each at an
exercise price of $0.26 per share and with a vesting date of December 31,
2010.
Under our
director compensation policies, directors who also serve as executive officers
do not receive additional compensation for their service on our
Board.
The
exercise price and vesting schedules for the regular and discretionary option
grants described above are set forth in the table titled “Directors’ Stock Options”
below. The total compensation paid to independent directors for their
service as directors of the Company for fiscal year 2009 is set forth in the
table titled “Directors’
Compensation” below.
Name
|
|
Fees
Earned or Paid in Cash(1)
($)
|
|
Stock
Awards
($)
|
|
Option
Awards(2)
($)
|
|
Non-Equity
Incentive Plan Compensa-tion
($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
All
Other Compen-sation
($)
|
|
Total
($)
|
|
John
P. Brancaccio
|
|
|
$7,500
|
|
|
-
|
|
|
$5,600
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$13,100
|
|
Stephen
K. Carter, M.D. (3)
|
|
|
$7,500
|
|
|
-
|
|
|
$4,000
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$11,500
|
|
Donald
R. Conklin (4)
|
|
|
$7,500
|
|
|
-
|
|
|
$4,800
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$12,300
|
|
James
J. Loughlin(5)
|
|
|
$7,500
|
|
|
-
|
|
|
$5,600
|
(5)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$13,100
|
|
David
Sidransky, M.D.
|
|
|
$7,500
|
|
|
-
|
|
|
$14,400
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$21,900
|
|
Paul
Weiss, Ph.D.
|
|
|
$7,500
|
|
|
-
|
|
|
$8,000
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$15,500
|
|
During
the fiscal year ended July 31, 2009, the following independent or non-employee
directors were compensated as follows for their service as directors of the
Company:
|
(1)
|
These
amounts represent the retainer paid for services as
director.
|
(2)
|
These
amounts represent the dollar amount recognized for financial statement
reporting purposes for the fair value of stock options granted to
non-employee directors for fiscal year 2009. The grant date
fair value of the options was estimated using the Black-Scholes stock
option pricing model in accordance with ASC Stock
Compensation. Valuation assumptions used in the calculation are
as disclosed in Note 7 to the financial statements for the year ended July
31, 2009 filed with this prospectus.
|
(3)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(4)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(5)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009. The stock options granted to him in December 2008 were
forfeited.
|
Directors’
Stock Options
During
the fiscal year ended July 31, 2009, the following independent or non-employee
directors were granted options under our 2004 Stock Incentive Plan as described
above:
Name
|
Number
of
Options
Granted(1)
|
Exercise
Price of
Options
Granted
|
John
P. Brancaccio
|
35,000(2)
|
$0.24
|
Stephen
K. Carter, M.D. (3)
|
25,000(4)
|
$0.24
|
Donald
R. Conklin (5)
|
30,000(6)
|
$0.24
|
James
J. Loughlin(7)
|
35,000(8)
|
$0.24
|
David
Sidransky, M.D.
|
90,000(9)
|
$0.24
|
Paul
M. Weiss, Ph.D.
|
50,000(10)
|
$0.24
|
|
(1)
|
All
the options listed here were granted on December 31, 2008, vest on
December 31, 2009, provided that the option holder continuously remains a
director until such time, and expire on December 31, 2014. The
exercise price of these options was the closing price of the Company’s
common stock on the date of the grant. As described above,
these options will be accelerated in full upon the resignation of the
non-employee director, except Dr. Sidransky, as requested by the Chairman
of the Board any time between October 19, 2009 and December 31,
2009.
|
(2)
|
Mr.
Brancaccio’s options are the result of his serving on the Audit Committee
and as Chairman of the Compensation Committee.
|
(3)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(4)
|
Dr.
Carter’s’ options are the result of his serving on the Research and
Clinical Oversight Committee.
|
(5)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(6)
|
Mr.
Conklin’s options are the result of his serving on the Compensation
Committee and Commercial and Business Development Oversight
Committee.
|
(7)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009.
|
(8)
|
Mr.
Loughlin’s options are the result of his serving on the Corporate
Governance and Nominating Committee and as Chairman of the Audit
Committee. Mr. Loughlin resigned as a member of the Board
on March 5, 2009 and these options were forfeited as a result of his
resignation.
|
(9)
|
Dr.
Sidransky’s options are the result of his serving as Chairman of the
Board, Chairman of the Corporate Governance and Nominating Committee,
Chairman of the Research and Clinical Oversight Committee and a member of
the Commercial and Business Development Oversight
Committee.
|
(10)
|
Dr.
Weiss’ options are the result of his serving on the Compensation
Committee, the Corporate Governance and Nominating Committee, the Audit
Committee, the Research and Clinical Oversight Committee and as Chairman
of the Commercial and Business Development Oversight
Committee.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth the information with respect to the independent or
non-employee directors concerning exercisable and unexercisable stock options
held as of July 31, 2009:
Name
(1)
|
Number
of Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
John
P. Brancaccio
|
13,750(2)
|
-
|
$3.74
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
15,000
|
-
|
$1.49
|
02/08/13
|
|
35,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
35,000(3)
|
$0.24
|
12/31/14
|
Stephen
K. Carter, M.D. (4)
|
15,000(5)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
5,000
|
-
|
$1.49
|
02/08/13
|
|
25,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
25,000(3)
|
$0.24
|
12/31/14
|
Donald
R. Conklin (5)
|
15,000(2)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
10,000
|
-
|
$1.49
|
02/08/13
|
|
30,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
30,000(3)
|
$0.24
|
12/31/14
|
James
J. Loughlin(6)
|
13,750(2)
|
-
|
$3.74
|
9/11/09
|
|
20,000(2)
|
-
|
$4.38
|
9/11/09
|
|
20,000(2)
|
-
|
$1.89
|
9/11/09
|
|
20,000(2)
|
-
|
$1.60
|
9/11/09
|
|
15,000(2)
|
-
|
$1.49
|
9/05/09
|
|
35,000(2)
|
-
|
$1.72
|
9/05/09
|
|
-
|
35,000(3)(7)
|
$0.24
|
12/31/14
|
David
Sidransky, M.D.
|
8,750(2)
|
-
|
$8.18
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
70,000
|
-
|
$1.49
|
02/08/13
|
|
90,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
90,000(3)
|
$0.24
|
12/31/14
|
Paul
M. Weiss, Ph.D.
|
15,000(2)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
30,000
|
-
|
$1.49
|
02/08/13
|
|
50,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
50,000(3)
|
$0.24
|
12/31/14
|
(1)
|
The
Company does not have stock awards as part of its compensation program,
therefore the columns entitled “Stock Awards” have been omitted from this
table.
|
(2)
|
These
options expired on their respective expiration dates.
|
(3)
|
These
options vested on December 31, 2009, provided that the option holder
continuously remained a director as of December 31,
2009.
|
(4)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(5)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(6)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009.
|
(7)
|
These
options were forfeited as a result of Mr. Loughlin’s
resignation.
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During
the fiscal year ended July 31, 2009, the members of the Board who served on the
Compensation Committee were Messrs. John P. Brancaccio, Donald R. Conklin
(resigned subsequently) and Paul M. Weiss, Ph.D. All such directors
were independent directors and have never been our officers. During the
fiscal year ended July 31, 2009, no executive officer of us served on the
compensation committee or board of directors of any other entity which had any
executive officer who also served on the Compensation Committee or
Board.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company recognizes that related party transactions can create the appearance
that Company decisions are made based on factors other than the Company’s best
interest or the best interest of the Company’s stockholders. Related
party transactions can also create potential or actual conflicts of interest
between the Company and the related party. For purposes of Item 404
of Regulation S-K, related person transactions are transactions which exceed
$120,000 in the aggregate or 1% of the average of the Company’s total assets at
year end for the last three completed fiscal years, to which the Company and a
related party with a direct or indirect material interest,
participated. The Company’s Code of Business Conduct and Ethics
requires that any such related party transactions be specifically approved by
the Audit Committee. In addition directors, officers and employees
must notify the Ethics Officer or the Chair of the Audit Committee of the
existence of any actual or potential conflicts of interest. The Audit
Committee performs a review of related party transactions as part of its review
of our Annual Reports on Form 10-K.
The
Company was a party to the following transactions in which the amount involved
exceeded $120,000 and in which any executive officers, directors, holders of
more than 5% of our capital stock and members of such person’s immediate
families had or will have a direct or indirect material interest.
Fiscal
Year 2007
At fiscal
year ended July 31, 2007, $180,397 were due to the Company from Kuslima
Shogen, the Company's former CEO, from which the Company earned 8% interest in
the amount of approximately $9,500 on the unpaid principal balance for fiscal
year 2007. This loan was made prior to July 30, 2002 and has not since been
materially modified, thus it is not in violation of the Sarbanes-Oxley Act of
2002.
On
July 23, 1991, the Board agreed to pay Ms. Shogen an amount equal to 15% of
any gross royalties which the Company may receive from any license(s) with
respect to the Company's lead drug product candidate, ONCONASE®, or any other
products derived from amphibian source extract, produced either as a natural,
synthesized, and/or genetically engineered drug for which the Company is the
owner or co-owner of the patents, or acquires such rights in the future, for a
period not to exceed the life of the patents. If the Company manufactures and
markets any of these drugs, then Ms. Shogen will receive an amount equal to
5% of gross sales from any products sold during the term of the patents. On
April 16, 2001, this agreement was amended and clarified to provide that
Ms. Shogen would receive the 15% royalty payment relating to licenses or 5%
of net sales relating to sales but not both, unless both the Company and the
licensee market the licensed product.
Fiscal
Year 2008
Amounts
due from a loan to Ms. Shogen totaling $180,397 were repaid in full plus
interest in April 2008. The Company earned 8% interest on the unpaid principal
balance in the amount of approximately $7,000 for fiscal year ended July 31,
2008. This loan was made prior to July 30, 2002 and has not since been
materially modified.
In
addition, see the discussion of the Retirement Agreement and arrangements
related thereto by and between the Company and the Company’s former CEO, Kuslima
Shogen, set forth above in the Post-Termination Agreement
subsection of the “Compensation and Discussion Analysis”.
In fiscal
year 2009, March 2008 and September 2008, the Company engaged Champions
Biotechnology, Inc. to provide certain services for approximately $12,300
and $81,200, respectively. The Company’s non-executive Chairman of
the Board of Directors, Dr. David Sidransky, is also the Chairman of the Board
of Directors as well as a principal stockholder of Champions Biotechnology,
Inc. As of July 31, 2009, the agreed amount was paid in
full.
On
October 20, 2009, the Company announced that it completed a sale of 65 Units in
a private placement to certain investors pursuant to a securities purchase
agreement entered into on October 19, 2009. Each Unit consists
of (i) $50,000 principal amount of 5% Senior Secured Convertible Notes
convertible into shares of the Company’s common stock, (ii) Series A
Warrants to purchase in the aggregate that number of shares of common stock
initially issuable upon conversion of the aggregate amount of Notes issued as
part of the Unit, at an exercise price of $0.15 per share with a three year term
and (iii) Series B Warrants to purchase in the aggregate that number of
shares of common stock initially issuable upon conversion of the aggregate
amount of Notes issued as part of the Unit, at an exercise price of $0.25 per
share with a five year term. The closing of the Offering occurred on
October 19, 2009 and the Company received an aggregate of $3,250,000 in
gross proceeds. Charles Muniz, the Company’s President, CEO, CFO and
a director, subscribed for 20 Units, certain trusts and individuals related to
James O. McCash, a beneficial owner of more than five percent of the Company’s
voting securities, subscribed for an aggregate of 20 Units, Europa International
Inc., an affiliate of Knoll Capital Management LP, a beneficial owner of more
than five percent of the Company’s voting securities, subscribed for 15
Units. The Company’s entry into an employment agreement with Mr.
Muniz upon terms reasonably acceptable to the investors in the Offering was a
condition to the Closing.
In
addition, see the discussion of the Retirement Agreement and arrangements
related thereto by and between the Company and the Company’s CEO, Kuslima
Shogen, set forth above in the Post-Termination Agreement
subsection of the “Compensation and Discussion
Analysis”.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information as of March 12, 2010 concerning
stock ownership of all persons known by the Company to own beneficially 5% or
more of the outstanding shares of the Company's common stock.
Security
Ownership of Certain Beneficial Owners
Name
and address of beneficial
owner
or identity of group
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent
of shares
outstanding(1)
|
|
|
|
|
|
|
|
|
Charles
Muniz(2)
c/o
Tamir Biotechnology, Inc.
300
Atrium Drive
Somerset,
NJ 08873
|
|
|
21,609,999(3)
|
|
|
|
31.63%
|
|
|
|
|
|
|
|
|
|
|
Knoll
Capital Management LP, Fred Knoll and Europa International, Inc. (4)
666
Fifth Avenue, Suite 3702
New
York, NY 10103
|
|
|
19,030,520(5)
|
|
|
|
29.97%
|
|
|
|
|
|
|
|
|
|
|
McCash
Family Limited Partnership
N3810
S. Grand Oak Drive
Iron
Mountain, MI 49801
|
|
|
4,821,452(6)
|
|
|
|
9.9%
|
|
|
|
|
|
|
|
|
|
|
James
O. McCash, and the James O. McCash Trust
N3820
S. Grand Oak Drive
Iron
Mountain, MI 49801
|
|
|
2,910,820(7)
|
|
|
|
6.1%
|
|
|
|
|
|
|
|
|
|
|
Unilab
LP
966
Hungerford Drive, Ste 3B
Rockville,
MD 20850
|
|
|
5,195,038(8)
|
|
|
|
9.99%
|
|
(1)
|
The
percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of the date of the calculation by (ii) the sum of (A) the
number of shares of common stock outstanding as of the date of the
calculation, plus (B) the number of shares issuable upon conversion of
securities convertible into shares of common stock and upon exercise of
options or warrants held by such stockholder which were convertible or
exercisable as of the date of the calculation or which will become
exercisable within 60 days after the date of the calculation, taken into
consideration certain provisions in the warrants which limit the amount of
shares that the warrant holders can exercise for.
|
(2)
|
Mr.
Muniz is the Company’s President, CEO, CFO and a
director.
|
(3)
|
Includes
(i) 310,000 shares of common stock owned by Mr. Muniz, (ii) 300,000 shares
of common stock owned by Mr. Muniz’ wife and (iii) 20,999,999 shares
subject to a convertible note and warrants which are currently convertible
or exercisable or which will become convertible or exercisable within 60
days after March 12, 2010.
|
(4)
|
Knoll
Capital Management LP, Fred Knoll and Europa International, Inc., or
Europa, filed a Schedule 13D on December 7, 2009 with the SEC as
joint filers.
|
(5)
|
Includes
(i) 2,010,985 shares of common stock owned by Europa. (ii) 840,963 shares
held by Knoll Special Opportunities Fund Master Fund Ltd, or Knoll Fund,
(iii) 15,750,000 shares of common stock subject to a convertible note and
warrants which are currently convertible or exercisable or will become
convertible or exercisable within 60 days of March 12, 2010 held by Europa
and (iv) 428,572 shares subject to warrants which are currently
exercisable or will become exercisable within 60 days of March 12, 2010
held by Europa and Knoll Fund. This information concerning the
stock ownership of Knoll Capital Management LP, Fred Knoll and Europa. was
obtained from the Schedule 13D filed by them with the SEC on December 7,
2009 and other information known to the Company.
|
(6)
|
Includes
1,399,890 shares of common stock subject to warrants which are currently
exercisable or will become exercisable within 60 days of March 12,
2010. This information concerning the stock ownership of the
McCash Family Limited Partnership was obtained from the Schedule 13D/A
filed with the SEC on January 8, 2007 and other information known to the
Company.
|
(7)
|
This
information concerning the stock ownership of the James O. McCash, and the
James O. McCash Trust was obtained from the Schedule 13G/A filed with the
SEC on February 5, 2008 and other information known to the
Company.
|
(8)
|
Includes
(i) 4,641,678 shares of common stock subject to notes and warrants which
are currently exercisable or will become exercisable within 60 days of
March 12, 2010, and (ii) 553,360 shares of common
stock.
|
The table
below shows the amount of our common stock beneficially owned (unless otherwise
indicated) by our directors and the Named Executive Officers listed in the
Summary Compensation Table individually, and our directors and Named Executive
Officers as a group. All information is as of March 12, 2010.
Security
Ownership of Management
Name
and address of beneficial
owner
or identity of group(1)
|
|
Position
|
|
Amount
and Nature of Beneficial Ownership(2)
|
|
|
Percent
of shares
outstanding(3)
|
|
Charles
Muniz
|
|
President,
CEO, CFO and Director
|
|
|
21,609,999(4)
|
|
|
|
31.63%
|
|
John
P. Brancaccio
|
|
Director
|
|
|
151,300(5)
|
|
|
|
*
|
|
David
Sidransky, M.D.
|
|
Chairman
of the Board
|
|
|
355,000(6)
|
|
|
|
*
|
|
Paul
M. Weiss, Ph.D.
|
|
Director
|
|
|
230,090(7)
|
|
|
|
*
|
|
All
Named Executive Officers and directors as a group (4
persons)
|
|
|
|
|
22,346,389(8)
|
|
|
|
33.23%
|
|
*
|
Represents
less than 1% of our outstanding common stock.
|
(1)
|
Unless
otherwise indicated below, the persons in the above table have sole voting
and investment power with respect to all shares beneficially owned by
them. The address of all Named Executive Officers and directors
is c/o Tamir Biotechnology, Inc., 300 Atrium Drive, Somerset, New Jersey,
08873.
|
(2)
|
All
shares listed are common stock. Except as discussed below, none
of these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
law where applicable.
|
(3)
|
The
percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of March 12, 2010 by (ii) the sum of (A) the number of
shares of common stock outstanding as of March 12, 2010 plus (B) the
number of shares issuable upon exercise of options or warrants held by
such stockholder which were exercisable as of March 12, 2010 or which will
become exercisable within 60 days after December March 12,
2010.
|
(4)
|
Includes
310,000 shares of common stock owned by Mr. Muniz, 300,000 shares of
common stock owned by Mr. Muniz’ wife and 20,999,999 shares subject to a
convertible note and warrants which are currently convertible or
exercisable or which will become convertible or exercisable within 60 days
after March 12, 2010.
|
(5)
|
Includes
145,000 shares underlying options which are currently exercisable or which
will become exercisable within 60 days after March 12,
2010.
|
(6)
|
Includes
310,000 shares underlying options which are currently exercisable or which
will become exercisable within 60 days after March 12,
2010.
|
(7)
|
Includes
6,535 shares of common stock owned by Mr. Weiss’ wife and 190,000 shares
underlying options which are currently exercisable or which will become
exercisable within 60 days after March 12, 2010.
|
(8)
|
Includes
all shares owned beneficially by the directors and the executive officers
named in the table.
|
We are
registering the shares of common stock issuable upon the conversion of the Notes
and exercise of the Warrants, including: (a) 24,916,667 shares of common stock
that will be issued upon conversion of the Notes in the aggregate principal
amount of $3,250,000, referred to as Note Shares, (b) 21,666,664 shares of
common stock that will be issued upon the exercise of the Series A Warrants at
$0.15 per share, referred to as Series A Warrant Shares, and (c) 21,666,664 shares of common stock
that will be issued upon the exercise of the Series B Warrants at $0.25 per
share, referred to as Series B Warrant Shares. The Notes and the Warrants were
issued to the Selling Security Holders in a private placement which closed in
October 2009. The Notes and the Warrants were issued in transactions exempt from
the registration requirements of the 1933 Act under Section 4(2) of the 1933 Act
to persons reasonably believed to be “accredited investors” as defined in
Regulation D under the 1933 Act. Pursuant to the terms of the Securities
Purchase Agreement under which the Notes and Warrants were issued, we agreed to
file the Registration Statement of which this prospectus forms a part in order
to permit those investors to sell the shares underlying the notes and warrants.
Pursuant to Rule 416 under the Securities Act, the Registration Statement also
purports to register such indeterminate number of shares of common stock as may
become issuable by reason of stock splits, stock dividends, recapitalization and
similar capital adjustments in accordance with the provisions of the notes and
warrants.
SELLING
SECURITY HOLDER TABLE
The table
below lists the Selling Security Holders and other information regarding the
beneficial ownership of the shares of common stock by each of the Selling
Security Holders. The first column lists the number of Note Shares
being offered pursuant to this prospectus by each of the Selling Security
Holders. The second column lists the number of Series A Warrant
Shares being offered pursuant to this prospectus by each of the Selling Security
Holders. The third column lists the number of Series B Warrant Shares being
offered pursuant to this prospectus by each of the Selling Security Holders. The
fourth column lists total number of common stock held by each Selling Security
Holder before any offering pursuant to this prospectus. The fifth column lists
the shares of common stock being offered pursuant to this prospectus by each of
the Selling Security Holders. The six column lists the number of
shares that will be beneficially owned by the Selling Security Holders assuming
all of the shares offered pursuant to this prospectus are sold and that shares
beneficially owned by them, but not offered hereby are not sold. The
Selling Security Holder Table and the footnotes to the table are prepared based
on the Company’s records as of April 26, 2010 and the completed selling
stockholder questionnaires the Company has received.
The
inclusion of any securities in the following table does not constitute an
admission of beneficial ownership by the persons named below. Except as
indicated in the footnotes to the table, no Selling Security Holder has had any
material relationship with us or our predecessors or affiliates during the last
three years.
Name
|
Note
Shares
|
Series
A
Warrant
Shares
|
Series
B
Warrant
Shares
|
Total
Shares
|
Shares
being
Offered
|
Shares
Owned
after
Offering (1)
|
Europa
International, Inc. (Knoll Capital Management LP)(2), (3)
|
5,750,000
|
5,000,000
|
5,000,000
|
19,030,520(4)
|
15,750,000
|
3,280,520
|
Charles
Muniz (5)
|
7,666,667
|
6,666,666
|
6,666,666
|
21,609,999
(6)
|
20,999,999
|
610,000
|
Unilab
LP (Francis Patrick Ostronic(2)), (7)
|
3,833,333
|
3,333,333
|
3,333,333
|
11,053,359
(8)
|
10,499,999
|
553,360
|
Mary
M. McCash Trust Declaration Declared October 20, 2008 (Mary M. McCash(2)),
(9)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
The
Michael J. McCash Living Trust (Michael J. McCash(2)),
(10)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
Coleen
A. Lowe (11)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
Corinne
M. Poquette (12)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,199
|
4,199,999
|
0
|
David
J. McCash (13)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,199
|
4,199,999
|
0
|
Total
|
24,916,667
|
21,666,664
|
21,666,664
|
72,693,875
|
68,249,995
|
4,443,880
|
(1)
|
Assumes
that all of the shares offered hereby are sold and that shares owned
before the offering but not offered hereby are not
sold.
|
(2)
|
Person
who has voting and the power to vote, sell, transfer or otherwise dispose
of the common stock.
|
(3)
|
Address:
c/o Knoll Capital Management, 1114 Avenue of Americans, 45th
Floor, New York, NY 10036. Europa International, Inc., together
with Knoll Capital Management LP and Fred Knoll, with whom it filed a
Schedule 13D on December 7, 2009 with the SEC as joint filers, is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company.
|
(4)
|
Includes
(i) 2,010,985 shares of Common Stock owned by Europa, (ii) 840,963 shares
held by Knoll Fund, (iii) 15,750,000 shares of common stock issuable upon
conversion of the Notes and exercise of the Warrants held by Europa and
(iv) 428,572 shares subject to warrants which are currently exercisable or
will become exercisable within 60 days of March 12, 2010 held by Europa
and Knoll Fund.
|
(5)
|
Address:
c/o Tamir Biotechnology, Inc., 300 Atrium Drive,
Somerset,
NJ 08873. Mr. Muniz is the Company’s President, CEO, CFO and a
director.
|
(6)
|
Includes
(i) 20,999,999 shares of common stock issuable upon conversion of the
Notes and exercise of the Warrants, (ii) 310,000 shares of common stock
owned by Mr. Muniz, and (iii) 300,000 shares of common stock owned by Mr.
Muniz’ wife.
|
(7)
|
Address:
966 Hungerford Drive, Ste 3B, Rockville, MD 20850. In July
2007, in connection with a Distribution and Marketing Agreement with USP
Pharma Spolka Z.O.O., an affiliate of US Pharmacia, we entered into a
Securities Purchase Agreement with Unilab LP, an affiliate of US
Pharmacia, pursuant to which we issued a total of 553,360 shares of
restricted common stock Unilab LP for approximately $1.4 million, or
$2.53 per share.
|
(8)
|
Includes
(i) 10,499,999 shares of common stock issuable upon conversion of the
Notes and exercise of the Warrants, and (ii) 553,360 shares of common
stock.
|
(9)
|
Address:
5660 Rush Road, Conover, Wisconsin 54519. Mary M. McCash is a
partner of McCash Family Limited Partnership, which is a significant
shareholder of the Company that owns more than 5% of the total outstanding
shares of common stock of the Company. Mary M. McCash does not
have the power to vote
or dispose of the shares of the Company owned by McCash Family Limited
Partnership.
|
(10)
|
Address:
N 3810 South Grand Oak Road, Iron Mountain, Michigan 49801. Michael J.
McCash is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. Michael J.
McCash does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited Partnership.
|
(11)
|
Address:
13639 Bridle Trail Road, Draper, Utah 84020. Coleen A. Lowe is
a partner of McCash Family Limited Partnership, which is a significant
shareholder of the Company that owns more than 5% of the total outstanding
shares of common stock of the Company. Coleen A. Lowe does not
have the power to vote or dispose of the shares of the Company owned by
McCash Family Limited Partnership.
|
(12)
|
Address:
W 4454 County Road 573, Kulcan, Michigan 49892. Corinne M.
Poquette is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. Corinne M.
Poquette does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited Partnership.
|
(13)
|
Address:
716 Hillcrest Drive, Iron Mountain, Michigan 49801. David J.
McCash is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. David J.
McCash does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited
Partnership.
|
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The
following description of our common stock, together with the additional
information included in any applicable prospectus supplements, summarizes the
material terms and provisions of these types of securities but is not
complete. For the complete terms of our common stock, please refer to
our certificate of incorporation, as amended, and bylaws that are incorporated
by reference into the Registration Statement which includes this
prospectus.
As of March 12, 2010, our authorized
capital stock consists of 250,000,000 shares of common stock, par value $0.001
per share, and 1,000,000 shares of preferred stock, par value $0.001 per
share. No share of preferred stock is outstanding as of the date of
this prospectus.
Common
Stock
Under our
certificate of incorporation, as amended, we may issue up to 250,000,000 shares
of common stock, par value $0.001 per share. As of March 12, 2010, we
have 47,313,880 shares of common stock issued and outstanding. The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any
outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by our Board of Directors out of funds
legally available for that purpose. In the event of liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the prior distribution rights of any outstanding preferred
stock. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of
common stock are fully paid and non-assessable.
Our
common stock is listed on the Pink Sheets under the symbol
“ACEL”. The transfer agent and registrar for our common stock is
American Stock Transfer and Trust Company.
PLAN
OF DISTRIBUTION
We are
registering shares of common stock to permit the resale of such common stock by
the holders from time to time after the date of this prospectus. We will not
receive any of the proceeds from the sale by the Selling Security Holders of the
securities. We will bear all fees and expenses incident to our obligation to
register the shares of common stock.
The
Selling Security Holders may sell all or a portion of the securities
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the securities
are sold through underwriters or broker-dealers, the Selling Security Holders
will be responsible for underwriting discounts or commissions or agent’s
commissions. The securities may be sold in one or more transactions at
prevailing market prices at the time of the sale on the over-the-counter
bulletin board or at privately negotiated prices determined at the time of sale.
These sales may be effected in transactions, which may involve crosses or block
transactions,
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
·
|
in
the over-the-counter market;
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
pursuant
to Rule 144 under the Securities
Act;
|
·
|
broker-dealers
may agree with the Selling Security Holders to sell a specified number of
such securities at a stipulated price per
security;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
If
the Selling Security Holders effect such transactions by selling the shares of
common stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the Selling Security Holders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). The Selling
Security Holders may loan or pledge securities to broker-dealers that in turn
may sell such securities.
The
Selling Security Holders may pledge or grant a security interest in some or all
of the warrants or shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of Selling Security Holders to include the pledgee,
transferee or other successors in interest as Selling Security Holders under
this prospectus. The Selling Security Holders also may transfer and donate the
warrants or shares of common stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
Any
Selling Security Holder who is identified as broker-dealer participating in the
distribution of the shares of common stock is an “underwriter” within the
meaning of the 1933 Act for the purposes of this offering, unless such Selling
Security Holder received the shares as compensation for investment banking
services, and any commission paid, or any discounts or concessions allowed to,
any such broker-dealer may be deemed to be underwriting commissions or discounts
under the 1933 Act. Any Selling Security Holder who is identified as an
affiliate of a broker-dealer participating in the distribution of the shares of
common stock is also an underwriter for the purposes of this offering, unless
such Selling Security Holder purchased the shares in the ordinary course of
business and at the time of purchase had no understanding directly or indirectly
with any party to distribute the shares. At the time a particular offering of
the securities is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of securities being
offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Security Holders and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under the
securities laws of some states, the securities may be sold in such states only
through registered or licensed brokers or dealers. In addition, in some states
the warrants and shares of common stock may not be sold unless such warrants or
shares of common stock have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.
The
Selling Security Holders may choose not to sell any or may choose to sell less
than all of the shares of common stock registered pursuant to the Registration
Statement, of which this prospectus forms a part.
The
Selling Security Holders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the 1934 Act, which may restrict certain activities
of, and limit the timing of purchases and sales of any of the shares of common
stock by the Selling Security Holders and any other person participating in a
distribution of the shares. Furthermore, under Regulation M, persons engaged in
a distribution of the shares are prohibited from simultaneously engaging in
market making and certain other activities with respect to shares for a
specified period of time prior to the commencement of such distributions subject
to specified exceptions or exemptions. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
We will
pay all expenses of the registration of the shares of common stock pursuant to
the registration rights in the Investor Rights Agreement, estimated to be
approximately $69,183.34 in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or “blue sky” laws; provided,
however, that a Selling Security Holder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the Selling Security Holders
against liabilities, including some liabilities under the 1933 Act, in
accordance with the Purchase Agreement, or the Selling Security Holders will be
entitled to contribution. We may be indemnified by the Selling Security Holders
against civil liabilities, including liabilities under the 1933 Act, that may
arise from any written information furnished to us by the Selling Security
Holder specifically for use in this prospectus, in accordance with the related
Subscription Agreement, or we may be entitled to contribution.
Once sold
under the Registration Statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
LEGAL
MATTERS
The
validity of the securities to be sold pursuant to this prospectus will be passed
upon by Goodwin Procter LLP, counsel to the Company.
EXPERTS
Our
consolidated financial statements as of July 31, 2009 and 2008 and for each
of the years in the three-year period ended July 31, 2009 and for the
period from August 24, 1981 (the date of inception) to July 31, 2009
included herein have been audited by J.H. Cohn LLP, independent registered
public accounting firm, as stated in their reports, which are included herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. The report of J.H. Cohn LLP with respect to our
financial statements from inception to July 31, 2009 is based on the
reports of Armus Harrison & Co. and KPMG LLP (KPMG), for the period from
inception to July 31, 2002. As discussed in the our Annual Report on Form
10-K for the year ended July 31, 2005, Armus Harrison & Co. ceased
performing accounting and auditing services for us in 1993 and subsequently
dissolved and ceased all operations.
Our statements
of operations, stockholders’ equity (deficiency), and cash flows for the period
from August 24, 1981 (the date of inception) to July 31, 2002, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG, independent registered public accounting firm, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
with respect to our financial statements from inception to July 31, 2002 is
based on the report of Armus Harrison & Co., included herein, for the period
from inception to July 31, 1992. Armus Harrison & Co. ceased performing
accounting and auditing services for us in 1993 and subsequently dissolved and
ceased all operations.
The report of KPMG covering the
July 31, 2002 financial statements contains an explanatory paragraph that
states that our recurring losses from operations, working capital deficit and
limited liquid resources raise substantial doubt about our ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
We have agreed to indemnify and hold
KPMG harmless against and from any and all legal costs and expenses
incurred by KPMG in successful defense of any legal action or proceeding that
arises as a result of KPMG’s consent to the inclusion herein of its audit report
on the Company’s financial statements.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We file
reports and other information with the Securities and Exchange Commission, or
SEC. This prospectus is part of the Registration Statement, but does not contain
all of the information included in the Registration Statement or exhibits. You
may read and copy the Registration Statement and these reports, proxy statements
and other information at the SEC’s Public Reference Room at 100F St., N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-033 for further
information on the Public Reference Room. The SEC maintains an internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC,
including our company.
This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to us and the shares of stock offered under this prospectus, reference
is made to the Registration Statement, including the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, where any such
contract or document is an exhibit to the Registration Statement, each statement
with respect to the contract or document is qualified in all respects by the
provisions of the relevant exhibit, which is hereby incorporated by
reference.
We make
available free of charge on or through our internet website our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file this material with, or furnish it to, the SEC. Our
Internet address is www.alfacell.com. The information contained on our website
is not incorporated by reference in this prospectus and should not be considered
a part of the prospectus.
Alfacell
Corporation
Index to
Financial Statements
|
Page
|
Report
of Independent Registered Public Accounting Firm: J.H. Cohn
LLP
|
F-2 |
|
|
Report
of Independent Registered Public Accounting Firm: KPMG
LLP
|
F-3 |
|
|
Independent
Auditors’ Report of Armus, Harrison & Co.
|
F-5
|
|
|
Balance
Sheets - July 31, 2009 and 2008
|
F-6
|
|
|
Statements
of Operations - Years ended July 31, 2009, 2008 and 2007 and the Period
from August
24, 1981 (Date of Inception) to July 31, 2009
|
F-7
|
|
|
Statement
of Stockholders’ Equity (Deficiency) Period
from August 24, 1981 (Date of Inception) to July 31,
2009
|
F-8
|
|
|
Statements
of Cash Flows - Years ended July 31, 2009, 2008 and 2007 and the Period
from August
24, 1981 (Date of Inception) to July 31, 2009
|
F-15
|
|
|
Notes
to Financial Statements - Years ended July 31, 2009, 2008 and 2007 and the
Period from
August 24, 1981 (Date of Inception) to July 31,
2009
|
F-18
|
|
|
Condensed
Balance Sheets – January 31, 2010 and July 31, 2009
|
F-51
|
|
|
Condensed
Statements of Operations – Three and Six Months Ended January 31, 2010 and
2009, and
the Period from August 24, 1981 (Date of Inception) to January 31,
2010
|
F-52
|
|
|
Condensed
Statement of Stockholders’ Deficiency - Period from July 31, 2009 to
January 31, 2010
|
F-53
|
|
|
Condensed
Statements of Cash Flows – Six Months ended January 31, 2010 and 2009
and
the Period from August 24, 1981 (Date of Inception) to January
31, 2010
|
F-54
|
|
|
Notes
to Condensed Financial Statements - Six Months ended January 31, 2010 and
2009
|
F-57
|
Report of Independent
Registered Public Accounting Firm
The Board
of Directors and Stockholders
Alfacell
Corporation
We have
audited the accompanying balance sheets of Alfacell Corporation (a development
stage company) as of July 31, 2009 and 2008, and the related statements of
operations, stockholders’ equity (deficiency), and cash flows for each of the
years in the three-year period ended July 31, 2009 and for the period from
August 24, 1981 (date of inception) to July 31, 2009. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Alfacell Corporation for the
period from August 24, 1981 to July 31, 2002 were audited by other auditors
whose reports dated November 4, 2002 and December 9, 1992, except for Note 18
which is as of July 19, 1993 and Note 3 which is as of October 28, 1993,
expressed unqualified opinions on those statements with explanatory paragraphs
relating to the Company’s ability to continue as a going concern.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, and as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, based on our audits and, for the effect on the period from August 24,
1981 (date of inception) to July 31, 2009 of the amounts for the period from
August 24, 1981 (date of inception) to July 31, 2002, on the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Alfacell Corporation as of July 31,
2009 and 2008, and the results of its operations and its cash flows for each of
the years in the three-year period ended July 31, 2009 and for the period from
August 24, 1981 (date of inception) to July 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed on Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and negative cash flows from operating activities that raise substantial doubt
about its ability to continue as a going concern. Management’s plans
in regards to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ J.H.
Cohn LLP
Roseland,
New Jersey
November
13, 2009
Report Of Independent
Registered Public Accounting Firm
The
Stockholders and Board of Directors
Alfacell
Corporation:
We have
audited the statements of operations, stockholders' equity (deficiency), and
cash flows for the period from August 24, 1981 (date of inception) to July 31,
2002 (not presented herein) of Alfacell Corporation (a development stage
company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial
statements of Alfacell Corporation for the period from August 24, 1981 to July
31, 1992 were audited by other auditors who have ceased operations and whose
report dated December 9, 1992, except as to note 18 which is July 19, 1993 and
note 3 which is October 28, 1993, expressed an unqualified opinion on those
statements with an explanatory paragraph regarding the Company's ability to
continue as a going concern.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, based on our audit and, for the effect on the period from August 24,
1981 to July 31, 2002 of the amounts for the period from August 24, 1981 to July
31, 1992, on the report of other auditors who have ceased operations, the
financial statements referred to above present fairly, in all material respects,
the results of operations and cash flows for the period from August 24, 1981 to
July 31, 2002 (not presented herein) of Alfacell Corporation in conformity with
U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficit and has limited liquid resources which raise
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Short
Hills, New Jersey
November
4, 2002
On
December 1, 1993, certain shareholders of Armus Harrison & Co. or AHC
terminated their association with AHC, and AHC ceased performing accounting and
auditing services, except for limited accounting services to be performed on
behalf of the Company. In June 1996, AHC dissolved and ceased all
operations. The report of AHC with respect to the financial
statements of the Company from inception to July 31, 1992 is included herein,
although AHC has not consented to the use of such report herein and will not be
available to perform any subsequent review procedures with respect to such
report. Accordingly, investors will be barred from asserting claims
against AHC under Section 11 of the Securities Act of 1933, as amended, or
Securities Act, on the basis of the use of such report in any registration
statement of the Company into which such report is incorporated by
reference. In addition, in the event any persons seek to assert a
claim against AHC for false or misleading financial statements and disclosures
in documents previously filed by the Company, such claim will be adversely
affected and possibly barred. Furthermore, as a result of the lack of
a consent from AHC to the use of its audit report herein, or, to its
incorporation by reference into a registration statement or other filings, the
officers and directors of the Company will be unable to rely on the authority of
AHC as experts in auditing and accounting in the event any claim is brought
against such persons under Section 11 of the Securities Act based on alleged
false and misleading financial statements and disclosures attributable to
AHC. The discussion regarding certain effects of the AHC termination
is not meant and should not be construed in any way as legal advice to any party
and any potential purchaser should consult with his, her or its own counsel with
respect to the effect of the AHC termination on a potential investment in the
Common Stock of the Company or otherwise.
Independent Auditors’
Report
Board of
Directors
Alfacell
Corporation
Bloomfield,
New Jersey
We have
audited the balance sheets of Alfacell Corporation (a Development Stage Company)
as of July 31, 1992 and 1991, as restated, and the related statements of
operations, stockholders’ deficiency, and cash flows for the three years ended
July 31, 1992, as restated, and for the period from inception August 24,
1981 to July 31, 1992, as restated. In connection with our audit of
the 1992 and 1991 financial statements, we have also audited the 1992, 1991 and
1990 financial statement schedules as listed in the accompanying
index. These financial statements and financial statement schedules
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our
opinion the financial statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July 31,
1992 and 1991, as restated, and for the three years ended July 31, 1992, as
restated, and for the period from inception August 24, 1981 to July 31, 1992, as
restated, and the results of operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
The
accompanying financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the satisfaction of liability
in the normal course of business. As shown in the statement of
operations, the Company has incurred substantial losses in each year since its
inception. In addition, the Company is a development stage company
and its principal operation for production of income has not
commenced. The Company’s working capital has been reduced
considerably by operating losses, and has a deficit net worth. These
factors, among others, as discussed in Note 2 to the Notes of Financial
Statements, indicates the uncertainties about the Company’s ability to continue
as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts and the amount or classification of liabilities that might be necessary
should the Company be unable to continue its existence.
|
|
|
|
|
|
|
|
/s/
Armus, Harrison & Co.
|
|
|
|
|
Armus,
Harrison & Co.
|
|
|
|
|
|
|
Mountainside,
New Jersey
December
9, 1992
Except as
to Note 18 which
is
July 19, 1993 and Note 3
which
is October 28, 1993
ALFACELL
CORPORATION
(A
Development Stage Company)
Balance
Sheets
July 31,
2009 and 2008
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
129,194 |
|
|
$ |
4,661,656 |
|
Prepaid
expenses
|
|
|
54,494 |
|
|
|
165,259 |
|
Total
current assets
|
|
|
183,688 |
|
|
|
4,826,915 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation and amortization of
$377,134 in 2009 and $342,031 in 2008
|
|
|
108,018 |
|
|
|
143,121 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
266,280 |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
557,986 |
|
|
$ |
5,320,036 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
407,273 |
|
|
$ |
1,252,478 |
|
Accrued
clinical trial expenses
|
|
|
459,911 |
|
|
|
882,386 |
|
Accrued
professional service fees
|
|
|
350,486 |
|
|
|
511,779 |
|
Accrued
compensation expense
|
|
|
207,245 |
|
|
|
227,803 |
|
Current
portion of obligations under capital lease
|
|
|
4,299 |
|
|
|
3,453 |
|
Other
accrued expenses
|
|
|
2,890 |
|
|
|
4,135 |
|
Total
current liabilities
|
|
|
1,432,104 |
|
|
|
2,882,034 |
|
|
|
|
|
|
|
|
|
|
Other
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, net of current portion
|
|
|
444,223 |
|
|
|
– |
|
Obligations
under capital lease, net of current portion
|
|
|
12,641 |
|
|
|
16,940 |
|
Accrued
retirement benefits
|
|
|
335,250 |
|
|
|
510,000 |
|
Deferred
rent
|
|
|
284,134 |
|
|
|
267,668 |
|
Deferred
revenue
|
|
|
5,200,000 |
|
|
|
5,200,000 |
|
Total
other liabilities
|
|
|
6,276,248 |
|
|
|
5,994,608 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
7,708,352 |
|
|
|
8,876,642 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficiency):
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value. Authorized and unissued, 1,000,000
shares at July 31, 2009 and 2008
|
|
|
– |
|
|
|
– |
|
Common
stock $.001 par value. Authorized 100,000,000 shares at July
31, 2009 and 2008; issued and outstanding 47,313,880 shares and 47,276,880
shares at July 31, 2009 and 2008, respectively
|
|
|
47,314 |
|
|
|
47,277 |
|
Capital
in excess of par value
|
|
|
101,734,572 |
|
|
|
100,788,973 |
|
Deficit
accumulated during development stage
|
|
|
(108,932,252 |
) |
|
|
(104,392,856 |
) |
Total
stockholders’ equity (deficiency)
|
|
|
(7,150,366 |
) |
|
|
(3,556,606 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficiency)
|
|
$ |
557,986 |
|
|
$ |
5,320,036 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Operations
Years
ended July 31, 2009, 2008 and 2007
and the
Period from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981
(date
of
inception)
to
July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
553,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
336,495 |
|
Research
and development
|
|
|
3,268,348 |
|
|
|
8,503,110 |
|
|
|
5,543,175 |
|
|
|
72,581,880 |
|
General
and administrative
|
|
|
2,431,121 |
|
|
|
5,797,355 |
|
|
|
4,092,990 |
|
|
|
40,963,889 |
|
Total
operating expenses
|
|
|
5,699,469 |
|
|
|
14,300,465 |
|
|
|
9,636,165 |
|
|
|
113,882,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,699,469 |
) |
|
|
(14,300,465 |
) |
|
|
(9,636,165 |
) |
|
|
(113,328,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
25,633 |
|
|
|
227,591 |
|
|
|
370,650 |
|
|
|
2,302,081 |
|
Other
income
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
99,939 |
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
parties
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,147,547 |
) |
Others
|
|
|
(5,427 |
) |
|
|
(3,607 |
) |
|
|
(96 |
) |
|
|
(2,883,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before state tax benefit
|
|
|
(5,679,263 |
) |
|
|
(14,076,481 |
) |
|
|
(9,265,611 |
) |
|
|
(114,957,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
tax benefit
|
|
|
1,139,867 |
|
|
|
1,755,380 |
|
|
|
510,467 |
|
|
|
6,025,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
|
$ |
(108,932,252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per basic and diluted common share
|
|
$ |
(0.10 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic and diluted
|
|
|
47,313,000 |
|
|
|
46,919,000 |
|
|
|
44,958,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency)
Period
from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
Capital
In
Excess
of par
Value
|
|
Common
Stock
to be
Issued
|
|
Deficit
Accumulated
During
Development
Stage
|
|
Subscription
Receivable
|
|
Deferred
compensation, restricted stock
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
Issuance
of shares to officers and stockholders for equipment, research and
development, and expense reimbursement
|
|
|
712,500 |
|
$ |
713 |
|
$ |
212,987 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
213,700 |
|
Issuance
of shares for organizational legal service
|
|
|
50,000 |
|
|
50 |
|
|
4,950 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,000 |
|
Sale
of shares for cash, net
|
|
|
82,143 |
|
|
82 |
|
|
108,418 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
108,500 |
|
Adjustment
for 3 for 2 stock split declared September 8, 1982
|
|
|
422,321 |
|
|
422 |
|
|
(422 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(121,486 |
) |
|
— |
|
|
— |
|
|
(121,486 |
) |
Balance
at July 31, 1982
|
|
|
1,266,964 |
|
|
1,267 |
|
|
325,933 |
|
|
— |
|
|
(121,486 |
) |
|
— |
|
|
— |
|
|
205,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for equipment
|
|
|
15,000 |
|
|
15 |
|
|
13,985 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,000 |
|
Sale
of shares to private investors
|
|
|
44,196 |
|
|
44 |
|
|
41,206 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
41,250 |
|
Sale
of shares in public offering, net
|
|
|
660,000 |
|
|
660 |
|
|
1,307,786 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,308,446 |
|
Issuance
of shares under stock grant program
|
|
|
20,000 |
|
|
20 |
|
|
109,980 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
110,000 |
|
Exercise
of warrants, net
|
|
|
1,165 |
|
|
1 |
|
|
3,494 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,495 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(558,694 |
) |
|
— |
|
|
— |
|
|
(558,694 |
) |
Balance
at July 31, 1983
|
|
|
2,007,325 |
|
|
2,007 |
|
|
1,802,384 |
|
|
— |
|
|
(680,180 |
) |
|
— |
|
|
— |
|
|
1,124,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants, net
|
|
|
287,566 |
|
|
287 |
|
|
933,696 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
933,983 |
|
Issuance
of shares under stock grant program
|
|
|
19,750 |
|
|
20 |
|
|
101,199 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
101,219 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
130,250 |
|
|
131 |
|
|
385,786 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
385,917 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,421,083 |
) |
|
— |
|
|
— |
|
|
(1,421,083 |
) |
Balance
at July 31, 1984
|
|
|
2,444,891 |
|
|
2,445 |
|
|
3,223,065 |
|
|
— |
|
|
(2,101,263 |
) |
|
— |
|
|
— |
|
|
1,124,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares under stock grant program
|
|
|
48,332 |
|
|
48 |
|
|
478,057 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
478,105 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
99,163 |
|
|
99 |
|
|
879,379 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
879,478 |
|
Shares
canceled
|
|
|
(42,500 |
) |
|
(42 |
) |
|
(105,783 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(105,825 |
) |
Exercise
of warrants, net
|
|
|
334,957 |
|
|
335 |
|
|
1,971,012 |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
1,971,347 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,958,846 |
) |
|
— |
|
|
— |
|
|
(2,958,846 |
) |
Balance
at July 31, 1985
|
|
|
2,884,843 |
|
|
2,885 |
|
|
6,445,730 |
|
|
— |
|
|
(5,060,109 |
) |
|
— |
|
|
— |
|
|
1,388,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares under stock grant program
|
|
|
11,250 |
|
|
12 |
|
|
107,020 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
107,032 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
15,394 |
|
|
15 |
|
|
215,385 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
215,400 |
|
Exercise
of warrants, net
|
|
|
21,565 |
|
|
21 |
|
|
80,977 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
80,998 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,138,605 |
) |
|
— |
|
|
— |
|
|
(2,138,605 |
) |
Balance
at July 31, 1986 (carried forward)
|
|
|
2,933,052 |
|
|
2,933 |
|
|
6,849,112 |
|
|
— |
|
|
(7,198,714 |
) |
|
— |
|
|
— |
|
|
(346,669 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
Capital
In
Excess
of par
Value
|
|
Common
Stock
to be
Issued
|
|
Deficit
Accumulated
During
Development
Stage
|
|
Subscription
Receivable
|
|
Deferred
compensation, restricted stock
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 1986 (brought forward)
|
|
|
2,933,052 |
|
$ |
2,933 |
|
$ |
6,849,112 |
|
$ |
— |
|
$ |
(7,198,714 |
) |
$ |
— |
|
$ |
— |
|
$ |
(346,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants, net
|
|
|
14,745 |
|
|
15 |
|
|
147,435 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
147,450 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
5,000 |
|
|
5 |
|
|
74,995 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
75,000 |
|
Issuance
of shares for services
|
|
|
250,000 |
|
|
250 |
|
|
499,750 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
500,000 |
|
Sale
of shares to private investors, net
|
|
|
5,000 |
|
|
5 |
|
|
24,995 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25,000 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,604,619 |
) |
|
— |
|
|
— |
|
|
(2,604,619 |
) |
Balance
at July 31, 1987
|
|
|
3,207,797 |
|
|
3,208 |
|
|
7,596,287 |
|
|
— |
|
|
(9,803,333 |
) |
|
— |
|
|
— |
|
|
(2,203,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for legal and consulting services
|
|
|
206,429 |
|
|
207 |
|
|
724,280 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
724,487 |
|
Issuance
of shares under employment incentive program
|
|
|
700,000 |
|
|
700 |
|
|
2,449,300 |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,450,000 |
) |
|
— |
|
Issuance
of shares under stock grant program
|
|
|
19,000 |
|
|
19 |
|
|
66,481 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
66,500 |
|
Exercise
of options, net
|
|
|
170,000 |
|
|
170 |
|
|
509,830 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
510,000 |
|
Issuance
of shares for litigation settlement
|
|
|
12,500 |
|
|
12 |
|
|
31,125 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
31,137 |
|
Exercise
of warrants, net
|
|
|
63,925 |
|
|
64 |
|
|
451,341 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
451,405 |
|
Sale
of shares to private investors
|
|
|
61,073 |
|
|
61 |
|
|
178,072 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
178,133 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
449,167 |
|
|
449,167 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,272,773 |
) |
|
— |
|
|
— |
|
|
(3,272,773 |
) |
Balance
at July 31, 1988
|
|
|
4,440,724 |
|
|
4,441 |
|
|
12,006,716 |
|
|
— |
|
|
(13,076,106 |
) |
|
— |
|
|
(2,000,833 |
) |
|
(3,065,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for litigation settlement
|
|
|
135,000 |
|
|
135 |
|
|
1,074,703 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,074,838 |
|
Conversion of
debentures, net
|
|
|
133,333 |
|
|
133 |
|
|
399,867 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
400,000 |
|
Sale
of shares to private investors
|
|
|
105,840 |
|
|
106 |
|
|
419,894 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
420,000 |
|
Exercise
of options, net
|
|
|
1,000 |
|
|
1 |
|
|
3,499 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,500 |
|
Issuance
of shares under employment agreement
|
|
|
750,000 |
|
|
750 |
|
|
3,749,250 |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,750,000 |
) |
|
— |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
30,000 |
|
|
30 |
|
|
149,970 |
|
|
— |
|
|
— |
|
|
— |
|
|
(150,000 |
) |
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,050,756 |
|
|
1,050,756 |
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,952,869 |
) |
|
— |
|
|
— |
|
|
(2,952,869 |
) |
Balance
at July 31, 1989
|
|
|
5,595,897 |
|
|
5,596 |
|
|
17,803,899 |
|
|
— |
|
|
(16,028,975 |
) |
|
— |
|
|
(4,850,077 |
) |
|
(3,069,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for legal and consulting services
|
|
|
52,463 |
|
|
52 |
|
|
258,725 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
258,777 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
56,000 |
|
|
56 |
|
|
335,944 |
|
|
— |
|
|
— |
|
|
— |
|
|
(336,000 |
) |
|
— |
|
Sale
of shares for litigation settlement
|
|
|
50,000 |
|
|
50 |
|
|
351,067 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
351,117 |
|
Exercise
of options at, net
|
|
|
105,989 |
|
|
106 |
|
|
345,856 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
345,962 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors
|
|
|
89,480 |
|
|
$ |
90 |
|
|
$ |
354,990 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
355,080 |
|
Issuance
of shares under employment agreement
|
|
|
750,000 |
|
|
|
750 |
|
|
|
3,749,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,750,000 |
) |
|
|
— |
|
Conversion
of debentures, net
|
|
|
100,000 |
|
|
|
100 |
|
|
|
499,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,015,561 |
|
|
|
3,015,561 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,860,116 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,860,116 |
) |
Balance
at July 31, 1990
|
|
|
6,799,829 |
|
|
|
6,800 |
|
|
|
23,699,631 |
|
|
|
— |
|
|
|
(20,889,091 |
) |
|
|
— |
|
|
|
(5,920,516 |
) |
|
|
(3,103,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options, net
|
|
|
16,720 |
|
|
|
16 |
|
|
|
108,664 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108,680 |
|
Issuance
of shares for legal consulting services
|
|
|
87,000 |
|
|
|
87 |
|
|
|
358,627 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
358,714 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
119,000 |
|
|
|
119 |
|
|
|
475,881 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(476,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,891,561 |
|
|
|
2,891,561 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,202,302 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,202,302 |
) |
Balance
at July 31, 1991
|
|
|
7,022,549 |
|
|
|
7,022 |
|
|
|
24,642,803 |
|
|
|
— |
|
|
|
(26,091,393 |
) |
|
|
— |
|
|
|
(3,504,955 |
) |
|
|
(4,946,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options at, net
|
|
|
1,000 |
|
|
|
1 |
|
|
|
3,499 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,500 |
|
Sale
of shares to private investors
|
|
|
70,731 |
|
|
|
71 |
|
|
|
219,829 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219,900 |
|
Conversion
of debentures, net
|
|
|
94,000 |
|
|
|
94 |
|
|
|
469,906 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
470,000 |
|
Issuance
of shares for services
|
|
|
45,734 |
|
|
|
46 |
|
|
|
156,944 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
156,990 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
104,000 |
|
|
|
104 |
|
|
|
285,896 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(286,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,046,726 |
|
|
|
3,046,726 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,772,826 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,772,826 |
) |
Balance
at July 31, 1992
|
|
|
7,338,014 |
|
|
|
7,338 |
|
|
|
25,778,877 |
|
|
|
— |
|
|
|
(30,864,219 |
) |
|
|
— |
|
|
|
(744,229 |
) |
|
|
(5,822,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors
|
|
|
352,667 |
|
|
|
353 |
|
|
|
735,147 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
735,500 |
|
Issuance
of shares for legal services
|
|
|
49,600 |
|
|
|
50 |
|
|
|
132,180 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
132,230 |
|
Issuance
of shares for services
|
|
|
5,000 |
|
|
|
5 |
|
|
|
9,995 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
117,000 |
|
|
|
117 |
|
|
|
233,883 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(234,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
664,729 |
|
|
|
664,729 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,357,350 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,357,350 |
) |
Balance
at July 31, 1993
|
|
|
7,862,281 |
|
|
|
7,863 |
|
|
|
26,890,082 |
|
|
|
— |
|
|
|
(33,221,569 |
) |
|
|
— |
|
|
|
(323,500 |
) |
|
|
(6,647,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debentures, net
|
|
|
425,400 |
|
|
|
425 |
|
|
|
1,701,575 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,702,000 |
|
Sale
of shares to private investors, net
|
|
|
743,000 |
|
|
|
743 |
|
|
|
1,710,048 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,710,791 |
|
Conversion
of short-term borrowings
|
|
|
72,800 |
|
|
|
73 |
|
|
|
181,927 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
182,000 |
|
Issuance
of shares for services
|
|
|
16,200 |
|
|
|
16 |
|
|
|
43,334 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,350 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders’ Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares under the 1989 Stock Plan, for services
|
|
|
5,000 |
|
|
$ |
5 |
|
|
$ |
14,995 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,000 |
|
Issuance
of options to related parties upon conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued
interest, payroll and expenses
|
|
|
— |
|
|
|
— |
|
|
|
3,194,969 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,194,969 |
|
Repurchase
of stock options from related party
|
|
|
— |
|
|
|
— |
|
|
|
(198,417 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(198,417 |
) |
Issuance
of options upon conversion of accrued interest
|
|
|
— |
|
|
|
— |
|
|
|
142,441 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
142,441 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
265,000 |
|
|
|
265,000 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,234,428 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,234,428 |
) |
Balance
at July 31, 1994
|
|
|
9,124,681 |
|
|
|
9,125 |
|
|
|
33,680,954 |
|
|
|
50,000 |
|
|
|
(35,455,997 |
) |
|
|
— |
|
|
|
(58,500 |
) |
|
|
(1,774,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
961,000 |
|
|
|
961 |
|
|
|
2,023,241 |
|
|
|
(50,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,974,202 |
|
Conversion
of short-term borrowings
|
|
|
17,600 |
|
|
|
17 |
|
|
|
43,983 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,000 |
|
Issuance
of shares for services
|
|
|
30,906 |
|
|
|
31 |
|
|
|
77,234 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
77,265 |
|
Exercise
of options, net
|
|
|
185,000 |
|
|
|
185 |
|
|
|
437,015 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
437,200 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
339,008 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
339,008 |
|
Common
stock to be issued, for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,800 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,500 |
|
|
|
58,500 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,993,123 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,993,123 |
) |
Balance
at July 31, 1995
|
|
|
10,319,187 |
|
|
|
10,319 |
|
|
|
36,262,427 |
|
|
|
343,808 |
|
|
|
(37,449,120 |
) |
|
|
— |
|
|
|
— |
|
|
|
(832,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
2,953,327 |
|
|
|
2,953 |
|
|
|
8,969,655 |
|
|
|
(339,008 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,633,600 |
|
Issuance
of shares for services
|
|
|
19,995 |
|
|
|
20 |
|
|
|
70,858 |
|
|
|
(4,800 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66,078 |
|
Exercise
of options, net
|
|
|
566,700 |
|
|
|
567 |
|
|
|
1,657,633 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,658,200 |
|
Sale
of warrants
|
|
|
— |
|
|
|
— |
|
|
|
12,084 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,084 |
|
Issuance
of options/warrants for services
|
|
|
— |
|
|
|
— |
|
|
|
50,872 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,872 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258,335 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258,335 |
|
Subscription
receivable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(254,185 |
) |
|
|
— |
|
|
|
(254,185 |
) |
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,942,152 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,942,152 |
) |
Balance
at July 31, 1996
|
|
|
13,859,209 |
|
|
|
13,859 |
|
|
|
47,023,529 |
|
|
|
258,335 |
|
|
|
(40,391,272 |
) |
|
|
(254,185 |
) |
|
|
— |
|
|
|
6,650,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
112,000 |
|
|
|
112 |
|
|
|
503,888 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
504,000 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
76,504 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76,504 |
|
Exercise
of options, net
|
|
|
729,134 |
|
|
|
729 |
|
|
|
2,620,359 |
|
|
|
(258,335 |
) |
|
|
— |
|
|
|
254,185 |
|
|
|
— |
|
|
|
2,616,938 |
|
Exercise
of warrants, net
|
|
|
147,450 |
|
|
|
148 |
|
|
|
737,102 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
737,250 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,018,867 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,018,867 |
) |
Balance
at July 31, 1997 (carried forward)
|
|
|
14,847,793 |
|
|
|
14,848 |
|
|
|
50,961,382 |
|
|
|
— |
|
|
|
(45,410,139 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,566,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 1997 (brought forward)
|
|
|
14,847,793 |
|
|
$ |
14,848 |
|
|
$ |
50,961,382 |
|
|
$ |
— |
|
|
$ |
(45,410,139 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,566,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
2,337,150 |
|
|
|
2,337 |
|
|
|
4,199,877 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,202,214 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
199,954 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
199,954 |
|
Exercise
of warrants, net
|
|
|
4,950 |
|
|
|
5 |
|
|
|
11,080 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,085 |
|
Issuance
of shares for services, net
|
|
|
50,000 |
|
|
|
50 |
|
|
|
99,950 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,387,506 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,387,506 |
) |
Balance
at July 31, 1998
|
|
|
17,239,893 |
|
|
|
17,240 |
|
|
|
55,472,243 |
|
|
|
— |
|
|
|
(51,797,645 |
) |
|
|
— |
|
|
|
— |
|
|
|
3,691,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
205,593 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
205,593 |
|
Issuance
of shares for services, net
|
|
|
46,701 |
|
|
|
46 |
|
|
|
16,359 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,405 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,156,636 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,156,636 |
) |
Balance
at July 31, 1999
|
|
|
17,286,594 |
|
|
|
17,286 |
|
|
|
55,694,195 |
|
|
|
— |
|
|
|
(54,954,281 |
) |
|
|
— |
|
|
|
— |
|
|
|
757,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
875,000 |
|
|
|
875 |
|
|
|
547,417 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
548,292 |
|
Exercise
of options, net
|
|
|
95,000 |
|
|
|
95 |
|
|
|
45,755 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45,850 |
|
Issuance
of shares for services, net
|
|
|
174,965 |
|
|
|
175 |
|
|
|
92,009 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
92,184 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
146,912 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
146,912 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,722,298 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,722,298 |
) |
Balance
at July 31, 2000
|
|
|
18,431,559 |
|
|
|
18,431 |
|
|
|
56,526,288 |
|
|
|
— |
|
|
|
(56,676,579 |
) |
|
|
— |
|
|
|
— |
|
|
|
(131,860 |
) |
Sale
of shares to private investors, net
|
|
|
863,331 |
|
|
|
863 |
|
|
|
955,561 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
956,424 |
|
Exercise
of options, net
|
|
|
165,555 |
|
|
|
166 |
|
|
|
83,565 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
83,731 |
|
Issuance
of shares for services, net
|
|
|
11,800 |
|
|
|
12 |
|
|
|
10,018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,030 |
|
Exercise
of convertible debentures, net
|
|
|
330,000 |
|
|
|
330 |
|
|
|
296,670 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
297,000 |
|
Issuance
of warrants with convertible debt
|
|
|
— |
|
|
|
— |
|
|
|
178,807 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
178,807 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
160,426 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,426 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,294,936 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,294,936 |
) |
Balance
at July 31, 2001
|
|
|
19,802,245 |
|
|
|
19,802 |
|
|
|
58,211,335 |
|
|
|
— |
|
|
|
(58,971,515 |
) |
|
|
— |
|
|
|
— |
|
|
|
(740,378 |
) |
Sale
of shares to private investors, net
|
|
|
2,622,122 |
|
|
|
2,623 |
|
|
|
1,047,925 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,050,548 |
|
Exercise
of stock options and warrants
|
|
|
186,000 |
|
|
|
186 |
|
|
|
92,814 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
93,000 |
|
Issuance
of shares for services, net
|
|
|
78,340 |
|
|
|
78 |
|
|
|
64,048 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,126 |
|
Exercise
of convertible debentures, net
|
|
|
72,214 |
|
|
|
72 |
|
|
|
64,921 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,993 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
173,436 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
173,436 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,591,162 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,591,162 |
) |
Balance
at July 31, 2002 (carried forward)
|
|
|
22,760,921 |
|
|
|
22,761 |
|
|
|
59,654,479 |
|
|
|
— |
|
|
|
(61,562,677 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,885,437 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2002 (brought forward)
|
|
|
22,760,921 |
|
|
$ |
22,761 |
|
|
$ |
59,654,479 |
|
|
$ |
— |
|
|
$ |
(61,562,677 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,885,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
1,315,000 |
|
|
|
1,315 |
|
|
|
652,312 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
653,627 |
|
Exercise
of stock options and warrants
|
|
|
764,000 |
|
|
|
764 |
|
|
|
376,896 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
377,660 |
|
Issuance
of shares for payment of accounts payable
|
|
|
186,208 |
|
|
|
186 |
|
|
|
94,037 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
94,223 |
|
Issuance
of options for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
75,521 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75,521 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
10,038 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,038 |
|
Issuance
of warrants in connection with debt issuances
|
|
|
— |
|
|
|
— |
|
|
|
594,219 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
594,219 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,411,532 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,411,532 |
) |
Balance
at July 31, 2003
|
|
|
25,026,129 |
|
|
|
25,026 |
|
|
|
61,457,502 |
|
|
|
— |
|
|
|
(63,974,209 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,491,681 |
) |
Sale
of shares to private investors, net
|
|
|
3,035,200 |
|
|
|
3,036 |
|
|
|
10,732,942 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,735,978 |
|
Exercise
of stock options and warrants
|
|
|
3,100,160 |
|
|
|
3,100 |
|
|
|
4,155,397 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,158,497 |
|
Issuance
of shares for payment of accounts payable
|
|
|
14,703 |
|
|
|
15 |
|
|
|
52,161 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,176 |
|
Issuance
of shares for conversion of subordinated debentures
|
|
|
3,042,817 |
|
|
|
3,043 |
|
|
|
924,829 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
927,872 |
|
Issuance
of shares for services rendered
|
|
|
128,876 |
|
|
|
128 |
|
|
|
288,372 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
288,500 |
|
Issuance
of options for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
280,612 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
280,612 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,070,307 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,070,307 |
) |
Balance
at July 31, 2004
|
|
|
34,347,885 |
|
|
|
34,348 |
|
|
|
77,891,815 |
|
|
|
— |
|
|
|
(69,044,516 |
) |
|
|
— |
|
|
|
— |
|
|
|
8,881,647 |
|
Exercise
of stock options and warrants, net
|
|
|
438,372 |
|
|
|
438 |
|
|
|
306,717 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
307,155 |
|
Issuance
of shares and warrants for conversion of subordinated
debentures
|
|
|
1,744,978 |
|
|
|
1,745 |
|
|
|
462,754 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
464,499 |
|
Issuance
of shares for services rendered
|
|
|
3,000 |
|
|
|
3 |
|
|
|
13,497 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,500 |
|
Issuance
of options and warrants for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
16,789 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,789 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,461,920 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,461,920 |
) |
Balance
at July 31, 2005
|
|
|
36,534,235 |
|
|
|
36,534 |
|
|
|
78,691,572 |
|
|
|
— |
|
|
|
(75,506,436 |
) |
|
|
— |
|
|
|
— |
|
|
|
3,221,670 |
|
Sale
of shares to private investors, net
|
|
|
6,632,099 |
|
|
|
6,632 |
|
|
|
10,977,288 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,983,920 |
|
Exercise
of stock options and warrants, net
|
|
|
1,122,827 |
|
|
|
1,123 |
|
|
|
1,347,201 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,348,324 |
|
Issuance
of stock options and warrants for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
1,489,264 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,489,264 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,810,175 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,810,175 |
) |
Balance
at July 31, 2006 (carried forward)
|
|
|
44,289,161 |
|
|
|
44,289 |
|
|
|
92,505,325 |
|
|
|
— |
|
|
|
(83,316,611 |
) |
|
|
— |
|
|
|
— |
|
|
|
9,233,003 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2006 (brought forward)
|
|
|
44,289,161 |
|
|
$ |
44,289 |
|
|
$ |
92,505,325 |
|
|
$ |
— |
|
|
$ |
(83,316,611 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,233,003 |
|
Sale
of shares to private investors, net
|
|
|
553,360 |
|
|
|
553 |
|
|
|
1,368,104 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,368,657 |
|
Exercise
of stock options and warrants, net
|
|
|
1,438,359 |
|
|
|
1,439 |
|
|
|
1,504,261 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,505,700 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
2,426,264 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,426,264 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,755,144 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,755,144 |
) |
Balance
at July 31, 2007
|
|
|
46,280,880 |
|
|
|
46,281 |
|
|
|
97,803,954 |
|
|
|
— |
|
|
|
(92,071,755 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,778,480 |
|
Exercise
of stock options and warrants, net
|
|
|
996,000 |
|
|
|
996 |
|
|
|
686,044 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
687,040 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
2,298,975 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,298,975 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,321,101 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,321,101 |
) |
Balance
at July 31, 2008
|
|
|
47,276,880 |
|
|
|
47,277 |
|
|
|
100,788,973 |
|
|
|
— |
|
|
|
(104,392,856 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,556,606 |
) |
Exercise
of stock options and warrants, net
|
|
|
37,000 |
|
|
|
37 |
|
|
|
13,183 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,220 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
932,416 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
932,416 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,539,396 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,539,396 |
) |
Balance
at July 31, 2009
|
|
|
47,313,880 |
|
|
$ |
47,314 |
|
|
$ |
101,734,572 |
|
|
$ |
— |
|
|
$ |
(108,932,252 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(7,150,366 |
) |
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows
Years
ended July 31, 2009, 2008 and 2007
and the
Period from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981 (date of inception) to
July
31, 2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
|
$ |
(108,932,252 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of marketable equity securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(25,963 |
) |
Depreciation
and amortization
|
|
|
35,103 |
|
|
|
51,451 |
|
|
|
39,063 |
|
|
|
1,745,594 |
|
Loss
on disposal of property and equipment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,926 |
|
Loss
on lease termination
|
|
|
-- |
|
|
|
-- |
|
|
|
30,964 |
|
|
|
30,964 |
|
Stock-based
compensation expense
|
|
|
932,416 |
|
|
|
2,298,975 |
|
|
|
2,426,264 |
|
|
|
13,863,932 |
|
Amortization
of deferred rent
|
|
|
16,466 |
|
|
|
155,549 |
|
|
|
14,155 |
|
|
|
186,170 |
|
Amortization
of debt discount
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
594,219 |
|
Amortization
of deferred compensation
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,442,000 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid
expenses
|
|
|
110,765 |
|
|
|
(15,052 |
) |
|
|
(83,117 |
) |
|
|
(114,361 |
) |
Decrease (increase) in loans
receivable, related party
|
|
|
-- |
|
|
|
180,397 |
|
|
|
(9,527 |
) |
|
|
96,051 |
|
Decrease (increase) in other
assets
|
|
|
83,720 |
|
|
|
35,000 |
|
|
|
(385,000 |
) |
|
|
(266,280 |
) |
Increase in loans and interest
payable, related party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
744,539 |
|
(Decrease) increase in accounts
payable
|
|
|
(400,982 |
) |
|
|
819,692 |
|
|
|
(853,384 |
) |
|
|
1,358,131 |
|
Increase in accrued payroll and
expenses, related parties
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,348,145 |
|
(Decrease) increase in accrued
retirement benefits
|
|
|
(94,308 |
) |
|
|
612,000 |
|
|
|
-- |
|
|
|
517,692 |
|
(Decrease) increase in accrued
expenses
|
|
|
(686,013 |
) |
|
|
126,988 |
|
|
|
89,859 |
|
|
|
1,556,973 |
|
Increase in deferred
revenue
|
|
|
-- |
|
|
|
5,100,000 |
|
|
|
100,000 |
|
|
|
5,200,000 |
|
Net cash used in operating
activities
|
|
|
(4,542,229 |
) |
|
|
(2,956,101 |
) |
|
|
(7,385,867 |
) |
|
|
(69,635,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of marketable equity securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(290,420 |
) |
Purchase
of short-term investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,993,644 |
) |
Proceeds
from sale of marketable equity securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
316,383 |
|
Proceeds
from sale of short-term investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,993,644 |
|
Capital
expenditures
|
|
|
-- |
|
|
|
(34,070 |
) |
|
|
(38,858 |
) |
|
|
(1,605,066 |
) |
Patent
costs
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(97,841 |
) |
Net cash used in investing
activities
|
|
|
-- |
|
|
|
(34,070 |
) |
|
|
(38,858 |
) |
|
|
(1,676,944 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows, Continued
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981 (date of inception) to
July
31, 2009
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term
borrowings
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
874,500 |
|
Payment of short-term
borrowings
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(653,500 |
) |
Increase in loans payable,
related party, net
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,628,868 |
|
Proceeds from bank debt and
other long-term debt, net of deferred debt costs
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,667,460 |
|
Reduction of bank debt and
long-term debt
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,966,568 |
) |
Payment of capital lease
obligation
|
|
|
(3,453 |
) |
|
|
(3,385 |
) |
|
|
-- |
|
|
|
(6,838 |
) |
Proceeds from issuance of common
stock, net
|
|
|
-- |
|
|
|
-- |
|
|
|
1,368,657 |
|
|
|
53,102,893 |
|
Proceeds from exercise of stock
options and warrants, net
|
|
|
13,220 |
|
|
|
687,040 |
|
|
|
1,505,700 |
|
|
|
14,080,850 |
|
Proceeds from issuance of
convertible debentures, related party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
297,000 |
|
Proceeds from issuance of
convertible debentures, unrelated party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
416,993 |
|
Net cash provided by financing
activities
|
|
|
9,767 |
|
|
|
683,655 |
|
|
|
2,874,357 |
|
|
|
71,441,658 |
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(4,532,462 |
) |
|
|
(2,306,516 |
) |
|
|
(4,550,368 |
) |
|
|
129,194 |
|
Cash
and cash equivalents at beginning of period
|
|
|
4,661,656 |
|
|
|
6,968,172 |
|
|
|
11,518,540 |
|
|
|
-- |
|
Cash
and cash equivalents at end of period
|
|
$ |
129,194 |
|
|
$ |
4,661,656 |
|
|
$ |
6,968,172 |
|
|
$ |
129,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information – interest paid
|
|
$ |
5,427 |
|
|
$ |
3,607 |
|
|
$ |
96 |
|
|
$ |
1,723,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible
subordinated debenture for loan payable to officer
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,725,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon the conversion of convertible subordinated
debentures, related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,242,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of short-term
borrowings to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
226,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accrued
interest, payroll and expenses by related parties to stock
options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,194,969 |
|
Repurchase of stock options from related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(198,417 |
) |
Conversion of accrued interest
to stock options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
142,441 |
|
Conversions of accounts payable to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
506,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows, Continued
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981 (date of inception) to
July
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable, bank and accrued interest to long-term
debt
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,699,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of loans and interest payable, related party and accrued payroll and
expenses, related parties to long-term accrued payroll and other, related
party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,863,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants upon the conversion of convertible
subordinated debentures and accrued interest, other
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,584,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services rendered
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
incentive allowance
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
67,000 |
|
|
$ |
67,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants with notes payable
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
594,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment through capital lease obligation
|
|
$ |
- |
|
|
$ |
23,778 |
|
|
$ |
- |
|
|
$ |
23,778 |
|
See
accompanying notes to financial statements.
Notes to
Financial Statements
Years
ended July 31, 2009, 2008 and 2007
and the
Period From August 24, 1981
(Date of
Inception) to July 31, 2009
(1) Summary of Significant
Accounting Policies
Business
Description
Alfacell
Corporation (the "Company") was incorporated in Delaware on August 24, 1981 for
the purpose of engaging in the discovery, investigation and development of a new
class of anti-cancer drugs and anti-viral agents. The Company is a
development stage company as defined in Statement of Financial Accounting
Standards No. 7. The Company is devoting substantially all of its
present efforts to establishing its business. Its planned principal
operations have not commenced and, accordingly, no significant revenue has been
derived therefrom.
The
Company is engaged in the research, development, and commercialization of drugs
for the treatment of various forms of cancer and other life threatening
diseases. As of July 31, 2009, the Company is pursuing various
available strategic alternatives to raise additional funds. The
Company plans to continue the further development of its drug product
candidates, which requires substantial capital for research, product
development, and market development activities. The Company has not
yet initiated marketing of a commercial drug product. Future product development
will require clinical testing, regulatory approval, and substantial additional
investment prior to commercialization. The future success of the
Company is dependent on its ability to make progress in the development of its
drug product candidates and, ultimately, upon its ability to attain future
profitable operations through the successful manufacturing and marketing of
those drug product candidates. There can be no assurance that the
Company will be able to obtain the necessary financing or regulatory approvals
to be able to successfully develop, manufacture, and market its products, or
attain successful future operations. Accordingly, the Company’s
future success is uncertain.
In
addition, uncertainty exists as to the Company’s ability to protect its rights
to patents and its proprietary information. There can also be no
assurance that research and discoveries by others will not render some or all of
the Company’s technology or drug product candidates noncompetitive or obsolete.
Nor can there be any assurance that unforeseen problems will not develop with
the Company’s technologies or applications, or that the Company will be able to
address successfully technological challenges it encounters in its research and
development programs. While the Company maintains insurance to cover the use of
its drug product candidates in clinical trials, it does not maintain insurance
covering the sale of its products nor is there any assurance that it will be
able to obtain or maintain such insurance on acceptable terms or with adequate
coverage against potential liabilities.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those
estimates.
Cash
Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The carrying value of
these investments approximates their fair market value due to their short
maturity and liquidity. The Company maintains cash deposits with
banks that at times exceed applicable insurance limits.
Property
and Equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the respective
assets. Maintenance and repairs that do not extend the life of assets
are charged to expense when incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in operations for
the period in which the transaction takes place. Total depreciation
and amortization expense for the years ended July 31, 2009, 2008 and 2007, was
$35,103, $51,451, and $39,063, respectively.
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
cash flows expected to be generated by the asset. If the carrying
amount exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount exceeds the fair value of
the asset.
Other
Assets
Other
assets consist of the following:
|
|
2009
|
|
|
2008
|
|
Lease
security deposit held by a bank as collateral for a standby letter of
credit in favor of the Company. The cash held by the bank is
restricted as to use for the term of the standby letter of
credit.
|
|
$ |
266,280 |
|
|
$ |
350,000 |
|
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. 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 and operating loss and tax credit
carryforwards. 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. Management provides valuation allowances against the
deferred tax assets for amounts which are not considered “more likely than not”
to be realized.
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 104, “Revenue Recognition” issued by the staff of the SEC. Under
SAB No. 104, revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred and/or services have been rendered, the sales
price is fixed or determinable, and collectibility is reasonably
assured.
The
Company enters into marketing and distribution agreements, which contain
multiple deliverables. Under the provisions of Emerging Issues Task
Force (“EITF”) No. 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables”, the Company evaluates whether these deliverables
constitute separate units of accounting to which total arrangement consideration
is allocated. A deliverable qualifies as a separate unit of
accounting when the item delivered to the customer has standalone value, there
is objective and reliable evidence of fair value of items that have not been
delivered to the customer, and, if there is a general right of return for the
items delivered to the customer, delivery or performance of the undelivered
items is considered probable and substantially in the control of the
Company. Arrangement consideration is allocated to units of
accounting on a relative fair-value basis or the residual method if the Company
is unable to determine the fair value of all deliverables in the arrangement.
Consideration allocated to a unit of accounting is limited to the amount that is
not contingent upon future performance by the Company. Upon
determination of separate units of accounting and allocated consideration, the
general criteria for revenue recognition are applied to each unit of
accounting.
The
Company has entered into an agreement with USP Pharma Spolka Z.O.O. (USP) to
market, sell and distribute ONCONASE® in
Poland and other countries in Eastern Europe. The Company received a
$0.1 million upfront nonrefundable fee in July 2007 and is entitled to receive
future additional fees, milestone payments and royalties. USP is
responsible for all commercial costs in the territory. The Company
has agreed to provide or arrange for contract manufacture of a commercial supply
of ONCONASE® upon
receipt of marketing approval in the territory. The up-front
nonrefundable fee received by the Company will be recognized ratably as revenue
once the general criteria for revenue recognition has been met for the unit of
accounting to which the fee has been allocated.
In
January 2008, the Company entered into a marketing and distribution agreement
with BL&H Co. Ltd. for the commercialization of ONCONASE® in
Korea, Taiwan and Hong Kong. Under the agreement, the Company received a $0.1
million up-front fee and are eligible to receive additional cash milestones and
50% of net sales in the territory. The Company will be responsible for the
manufacture and supply of ONCONASE® to
BL&H, while BL&H will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
In
January 2008, the Company entered into a U.S. License Agreement for
ONCONASE® with
Par Pharmaceutical, Inc. (“Par”). Under the terms of the License
Agreement, Strativa Pharmaceuticals (“Strativa”), the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. The
Company retained all rights and obligations for product manufacturing, clinical
development and obtaining regulatory approvals, as well as all rights for those
non-U.S. jurisdictions in which the Company has not currently granted any such
rights or obligations to third parties. The Company received a cash
payment of $5 million upon the signing of the License Agreement and would have
been entitled to additional development and sales milestone payments and
double-digit royalties on net sales of ONCONASE®.
On
September 8, 2009, the Company and Par entered into a Termination and Mutual
Release Agreement (the “Termination Agreement”) pursuant to which the Company’s
License Agreement and Supply Agreement with Par were terminated. The License
Agreement was terminated and all rights under the license granted to Par revert
back to the Company under the Termination Agreement. Under the Supply
Agreement, the Company had agreed to supply all
of Par’s requirements for ONCONASE®. Pursuant to the
Termination Agreement, Par will be entitled to a royalty of 2% of net sales of
ONCONASE® or
any other ranpirnase product developed by the Company for use in the treatment
of cancer in the United States and its territories commencing with the first
sale of such product and terminating upon the later to occur of the 12th
anniversary of the first sale and the date of expiration of the last valid claim
of a pending application or issued patent owned or controlled by the Company
with respect to such product.
Research
and Development
Research
and development costs are expensed as incurred. These costs include,
among other things, consulting fees and costs related to the conduct of human
clinical trials. The Company also allocates indirect costs,
consisting primarily of operational costs for administering research and
development activities, to research and development expenses.
Share-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 123(R) (revised 2004), “Share-Based
Payment” (“SFAS 123(R)”), which amends SFAS 123. The new standard
requires all share-based payments, including stock option grants to employees,
to be recognized as an operating expense in the statement of
operations. The expense is recognized over the requisite service
period based on fair values measured on the date of grant. The
Company adopted SFAS 123(R) effective August 1, 2005 using the modified
prospective method and, accordingly, prior period amounts have not been
restated. Under the modified prospective method, the fair value of
all new stock options issued after July 31, 2005 and the unamortized fair value
of unvested outstanding stock options at August 1, 2005 are recognized as
expense as services are rendered.
Accounting
For Warrants Issued With Convertible Debt
The
Company accounts for the intrinsic value of beneficial conversion rights arising
from the issuance of convertible debt instruments with non-detachable conversion
rights that are in-the-money at the commitment date pursuant to the consensuses
of EITF Issue No. 98-5 and EITF Issue No. 00-27. Such value is
allocated to additional paid–in capital and the resulting debt discount is
charged to interest expense over the terms of the notes payable. Such
value is determined after first allocating an appropriate portion of the
proceeds received to warrants or any other detachable instruments included in
the exchange.
With
respect to its operating leases, the Company applies the provisions of FASB SFAS
No. 13 “Accounting for Leases” and FASB Technical Bulletin (“FTB”) 88-1 “Issues
Relating to Accounting for Leases”, recognizing rent expense on a straight-line
basis over the lease term due to escalating lease payments and landlord
incentives.
Contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Recoveries from other parties are recorded when realized.
Fair
Value of Financial Instruments
Financial
instruments consist primarily of cash and cash equivalents, accounts receivable,
and accounts payable. The carrying value of these financial
instruments approximates fair value due to the relative short term nature of
these investments.
Recent
Accounting Pronouncements
In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a company’s tax
return. The Company adopted FIN 48 and determined that it did not
have a material impact on its reported financial results.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
value. The Company adopted SFAS 159 as of August 1, 2008, and
determined that it did not have a material impact on its reported financial
results.
In June
2007, the FASB issued EITF Issue No. 07-03, “Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities,” (“EITF 07-03”). EITF 07-03 addresses the
diversity that exists with respect to the accounting for the nonrefundable
portion of a payment made by a research and development entity for future
research and development activities. The EITF concluded that an
entity must defer and capitalize nonrefundable advance payments made for
research and development activities and expense these amounts as the related
goods are delivered or the related services are performed. EITF 07-03
will be effective for interim or annual reporting periods in fiscal years
beginning after December 15, 2007. The Company adopted EITF
07-03 as of August 1, 2008, and determined that it did not have a material
impact on its reported financial results.
In
December 2007, the FASB issued SFAS No. 141(R) "Business Combinations" (“SFAS
141(R)”). This Statement establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective as of the beginning of a
company's fiscal year beginning after December 15, 2008. The Company
believes that this new pronouncement will not have a material impact on its
financial statements in future periods.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 does not require new fair value
measurements. The Company adopted SFAS 157 as of August 1, 2008, and
determined that it did not have a material impact on its reported financial
results.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-1,
“Application of FASB Statement No. 157 to SFAS Statement No. 13 and Other
Accounting Pronouncements that Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13”, (“FSP
157-1”). FSP 157-1 amends SFAS 157 to exclude SFAS 13 and other
accounting pronouncements that address fair value measurements for purposes of
lease classifications under SFAS 13. However, this scope exception
does not apply to assets acquired and liabilities assumed in a business
combination that are required to be measured at fair value under FASB Statement
No. 141, “Business Combinations”, or SFAS 141(R), regardless of whether those
assets and liabilities are related to leases. FSP 157-1 is effective
upon initial adoption of SFAS 157. The Company adopted SFAS 157 as of
August 1, 2008, and determined that it did not have a material impact on its
reported financial results.
In
February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date of FASB SFAS
No. 157”, (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS
157 for non financial assets and non financial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis at least annually. This delay is intended to allow
the FASB and constituents additional time to consider the effect of various
implementation issues that have arisen from the application of SFAS
157. The Company has reviewed FSP 157-2 and will wait to hear for
additional positions taken by the FASB before proceeding further.
In
October 2008 the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset when the Market for that Asset is not Active” (“FSP
157-3”). FSP 157-3 clarifies the application of FASB No. 157 in a
market that is not active and provides key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. This FSP shall become effective upon issuance. The Company
believes that this new pronouncement will not have a material impact on its
financial statements in future periods.
In May
2008, the FASB issued SFAS No. 162 “Hierarchy of GAAP”. This
statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with GAAP in the
United States. This statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with
GAAP”. The Company adopted SFAS 162 in November 2008 and determined
that it did not have a material impact on its reported financial
results.
In June
2008, the FASB issued EITF No. 07-05 “Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity’s Own Stock”, (“EITF
07-05”). EITF 07-05 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities.” EITF
07-05 is effective for fiscal years beginning after December 15, 2008 and early
adoption for an existing instrument is not permitted. The Company
does not expect that the adoption of EITF 07-05 will have a material impact on
its financial statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 establishes standards for reporting events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. It sets forth the period after the
balance sheet date during which a reporting entity’s management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in
its financial statements and the disclosures an entity should make about events
or transactions that occurred after the balance sheet date. This
statement is effective for interim and annual periods ending after June 15, 2009
and will be applied prospectively. The Company adopted the
provisions of SFAS 165 for the fiscal year ended July 31, 2009 and determined
that it did not have a material impact on its reported financial
results. The Company evaluated all events or transactions that
occurred after July 31, 2009 up through November 13, 2009, the date the Company
issued these financial statements. Please see Note 13 - Subsequent Events for
disclosures required by SFAS 165.
In June
2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles - A Replacement of
FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB
Accounting Standards Codification (“Codification”) as the single source of
authoritative generally accepted accounting principles in the United States of
America (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. SFAS 168 and the Codification are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. When effective, all non-SEC accounting and
reporting standards will be superseded. All other non-grandfathered
non-SEC accounting literature not included in the Codification will become
non-authoritative. After SFAS 168, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates,
which will serve only to: (a) update the Codification; (b) provide background
information about the guidance; and (c) provide the bases for conclusions on the
change(s) in the Codification. The Company does not expect that the
adoption of SFAS 168 will have a material impact on its financial
statements.
The
Company has reported net losses of $4,539,000, $12,321,000, and $8,755,000 and
negative cash flows from operating activities of $4,542,000, $2,956,000 and
$7,386,000 for the fiscal years ended July 31, 2009, 2008 and 2007,
respectively. As of July 31, 2009, the Company had net working
capital deficit of $1,248,000, and cash and cash equivalents of
$129,000. The loss from date of inception, August 24, 1981, to July
31, 2009 amounts to $108,932,000. Until and unless the Company’s
operations generate significant revenues and cash flow, the Company will attempt
to continue to fund operations from cash on hand and through the sources of
capital described below. The Company’s long-term continued operations
will depend on its ability to raise additional funds through various potential
sources such as equity and debt financing, convertible debentures, collaborative
agreements, strategic alliances, sale of tax benefits, revenues from the
commercial sale of ONCONASE®,
licensing of its proprietary RNase technology and its ability to realize
revenues from its technology and its drug candidates via out-licensing
agreements with other companies. The Company is also pursuing
available strategic alternatives which focuses on, but not be limited to,
strategic partnership transactions, and could include a possible sale of the
Company. Such additional funds and various alternatives may not
become available as the Company may need them or be available on terms
acceptable to the Company. Insufficient funds could require the
Company to delay, scale back, or eliminate one or more of its research and
development programs or to license third parties to commercialize drug product
candidates or technologies that the Company would otherwise seek to develop
without relinquishing its rights thereto. The Company expects that
its cash balances as of July 31, 2009, after taking into consideration the cash
infusion received in October 2009 (see Note 13 – Subsequent Events),
will be sufficient to support its activities through July 2010, based on its
reduced level of operations. There can be no assurance that the
Company will be able to raise the capital it needs on terms which are
acceptable, if at all. The Company may also obtain additional capital
through the exercise of outstanding options and warrants and the sale of its tax
benefit, although it cannot provide any assurance of such exercises or sale or
the amount of capital it will receive, if any.
The
Company’s audited financial statements for the fiscal year ended July 31, 2009,
were prepared under the assumption that the Company will continue its operations
as a going concern. Continued operations are dependent on the
Company’s ability to raise various sources of capital described
above. Such capital formation activities may not be available or may
not be available on reasonable terms. The Company’s financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.
(3) Net Loss Per Common
Share
The
following table sets forth the computation of basic and diluted net loss per
common share:
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
outstanding
|
|
|
47,313,000 |
|
|
|
46,919,000 |
|
|
|
44,958,000 |
|
Loss
per common share - basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Potentially
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
8,495,650 |
|
|
|
14,862,534 |
|
|
|
16,070,748 |
|
Stock
options
|
|
|
4,771,650 |
|
|
|
6,353,067 |
|
|
|
4,867,039 |
|
Total
potentially dilutive securities
|
|
|
13,267,300 |
|
|
|
21,215,601 |
|
|
|
20,937,787 |
|
As the
Company has incurred a net loss for all periods presented, basic and diluted per
common share amounts are the same, since the inclusion of all potentially
dilutive securities would be anti-dilutive.
(4)
|
Property and
Equipment
|
Property
and equipment, at cost, consists of the following at July 31:
|
|
2009
|
|
|
2008
|
|
Laboratory
equipment
|
|
$ |
276,202 |
|
|
$ |
276,202 |
|
Office
equipment
|
|
|
118,172 |
|
|
|
118,172 |
|
Leasehold
improvements
|
|
|
90,778 |
|
|
|
90,778 |
|
Less
accumulated depreciation and amortization
|
|
|
(377,134 |
) |
|
|
(342,031 |
) |
Property
and equipment, net
|
|
$ |
108,018 |
|
|
$ |
143,121 |
|
During
the fiscal year ended July 31, 2007, the Company wrote off the following fully
depreciated and unusable property and equipment:
|
|
Amount
|
|
|
Accumulated
Depreciation
|
|
Laboratory
equipment
|
|
$ |
505,869 |
|
|
$ |
505,869 |
|
Office
equipment
|
|
|
235,495 |
|
|
|
235,495 |
|
Leasehold
improvements
|
|
|
97,833 |
|
|
|
97,833 |
|
Total
|
|
$ |
839,197 |
|
|
$ |
839,197 |
|
(5) Stockholders'
Equity
On
September 1, 1981, the Company issued 712,500 shares of common stock (1,068,750
shares adjusted for the stock split on September 8, 1982) to officers and
stockholders in exchange for equipment, research and development services, stock
registration costs, reimbursement of expenses and other miscellaneous
services. The common stock issued for services was recorded at the
estimated fair value of services rendered based upon the Board of Directors'
determination and ratification of the value of services. Equipment
received in exchange for common stock was recorded at the transferor's
cost. Common stock issued for reimbursement of expenses was recorded
based upon expenses incurred. All values assigned for expenses and
services rendered were charged to operations except for stock registration
costs, which were charged against proceeds.
On July
30, 1982, the Company sold 82,143 shares of common stock (123,214 shares
adjusted to reflect the stock split on September 8, 1982) to a private investor
at a price of $1.40 per share, resulting in net proceeds to the Company of
approximately $108,500.
On
September 8, 1982, the Company declared a 3-for-2 stock split. Shares
previously issued by the Company were restated in accordance with the stock
split.
On
September 8, 1982, the Company issued 15,000 shares of common stock to an
officer and stockholder in exchange for equipment. The equipment
received in exchange for the common stock was recorded at the transferor's
cost.
On
November 1, 1982 and January 3, 1983, the Company sold 28,125 and 16,071 shares
of common stock, respectively, to private investors at $.93 per share, resulting
in net proceeds to the Company of approximately $41,250.
On
January 17, 1983, the Company sold 660,000 shares of its common stock and
330,000 common stock purchase warrants in a public offering at a price of $2.50
per share, resulting in net proceeds to the Company of approximately
$1,308,446. The warrants were to expire 12 months after issuance;
however, the Company extended the expiration date to July 16,
1984. During the fiscal years ended July 31, 1983 and 1984, the net
proceeds to the Company from the exercise of the warrants amounted to
$934,000. Each common stock purchase warrant was not detachable from
its common stock or exercisable until six months after the issuance date of
January 17, 1983. Each warrant entitled the holder to purchase one
share of common stock at an exercise price of $3.00 after six months and prior
to nine months after issuance. The exercise price increased to $3.50
after nine months and prior to 12 months after issuance.
In
connection with the public offering, the Company sold 60,000 five-year purchase
warrants to the underwriters at a price of $.001 per warrant. Each
warrant entitled the holder to purchase one share of common stock at an exercise
price of $3.00. Pursuant to the antidilution provisions of the
warrants, the underwriters received warrants to purchase 67,415 shares at an
exercise price of $2.67 per share. By July 31, 1986, all such
warrants were exercised and the Company received proceeds of approximately
$180,000.
On
February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants, each to purchase an aggregate of 330,000 shares (hereinafter referred
to as one-year warrants and two-year warrants). The one-year warrants
had an exercise price of $6.50 per share and expired July 17,
1985. The two-year warrants had an exercise price of $10.00 per share
and were to expire July 17, 1986. However, the Company extended the
expiration date to August 31, 1987. The one-year warrants and
two-year warrants were issued as of July 17, 1984 on a one-for-one basis to
those public offering warrant holders who exercised their original warrants,
with the right to oversubscribe to any of the warrants not
exercised. During the fiscal years ended July 31, 1985, 1986, 1987
and 1988, the Company received net proceeds of approximately $2,471,000 as a
result of the exercise of the warrants.
On
January 2, 1987, the Company issued 250,000 shares of common stock to officers
and stockholders, including the President and Chief Executive Officer, in
recognition of services performed for the Company. The fair value of
such shares was recorded as compensation expense.
On
February 3, 1987, the Company sold 5,000 shares of common stock to a private
investor for $5.00 per share, resulting in net proceeds to the Company of
approximately $25,000.
On
September 1, 1987, the Board of Directors approved new wage contracts for three
officers. The contracts provided for the issuance of 700,000 shares
of common stock as an inducement for signing. The fair value of these
shares was recorded as deferred compensation and was amortized over the term of
the employment agreements. The contracts also provided for the
issuance of 1,500,000 shares of common stock in 750,000 increments upon the
occurrence of certain events. These shares were issued during the
fiscal years ended July 31, 1989 and 1990 and the fair value of such shares was
recorded as deferred compensation and was amortized over the remaining term of
the employment agreements. The contracts also provided for five-year
options to purchase 750,000 shares of common stock at $3.00 per share; options
for the purchase of 170,000 shares were exercised on June 16, 1988 and the
remaining options for the purchase of 580,000 shares expired on September 2,
1992.
During
the fiscal year ended July 31, 1988, the Company issued 206,429 shares of common
stock for payment of legal and consulting services. The Company also
issued 12,500 shares of common stock in connection with the settlement of
certain litigation. The fair value of such shares was charged to
operations.
During
the fiscal year ended July 31, 1988, the Company sold 61,073 shares of common
stock to private investors at $2.92 per share resulting in net proceeds to the
Company of approximately $178,133.
On
September 21, 1988, the Company entered into a stipulation of settlement arising
from a lawsuit wherein it agreed to pay a total of $250,000 in 12 monthly
installments. Under the agreement, the Company authorized the
issuance on September 7, 1988 and October 18, 1988 of 85,000 and 50,000 shares,
respectively, to an escrow account to secure payment of the $250,000 due under
the stipulation of settlement. During the fiscal year ended July 31,
1989, the Company issued and sold the 135,000 shares of common stock for
$1,074,838. On February 14, 1989, the Board of Directors authorized
the issuance of an additional 50,000 shares. During the year ended
July 31, 1990, the shares were sold for $351,117. The proceeds from
the above transactions were used to pay the settlement and related legal costs,
reduce loans from and interest due to the Company's Chief Executive Officer, and
for working capital.
During
the fiscal year ended July 31, 1989, the Company sold 105,840 shares of common
stock to private investors at $3.97 per share resulting in net proceeds to the
Company of approximately $420,000.
During
the fiscal year ended July 31, 1990, the Company issued 52,463 shares of common
stock for payment of legal and consulting services and 50,000 shares of common
stock in connection with the settlement of certain litigation. The
fair value of the common stock was charged to operations.
During
the fiscal year ended July 31, 1990, the Company sold 89,480 shares of common
stock to private investors at $3.97 per share resulting in net proceeds to the
Company of approximately $355,080.
During
the fiscal year ended July 31, 1991, the Company issued 87,000 shares of common
stock for payment of legal and consulting services. The fair value of
the common stock was charged to operations.
During
the fiscal year ended July 31, 1992, the Company sold 70,731 shares of common
stock to private investors at $2.75 to $3.50 per share resulting in net proceeds
to the Company of approximately $219,900.
During
the fiscal year ended July 31, 1992, the Company issued 45,734 shares of common
stock as payment for services rendered to the Company. The fair value
of the common stock was charged to operations.
During
the fiscal years ended July 31, 1992 and 1990, 94,000 and 50,000 shares of
common stock, respectively, were issued to the Company's Chief Executive Officer
upon the conversion of outstanding debentures.
During
the fiscal year ended July 31, 1993, the Company sold 352,667 shares of common
stock to private investors at prices ranging from $2.00 to $3.00 per share
resulting in net proceeds to the Company of approximately
$735,500. In addition, the private investors were granted options to
purchase common stock totaling 587,167 shares at prices ranging from $3.00 to
$7.00. During the fiscal years ended July 31, 1995 and 1996, 322,500
and 228,833 options expired, respectively. A total of 42,167 options
due to expire on July 31, 1995 were extended to July 31, 1996 and their exercise
price was reduced to $2.50. During the fiscal year ended July 31,
1996, 35,834 options were exercised resulting in net proceeds to the Company of
approximately $89,600.
During
the fiscal year ended July 31, 1993, the Company issued 54,600 shares of common
stock as payment for legal and other services performed for the
Company. The fair value of 49,600 shares was charged to
operations. The remaining 5,000 shares were recorded as deferred
compensation and were amortized over a one-year period, beginning in February
1993, in accordance with the agreement entered into with the
recipient.
During
the fiscal year ended July 31, 1994, the Company issued 7,000 shares of common
stock as payment for services performed for the Company. The fair
value of the common stock was charged to operations.
During
the fiscal year ended July 31, 1994, the Company sold 25,000 shares of common
stock to a private investor at $2.00 per share resulting in net proceeds to the
Company of $50,000. In addition, the private investor was granted
options to purchase common stock totaling 25,000 shares at $4.00 per common
share. These options were exercised in September 1996 resulting in
net proceeds to the Company of $100,000.
During
the fiscal year ended July 31, 1994, the Company sold 800,000 shares of common
stock to private investors at $2.50 per share resulting in net proceeds to the
Company of $1,865,791. In addition, the private investors were
granted warrants to purchase common stock totaling 800,000 shares at $5.00 per
common share. Warrants for the purchase of 147,450 shares were exercised during
fiscal 1997 resulting in net proceeds to the Company of $737,250. The
remaining 652,550 warrants expired during fiscal 1997.
During
the fiscal year ended July 31, 1994, 400,000 shares of common stock were issued
to the Company's Chief Executive Officer upon the conversion of outstanding
debentures.
During
the fiscal year ended July 31, 1994, 25,400 shares of common stock were issued
upon the conversion of other outstanding debentures.
In
September 1994, the Company completed a private placement resulting in the
issuance of 288,506 shares of common stock and three-year warrants to purchase
288,506 shares of common stock at an exercise price of $5.50 per
share. The warrants expired during fiscal 1998. The common
stock and warrants were sold in units consisting of 20,000 shares of common
stock and warrants to purchase 20,000 shares of common stock. The
price per unit was $50,000. The Company received proceeds of
approximately $545,000, net of costs associated with the placement of
approximately $55,000 and the conversion of certain debt by creditors of
$121,265 into equivalent private placement units of 17,600 shares for conversion
of short-term borrowings and 30,906 shares issued for services
rendered. In October 1994, an additional two units at $50,000 per
unit were sold to a private investor under the same terms as the September 1994
private placement resulting in the issuance of 40,000 shares of common stock and
warrants to purchase 40,000 shares of common stock. The warrants
expired during fiscal 1998.
During
the fiscal year ended July 31, 1995, 185,000 shares of common stock were issued
upon the exercise of stock options by unrelated parties, resulting in net
proceeds to the Company of $437,200. The exercise prices of the
options ranged from $2.27 to $2.50, which had been reduced from $3.50 and $5.00,
respectively, during fiscal 1995.
During
the fiscal year ended July 31, 1995, the Company sold 681,000 shares of common
stock to private investors resulting in net proceeds to the Company of
approximately $1,379,000. The shares were sold at prices ranging from
$2.00 to $2.25.
During
the fiscal year ended July 31, 1995, the Company sold 139,080 shares of common
stock and 47,405 three-year warrants to purchase shares of common stock at an
exercise price of $4.00 per share to private investors. The stock and
warrants were sold at prices ranging from $2.25 to $2.73 per share and resulted
in net proceeds to the Company of $343,808, of which $4,800 was for services
rendered. The common shares were issued to the investors subsequent
to July 31, 1995.
On August
4, 1995, the Company issued 6,060 shares of common stock as payment for services
rendered to the Company. The fair value of the common stock was
charged to operations.
On
September 29, 1995, the Company completed a private placement resulting in the
issuance of 1,925,616 shares of common stock and three-year warrants to purchase
an aggregate of 55,945 shares of common stock at an exercise price of $4.00 per
share. Of these shares 1,935 were issued for services rendered to the
Company. The common stock was sold alone at per share prices ranging
from $2.00 to $3.70, and in combination with warrants at per unit prices ranging
from $4.96 to $10.92, which related to the number of warrants contained in the
unit. The Company received proceeds of approximately $4.1 million,
including $1,723,000 for approximately 820,000 shares received during the fiscal
year ended July 31, 1995. The warrants expired in October
1998.
As
consideration for the extension of the Company's term loan agreement with its
bank, the Company granted the bank a warrant to purchase 10,000 shares of common
stock at an exercise price of $4.19. The warrants were issued as of
October 1, 1995 and expired on August 31, 1997.
In June
1996, the Company sold in a private placement 1,515,330 shares of common stock
and three-year warrants to purchase 313,800 shares of common stock at an
exercise price of $7.50 per share. Of these shares, 12,000 were
issued for services rendered to the Company. The common stock was
sold alone at a per share price of $3.70, in combination with warrants at a per
unit price of $12.52 and warrants were sold alone at a per warrant price of
$1.42. Each unit consisted of three shares of common stock and one
warrant. The Company received proceeds of approximately $5.7
million. The warrants expired during the fiscal year
2000.
In June
1996, the Company issued 10,000 five-year stock options as payment for services
rendered. The options vested immediately and had an exercise price of
$4.95 per share. The Company recorded research and development
expense of $28,260, which was the fair value of the stock options on the date of
issuance. The options expired during the fiscal year ended July 31,
2001.
During
the fiscal year ended July 31, 1996, 207,316 shares of common stock were sold
from October 1995 to April 1996 at per share prices ranging from $3.60 to $4.24
resulting in proceeds of approximately $808,000.
During
the fiscal year ended July 31, 1996, 656,334 stock options were exercised by
both related and unrelated parties resulting in net proceeds of approximately
$1.9 million to the Company. Of these shares, 89,634 were issued
subsequent to July 31, 1996. The exercise prices of the options
ranged from $2.50 to $3.87 per share.
In August
1996, the Company issued 10,000 stock options with an exercise price of $4.69
per share exercisable for five years as payment for services to be
rendered. An equal portion of these options vested monthly for one
year commencing September 1, 1996. The Company recorded general and
administrative expense of $27,900, which was the fair value of the stock options
on the date of issuance. The options expired during the fiscal year
ended July 31, 2002.
In March
1997, the Company issued 112,000 shares of common stock at $4.50 per share in a
private placement to an investor resulting in net proceeds of $504,000 to the
Company.
In May
1997, the Company issued 100,000 stock options to Dr. Stephen Carter, a
director, with an exercise price of $5.20 per share as payment for serving as
Chairman of the Scientific Advisory Board (the “SAB”). These options
vested as follows: 10,000 vested immediately, 10,000 after one full calendar
year, 10,000 annually for each of the following three years and 50,000 on May
13, 2002. The Company recorded a total research and development
expense of $353,400, which was the fair value
on the date of issuance of that portion of the stock options that had vested as
of July 31, 2002. Of these options, 40,000 expired as of the fiscal
year ended July 31, 2005.
During
the fiscal year ended July 31, 1997, 639,500 stock options were exercised by
both related and unrelated parties resulting in net proceeds of approximately
$2.6 million to the Company. The exercise prices of the options
ranged from $2.45 to $4.00 per share.
During
the fiscal year ended July 31, 1997, 147,450 warrants were exercised by both
related and unrelated parties resulting in net proceeds of approximately
$737,250 to the Company. The exercise price of the warrants was $5.00
per share.
In
October 1997, the Company issued 75,000 stock options to a director with an
exercise price of $3.66 per share as payment for non-board related services to
be rendered. These options vested as follows: 10,000
vested immediately; 10,000 after one full calendar year; 10,000 annually for
each of the following three years; and 25,000 on October 31,
2002. A total general and administrative expense of $185,600
was amortized on a straight –line basis over a five-year period, which commenced
in October 1997. Of these options, 30,000 expired as of the fiscal
year ended July 31, 2005.
In
October 1997, the Company issued 12,000 five-year stock options to a consultant
with an exercise price of $3.91 per share as payment for services to be
rendered. An equal portion of these options vested monthly and were
amortized over a one-year period which commenced in October 1997. In
May 1998, the Company terminated the services of the consultant, which resulted
in the cancellation of 5,000 options. The Company recorded a total
research and development expense for the remaining 7,000 options in the amount
of $15,800, based upon the fair value of such options on the date of issuance,
amortized on a straight-line basis over the vesting period of the
grant. These options expired during the fiscal year ended July 31,
2003.
On
December 9, 1997, the stockholders authorized the amendment of the Company’s
Certificate of Incorporation to increase the number of authorized shares of
common stock, par value $.001 from 25,000,000 shares to 40,000,000
shares.
On
December 9, 1997, the stockholders approved the 1997 Stock Option Plan (the
“1997 Plan”). The total number of shares of common stock authorized
for issuance upon exercise of options granted under the 1997 Plan was
2,000,000. Options are granted at fair market value on the date of
the grant and generally are exercisable in 20% increments annually over five
years starting one year after the date of grant and terminate five years from
their initial exercise date.
On
January 23, 1998, the SEC declared effective a registration statement on Form
S-3 for the offer and sale by certain stockholders of up to 3,734,541 shares of
common stock. Of these shares (i) an aggregate of 2,737,480 shares
were issued to private placement investors in private placement
transactions which were completed during the period from March 1994 through
March 1997 (the “Earlier Private Placements”), (ii) an aggregate of 409,745
shares were issuable upon exercise of warrants which were issued to private
placement investors in the Earlier Private Placements and (iii) an aggregate of
587,316 shares may be issued, or have been issued, upon exercise of options
which were issued to option holders in certain other private
transactions. As a result of the delisting of the Company’s Common
Stock from the Nasdaq SmallCap Market, the Company no longer qualified for the
use of a Form S-3 registration statement for this offering when it filed its
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 and thus,
this registration statement was no longer effective. The Company filed a
registration statement on Form S-1 to register these shares, which was declared
effective in February 2002.
In
February 1998, the Company completed a Private Placement primarily to
institutional investors, which resulted in the issuance of 1,168,575 units at a
unit price of $4.00. Each unit consisted of two (2) shares of the
Company’s common stock, par value $.001 per share and one (1) three-year warrant
to purchase one (1) share of common stock at an exercise price of $2.50 per
share. The Company received net proceeds of approximately
$4,202,000. The placement agent received warrants to purchase an
additional 116,858 units comprised of the same securities sold to investors at
an exercise price of $4.40 per unit as part of its compensation. In
May 2001, the expiration date of these warrants was extended from May 19, 2001
to August 17, 2001. The warrants expired on August 17,
2001.
In March
1998, the Company converted an outstanding payable into 50,000 shares of the
Company’s Common Stock. The fair value of the Common Stock
approximated the outstanding payable amount of $100,000.
In March
1998, the Company issued 75,000 stock options to a director with an exercise
price of $2.80 per share as payment for non-board related services
rendered. These options vested as follows: 10,000 vested immediately;
10,000 after one full calendar year; 10,000 annually for each of the following
three years; and 25,000 on March 24, 2003. A total general and
administrative expense of $138,100 was amortized on a straight-line basis over a
five-year period, which commenced in March 1998. As of July 31, 2003,
the expense was fully amortized and recorded, based upon the fair value of such
75,000 options on the date of issuance, amortized on a straight-line basis over
the vesting period of the grant. Of these options, 10,000 expired
during the fiscal year ended July 31, 2003 and 65,000 were exercised during the
fiscal year ended July 31, 2004.
On April
20, 1998 the SEC declared effective a registration statement on Form S-3 for the
offer and sale by certain stockholders of up to 3,918,299 shares of common
stock. Of these shares (i) an aggregate of 2,337,150 shares of common
stock were issued to the private placement investors in the February 1998
Private Placement, (ii) an aggregate of 1,168,575 shares may be issued upon
exercise of the Warrants which were issued to the private placement investors in
the February 1998 Private Placement, (iii) 350,574 shares may be issued upon the
exercise of the Placement Agent Warrant which was issued to the placement agent
in the February 1998 Private Placement and the Warrants issuable upon exercise
of the Placement Agent Warrant, (iv) 50,000 shares of common stock were issued
to a Supplier in connection with conversion of an outstanding accounts payable,
and (v) 12,000 shares may be issued upon the exercise of options which were
issued as payment for services to be rendered. As a result of the
delisting of the Company’s common stock from the Nasdaq SmallCap Market, the
Company no longer qualified for the use of a Form S-3 registration statement for
this offering when it filed its Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 and thus, this registration statement was no longer
effective. The Company filed a registration statement on Form S-1 to register
these shares, which was declared effective in February 2002.
During
the fiscal year ended July 31, 1998, the Company issued 833 three-year stock
options as payment for services rendered in August 1997. The options
vested thirty days from the issuance date and had an exercise price of $4.47 per
share. The total general and administrative expense recorded for
these options was $1,700, based upon the fair value of such options on the date
of issuance. These options expired in August 2000.
During
the fiscal year ended July 31, 1998, the Company issued 15,000 three-year stock
options with an exercise price of $4.15 per share as payment for
services. An equal portion of these options vested monthly and a
total general and administrative expense of $30,000 was amortized over a
one-year period which commenced September 1997. The Company also
issued 5,000 three-year stock options with an exercise price of $4.15 per share
as payment for services. Of these options, 833 vested monthly for
five months commencing September 30, 1997 and 835 vested on the last day of the
sixth month. Total general and administrative expense of $9,700 was
amortized over a six-month period which commenced September 1997. As
of July 31, 1998, the Company recorded general and administrative expense of
$37,100, based upon the fair value of the 20,000 stock options on the date of
the issuance, amortized on a straight-line basis over the vesting periods of the
grants. These options expired three years after they
vested.
During
the fiscal year ended July 31, 1998, 4,950 shares of common stock were issued
upon the exercise of warrants by unrelated parties, resulting in net proceeds of
approximately $11,100 to the Company. The exercise prices of the
warrants ranged from $2.20 to $2.50 per share.
On
October 1, 1998 (the “Effective Date”), the Company entered into an agreement
with a consultant (the “Agreement”), resulting in the issuance of 200,000
five-year stock options with an exercise price of $1.00 per share as payment for
services to be rendered. These options vested as follows: an
aggregate of 20,000 vested on October 1, 1999; an aggregate of 2,500 of such
options vested on the last day of each month over the first twelve months after
the Effective Date of the Agreement; the remaining 150,000 options vested on the
third anniversary of the Effective Date of the Agreement. The Company recorded
approximately $49,300 of general and administrative expense based upon the fair
value of the vested options through July 31, 2000. During the
fiscal year ended July 31, 2000, the Agreement was terminated which resulted in
the cancellation of 150,000 options. The remaining 50,000 options
were exercised during the fiscal year ended July 31, 2004, which resulted in
gross proceeds of $50,000 to the Company.
During
the fiscal year ended July 31, 1999, the Company issued 5,000 three-year stock
options as payment for services rendered. The total general and
administrative expense recorded for these options was $4,200, based upon the
fair value of such options on the date of issuance. These options
were exercised during the fiscal year ended July 31, 2000, which resulted in
gross proceeds of $7,150 to the Company.
During
the fiscal year ended July 31, 1999, the Company issued 40,701 shares of common
stock for payment of legal services. The fair value of the common
stock in the amount of $16,631 was charged to operations.
During
the fiscal year ended July 31, 1999, the Company issued 6,000 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $2,460 was charged to operations.
During
the fiscal year ended July 31, 2000, the Company issued 174,965 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $92,184 was charged to operations.
During
the fiscal year ended July 31, 2000, the Company issued 95,000 shares of common
stock upon the exercise of stock options by unrelated parties, which resulted in
gross proceeds of $45,850 to the Company. The exercise prices of the
options ranged from $0.43 to $1.43.
During
the fiscal year ended July 31, 2000, the Company sold an aggregate of 875,000
shares of common stock to private investors at prices ranging from $0.50 to
$1.00 per share resulting in net proceeds of $548,300 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 875,000 shares of common stock, inclusive of additional
warrants issued so that all investors in the private placements received
substantially the same securities, at per share exercise prices ranging from
$1.03 to $4.55. These warrants expired in May 2003 and May
2005.
During
the fiscal year ended July 31, 2001, the Company issued 11,800 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $10,030 was charged to operations.
During
the fiscal year ended July 31, 2001, the Company sold an aggregate of 863,331
shares of common stock to private investors at prices ranging from $0.90 to
$1.50 per share resulting in net proceeds of $956,000 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 696,665 shares of common stock at per share exercise
prices ranging from $1.50 to $3.00. The warrants will expire during
the period commencing July 2004 and ending in October 2006. Of these
warrants, 418,887 expired and 277,778 were exercised.
During
the fiscal year ended July 31, 2001, the Company issued 165,555 shares of common
stock upon the exercise of stock options by related parties, which resulted in
gross proceeds of $83,700 to the Company. The per share exercise
prices of the options ranged from $0.29 to $0.85.
During
the fiscal year ended July 31, 2001, the Company issued 50,000 five-year stock
options to a director as payment for non-board related
services. These options vested immediately and had an exercise price
of $0.90 per share. The Company recorded general and administrative
expense of $31,600, which was the fair market value of the options using the
Black-Scholes options-pricing model on the date of issuance. These
options were exercised during the fiscal year ended July 31, 2004.
During
the fiscal year ended July 31, 2001, the Company issued 330,000 shares of common
stock upon the conversion of convertible notes from related parties at $0.90 per
share. In addition, upon conversion, the related parties were granted
three-year warrants to purchase an aggregate of 330,000 shares of common stock
at an exercise price of $2.50 per share. The estimated value of these
warrants in the amount of $108,900 was recorded by the Company as interest
expense during the fiscal year ended July 31, 2001. In October 2001,
the board of directors approved a change of the 330,000 warrants from three-year
warrants to five-year warrants and the exercise price from $2.50 per share to
$1.50 per share to conform with private placements to unrelated
parties. These warrants were exercised as of July 31,
2006.
During
the fiscal year ended July 31, 2002, the Company issued 72,214 shares of common
stock upon the conversion of convertible notes from unrelated parties at $0.90
per share. In addition, upon conversion, the unrelated parties were
granted five-year warrants to purchase an aggregate of 72,214 shares of common
stock at an exercise price of $1.50 per share. The estimated value of
these warrants in the amount of $32,200 was recorded by the Company as interest
expense during the fiscal year ended July 31, 2002. These options
were exercised during the fiscals years ended July 31, 2007 and
2006.
During
the fiscal year ended July 31, 2002, the Company issued 78,340 shares of common
stock in settlement of accounts payable in the amount of $64,126. In
addition, one of the vendors was granted five-year warrants to purchase 55,556
shares of common stock at an exercise price of $1.50 per share. The
settled accounts payable amount was credited to equity as the value of the
common stock and warrants.
During
the fiscal year ended July 31, 2002, the Company issued an aggregate of 85,221
five-year stock options as payment for services rendered. The options
vested immediately and had a per share exercise prices of $0.75 as to 70,000
stock options and $0.94 as to 15,221 stock options. The Company
recorded an aggregate total of $40,747 non-cash expenses for these options,
based upon the fair value on the date of the issuance as estimated by the
Black-Scholes options-pricing model. These options were exercised as
of July 31, 2005.
During
the fiscal year ended July 31, 2002, the Company sold an aggregate of 2,622,122
shares of common stock to private investors at prices ranging from $0.35 to
$0.90 per share resulting in net proceeds of $1,050,000 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 2,673,422 shares of common stock at per share exercise
prices ranging from $0.75 to $1.50. The warrants will expire during
the period commencing August 2006 and ending in September
2007. As of July 31, 2008, 1,733,638 of these warrants were
exercised and 939,784 warrants expired.
During
the fiscal year ended July 31, 2002, the Company issued warrants to purchase
1,500,000 shares of common stock to Roan Meyers Associates L.P. for an aggregate
warrant purchase price of $1,500 in connection with the engagement of Roan
Meyers to render advisory services. Of these warrants, 250,000 were
exercisable at $.50 per share, 650,000 were exercisable at $1.00 per share and
600,000 were exercisable at $1.50 per share. In February 2002, the
Company recorded an expense equal to the fair market value of the first 500,000
warrants which vested immediately, based upon the fair value of such warrants as
estimated by Black-Scholes pricing model ($153,300), less the $1,500 received
from the sale of the warrants. The remaining 1,000,000 warrants were
to become exercisable if Roan Meyers was successful in helping the Company raise
capital. However, Roan Meyers was not successful in
raising additional capital from a third party. During the fiscal year
ended July 31, 2002, Roan Meyers exercised warrants to purchase an aggregate of
186,000 shares of common stock, at an exercise price of $0.50 per share,
resulting in aggregate gross proceeds of $93,000 to the
Company. During the fiscal year ended July 31, 2003, the vesting of
the 600,000 warrants was amended to vest immediately and the exercise price was
amended from $1.50 to $0.50 per share due to the price change of the Company’s
common stock. Roan Meyers exercised these warrants and was issued
600,000 shares of common stock. The Company also issued 40,000 shares
of common stock upon the exercise of warrants by Roan Meyers at an exercise
price of $.50 per share. The Company realized aggregate gross
proceeds of $320,000 from these capital raising transactions. During
the fiscal year ended July 31, 2004, the exercise price of 250,000 warrants was
amended from $1.00 to $0.50 per share due to the price change of the Company’s
common stock and the vesting of the 400,000 warrants was amended to vest
immediately. Roan Meyers exercised the remaining 674,000 warrants
which resulted in the issuance of 674,000 shares of common stock by the
Company. The Company realized gross proceeds of $537,000 in this
capital raising transaction.
During
the fiscal year ended July 31, 2002, the Company issued an aggregate of 75,000
five-year stock options to unrelated parties as an incentive for lending the
Company an aggregate of $75,000, which was repaid during the
quarter. The options vested immediately and have an exercise price of
$1.50 per share. The total non-cash interest expense recorded for
these options was $25,615, based upon the fair value of such option on the date
of issuance as estimated by the Black-Scholes options-pricing
model. Of these options, 25,000 were exercised and 50,000
expired.
During
the fiscal year ended July 31, 2002, the Company issued a note payable to an
unrelated party in an aggregate amount of $300,000. The note was due
in thirty days bearing interest at 8% per annum. In addition, the
lender received warrants to purchase 300,000 shares of common stock at an
exercise price of $0.60 per share. The total non-cash interest
expense recorded for these warrants was $40,690, based upon the fair value of
such option on the date of issuance as estimated by the Black-Scholes
options-pricing model. The notes were extended for eighteen months at
a conversion price of $0.40 per share plus a five-year warrant for each share of
the Company’s common stock issued upon conversion at an exercise price of $1.00
per share. These notes were converted into shares of the Company’s
common stock and warrants in fiscal year 2004.
During
the fiscal year ended July 31, 2003, the Company issued an aggregate of 764,000
shares of common stock upon the exercise of warrants and stock options by
unrelated parties which resulted in gross proceeds of approximately $378,000 to
the Company.
During
the fiscal year ended July 31, 2003, the Company issued an aggregate 186,208
shares of common stock in settlement of accounts payable in the aggregate amount
of $94,223. In addition, one of the vendors was granted five-year
options to purchase 50,000 shares of common stock at an exercise price of $1.25
per share. The Company recorded $17,581 non-cash research and
development expenses for these options, based upon the fair value on the date of
the issuance as estimated by the Black-Scholes options-pricing
model. The settled accounts payable amount was credited to equity as
the value of the common stock and options.
During
the fiscal year ended July 31, 2003, the Company issued 25,000 five-year stock
options to an unrelated party as an incentive for lending the Company an
aggregate of $25,000, which was fully paid as of April 30, 2003. The
stock options vested immediately and have an exercise price of $0.23 per
share. The total non-cash interest expense recorded for these stock
options was $2,503. In addition, the Company issued 140,000 five-year
stock options for services rendered. These stock options vested
immediately and have exercise prices of $0.84 and $1.25 per
share. The total non-cash charge relating to these options was
$55,437. The total value of these options was based upon the fair
value of such options on the date of issuance as estimated by the Black-Scholes
options-pricing model. Of these options, 20,000 were exercised during
the fiscal year ended July 31, 2004.
During
the fiscal year ended July 31, 2003, the Company issued 8% convertible notes
payable to unrelated parties with principal balances totaling an aggregate of
$915,000. These notes payable were due to mature on various dates
from April 2004 through May 2005 and were convertible into the Company’s common
stock at conversion prices ranging from $0.20 to $0.50 per share and an equal
number of five year warrants with an exercise price of $1.00 per
share. With the issuance of the notes payable, the Company issued to
the unrelated parties five year warrants to purchase an aggregate of 665,000
shares of the Company’s common stock, at an exercise price of $0.60 per
share. In addition, the Company issued on the due date of the notes
payable five year warrants to purchase an aggregate of 915,000 shares of the
Company’s common stock at per share exercise prices of $1.00 and
$1.10. The Company valued these warrants at a total of $219,259 based
on the fair value determined by using the Black-Scholes method relative to the
fair value of the notes payable. At the issuance dates of the notes
payable, the fair market values of the Company’s shares exceeded the effective
conversion prices. Accordingly, the Company initially increased
additional paid-in capital by $219,259 for the relative fair value of the
warrants and reduced the carrying value of the notes payable for the same amount
for the debt discount attributable to the fair value of the warrants. The
Company also increased its additional paid-in capital and debt discount by
$374,960 for beneficial conversion rights issued in connection with the
issuances of these notes.
During
the fiscal year ended July 31, 2003, the Company sold an aggregate of 1,315,000
shares of common stock to private investors at prices ranging from $0.20 to
$0.73 per share resulting in net proceeds of $653,627 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 1,315,000 shares of common stock at per share exercise
prices ranging from $1.00 to $1.50. The warrants will expire during
the period commencing January 2008 and ending in October 2008. As of
July 31, 2008, 965,000 of these warrants were exercised and 150,000
expired.
On
January 14, 2004, at the Company’s annual meeting of stockholders, the Company’s
stockholders approved an amendment to the Company’s Certificate of
Incorporation, as amended, to increase the number of shares of common stock
authorized from 40,000,000 to 100,000,000. Since no notes payable had
been converted as of such date, the terms of the Company’s notes payable
relating to conversion and exercise which were amended to authorize conversion
to Series A Preferred Stock because there were an insufficient number of
authorized shares of common stock available for issuance upon conversion,
reverted to their original terms so that they were again convertible into shares
of common stock, rather than shares of Series A Preferred Stock.
On
January 14, 2004, at the Company’s annual meeting of stockholders, the Company’s
stockholders approved the 2004 Stock Incentive Plan (the “2004
Plan”). The total number of shares of common stock authorized for
issuance under the 2004 Plan is 8,500,000.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 120,000
shares of common stock to private investors resulting in aggregate gross
proceeds of $60,000 to the Company. In addition, the private
investors were granted five-year warrants to purchase 120,000 shares of common
stock at an exercise price of $1.25 per share.
During
the fiscal year ended July 31, 2004, the Company issued 3,996 five-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have a per share exercise price of $0.60. The
Company recorded a total of $5,235 of non-cash expenses for these options, based
upon the fair value on the date of the issuance as estimated by the
Black-Scholes options pricing model. These options were exercised
during the fiscal year ended July 31, 2004 resulting in gross proceeds of $2,398
to the Company.
During
the fiscal year ended July 31, 2004, the Company entered into a two-part
financing agreement with SF Capital Partners, Ltd. for the private placement of
1,704,546 shares of common stock and warrants to purchase 852,273 shares of
common stock, at an exercise price of $1.50 per share. As
consideration, the Company received $1,500,000. In addition, the
Company granted SF Capital Partners, Ltd. a warrant to invest an additional
$1,500,000 to purchase the Company’s common stock at an exercise price based
upon a 20-day trailing average of the closing price per share of the Company’s
common stock (the “Additional Warrants”). During the fiscal year
ended July 31, 2004, SF Capital Partners, Ltd. exercised the Additional Warrants
at a 20-day trailing average exercise price of $3.96 which resulted in gross
proceeds of $1,500,000 and the issuance of 379,170 shares of common stock and an
Exercise Warrant to purchase an additional 189,585 shares of common stock at a
per share exercise price of $4.75. The Company also issued an
aggregate of 53,876 shares of restricted common stock to a third party as
finder’s fee. During the fiscal year ended July 31, 2006, the
exercise price of the Exercise Warrant to purchase an additional 189,585 shares
of common stock was reduced from $4.75 to $2.88 per share. As of July
31, 2007, none of these options were exercised.
During
the fiscal year ended July 31, 2004, the Company issued 25,000 five-year stock
options to a board member as payment for non-board related services and 110,000
five-year stock options to various consultants for services
rendered. The options vested immediately and have a per share
exercise price of $3.46. The Company recorded a total of $275,377
non-cash expenses for these options, based upon the fair value on the date of
the issuance as estimated by the Black-Scholes options pricing
model. As of July 31, 2007, 5,000 of these options were
exercised.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 14,703
restricted shares of common stock as payment of accounts payable in the amount
of $52,176.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 75,000
restricted shares of common stock as payment for services rendered in an
aggregate amount of $288,500.
During
the fiscal year ended July 31, 2004, the Company issued 1,210,654 shares of
common stock to an existing institutional investor, resulting in gross proceeds
of $10,000,000 to the Company. In addition, the institutional
investor was granted five-year warrants to purchase 1,210,654 shares of Common
Stock at an exercise price of $12.39 per share. The Company paid a 5%
finder’s fee to a third party in connection with the private placement, which
included a five-year warrant to purchase 60,533 shares of common stock at an
exercise price of $12.39 per share. During the fiscal year ended July 31, 2006,
the exercise price of the warrants to purchase an aggregate of 1,185,000 shares
of common stock was reduced from $12.39 to $2.88 per share.
During
the fiscal year ended July 31, 2004, the Company increased its outstanding
shares by 40,000 shares of common stock for replacement of previously issued
stock.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of
3,042,817 shares of restricted common stock and five-year warrants to purchase
3,733,839 shares of common stock with exercise prices ranging from $1.00 to
$1.10 per share upon the conversion of notes payable and accrued interest in the
amount of approximately $927,872.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of
2,676,994 shares of common stock upon the exercise of warrants by unrelated
parties and stock options by unrelated parties, employees, a director and former
director at per share exercise prices ranging from $0.26 to
$4.74. The Company realized aggregate gross proceeds of $2,656,099
from these exercises.
During
the fiscal year ended July 31, 2004, the Company incurred an aggregate of
$824,022 of costs relating to various private placements.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of
1,744,978 shares of common stock and five-year warrants to purchase an aggregate
of 2,044,978 shares of common stock with an exercise price of $1.00 per share
upon the conversion of notes payable and its accrued interest in an aggregate
amount of $464,499.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of 438,372
shares of common stock upon the exercise of stock options and warrants by
unrelated parties, employees and a director at per share exercise prices ranging
from $0.26 to $1.91. The Company realized aggregate net proceeds of
$307,155 from these exercises.
During
the fiscal year ended July 31, 2005, the Company issued 3,000 shares of
restricted common stock as payment for services rendered. A non-cash
expense of $13,500 was recorded by the Company for these shares, based upon the
fair value of the common stock at the date of issuance.
During
the fiscal year ended July 31, 2005, the Company issued 12,500 warrants to a
vendor in consideration for services to be rendered. 5,000 of these
warrants which vested immediately have an exercise price of $2.50 per share and
7,500 warrants which vested on the 91st day
from the grant date have an exercise price of $3.50 per share. These
warrants will expire 24 months from the date the registration statement
registering the shares underlying the warrants is declared effective or 36
months from the date of grant, whichever comes first. These warrants
expired during the fiscal year ended July 31, 2008. The Company
recorded a total of $13,552 of non-cash expense for these warrants, based upon
the fair value at July 31, 2005 as estimated by the Black-Scholes option pricing
model.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of 20,000
ten-year stock options to consultants as payment for continuing
services. The options will vest 25% each year starting on the first
anniversary of the commencement of the services of the consultants provided they
remain as consultants on the relevant vesting dates. The stock
options have an exercise price of $2.05 per share. The Company
recorded a total of $3,237 of non-cash expense for these options, based upon the
fair value at July 31, 2005 as estimated by the Black-Scholes option pricing
model. During the fiscal year ended July 31, 2006, the Company
recorded under EITF 96-18, a total of $15,066 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued an aggregate of
1,122,827 shares of common stock upon the exercise of warrants and stock options
by unrelated parties, consultants, employees, directors and an executive officer
at per share exercise prices ranging from $0.26 to $3.46. The Company
realized aggregate gross proceeds of $1,348,324 from these
exercises.
During
the fiscal year ended July 31, 2006, the Company issued 25,000 ten-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have an exercise price of $1.32 per share. The
Company recorded a total of $23,166 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued 25,000 ten-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have an exercise price of $3.37 per share. The
Company recorded a total of $58,387 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued 50,000 five-year stock
options to a consultant as payment for services to be rendered. These
options vest over a one year period, 50% of which vested immediately and 12.5%
will vest equally for the next four quarters following the grant
date. The stock options have an exercise price of $2.04 per share and
are subject to variable accounting under EITF 96-18. The fair value
of these options is being expensed over the service period. During
the fiscal year ended July 31, 2006, the Company recorded a total of $74,253 of
non-cash expense for these options.
During
the fiscal year ended July 31, 2006, the Company issued 174,927 shares of
restricted common stock to a private investor resulting in gross proceeds of
$600,000 to the Company for a purchase price of $3.43 per share.
During
the fiscal year ended July 31, 2006, the Company completed a private placement
to various institutional investors which resulted in the issuance of an
aggregate of 6,457,172 shares of restricted common stock for a purchase price of
$1.75 per share. The institutional investors also received warrants
to purchase up to an additional 6,457,172 shares of common stock of the
Company. The fair value of the warrants at the grant date was
approximately $12,962,000 as estimated using the Black-Scholes options pricing
model. The warrants have a term of five years and were issued in two
separate series. The first series of warrants (to purchase 3,228,590
shares of common stock) are exercisable beginning on January 19, 2007, and the
second series of warrants (to purchase 3,228,582 shares of common stock) are
also exercisable beginning on January 19, 2007. Both sets of warrants
have an exercise price equal to $2.88 per share. If the Company
enters into a strategic corporate collaboration as outlined in the second series
of warrants by December 31, 2006, the second series of warrants will be
cancelled upon notification by the Company to the holders of the warrants that
it has entered into such an agreement prior to such date. The Company
did not enter in such agreement by the specified time therefore, the second
series of warrants were not canceled. The Company received net
proceeds of approximately $10,384,000 from this private
placement. The Company filed a registration statement on Form S-3 to
register the resale of the shares and the shares issuable upon exercise of the
warrants, which was declared effective in August 2006. If the Company
had failed to file the registration statement, request effectiveness of the
registration statement, respond to comments of the Securities and Exchange
Commission, or cause the registration statement to be declared effective in a
timely manner in accordance with the provisions of the registration rights
agreement between the Company and the investors, or if the registration
statement ceases to remain effective, or the investors are otherwise not
permitted to utilize the prospectus in the registration statement to resell the
securities for more than 15 consecutive calendar days or more than an aggregate
of 25 calendar days during any 12-month period (which need not be consecutive
calendar days), then the Company must pay to each investor an amount, in cash,
as partial liquidated damages and not as a penalty, equal to 2% of the aggregate
purchase price paid by such investor for any securities registered on the
registration statement that are then held by such investor monthly until the
failure is cured. However, the Company shall not be required to pay
partial liquidated damages to the investor in excess of 10% of the purchase
price such investor paid for the registered securities. If the
Company fails to pay any partial liquidated damages in full within seven days
after the date payable, the Company will pay interest thereon to the investor at
a rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law), accruing daily from the date such partial liquidated
damages are due until such amounts, plus all such interest thereon, are paid in
full.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of 295,800
shares of its common stock upon the exercise of stock options by an officer,
employees and unrelated parties at per share exercise prices ranging from $0.23
to $2.16. The Company realized aggregate gross proceeds of $352,256
from these exercises.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of
1,142,559 shares of its common stock upon the exercise of warrants by related
and unrelated parties at per share exercise prices ranging from $0.60 to
$2.88. The Company realized aggregate gross proceeds of $1,153,444
from these exercises.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of 130,000
ten-year stock options to various consultants for services
rendered. The options vested immediately and have an exercise price
of $1.71 per share. The Company recorded the total fair value of
$176,800 of non-cash expense for these options upon issuance.
During
the fiscal year ended July 31, 2007, the Company issued 10,000 ten-year stock
options to a consultant for serving in the Scientific Advisory
Board. The options vested immediately and have an exercise price of
$1.49 per share. The Company recorded the total fair value of $11,660
of non-cash expense for these options upon issuance.
In July
2007, the Company and USP Pharma Spolka Z.O.O. ("USP") entered into a
Distribution and Marketing Agreement (the "Agreement"). The Agreement
appoints USP as the Company’s exclusive distributor in Poland, Lithuania,
Estonia, Latvia, Belarus and the Ukraine in the field of
Oncology. Included in the Agreement is an up-front fee as
consideration for the appointment of USP as the Company’s distributor in the
defined territory. Based upon its review of SAB No. 101, “Revenue
Recognition in Financial Statements”, and SAB No. 104, “Revenue Recognition”,
the Company has determined that the up-front fee is to be recognized on a
straight line basis over the term of the Agreement. The term of the
Agreement is defined as the earlier of ten (10) years after the first commercial
sale or the expiration of the patents covering the Company’s product in the
defined territory. The Agreement also includes multiple milestone
payments and the payment of royalties. The milestone payments are to
be paid to the Company upon the attainment of those milestones as defined in the
Agreement. The royalty payments by USP to the Company are based on a
fixed percentage of net sales. No revenue has been recognized for the
up-front fee, milestone achievements and royalties in the accompanying financial
statements. In connection with the Distribution Agreement, the
Company and Unilab LP, an affiliate of US Pharmacia, entered into a Securities
Purchase Agreement, (the "Purchase Agreement"), pursuant to which the Company
issued an aggregate of 553,360 shares of its restricted common stock for
purchase price of $2.53 per share. The Company realized gross
proceeds of $1,400,000. The securities sold pursuant to the Purchase
Agreement have not been registered under the Securities Act of 1933, as amended,
and may not be offered or sold in the United States in the absence of an
effective registration statement or exemption from registration
requirements.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 760,000
shares of its common stock upon the exercise of warrants by unrelated parties at
per share exercise prices ranging from $0.60 to $1.25. The Company
realized aggregate gross proceeds of $541,500 from these exercises.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 236,000
shares of its common stock upon the exercise of stock options by an officer and
employees at per share exercise prices ranging from $0.26 to
$1.58. The Company realized aggregate gross proceeds of $145,540 from
these exercises.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 265,000
stock options to the independent members of its board of directors with an
exercise price of $1.72 per share and a six-year exercise term. The
aggregate grant date fair market value of these options, $275,865, is being
amortized over the one-year vesting period. The Company recognized an
aggregate compensation expense of $154,705 and $121,160 for the fiscal years
ended July 31, 2008 and 2009, respectively.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 40,000
stock options to various non-employee consultants for services
rendered. The options vested immediately, have an exercise price of
$1.75 per share and a ten-year exercise term. The aggregate grant
date fair market value of these options, $52,840, was recognized as an expense
by the Company during the fiscal year ended July 31, 2008.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 330,000
stock options to various non-employee consultants for serving as the Company’s
scientific advisors and research collaborators and for contributions made on
behalf of the Company’s pre-clinical and clinical research
programs. Of these options, 110,000 vested immediately, 50% of the
balance will vest after one year and the remaining 50% of the balance will vest
after two years. The options have an exercise price of $1.75 per
share and a ten-year term. Under the variable accounting provisions
of EITF 96-18, the aggregate grant date fair market value of these options,
$456,730, is being amortized over the vesting period and is being re-measured as
of each reporting period. The aggregate re-measured fair market value
of these options was estimated to be $189,872 and $174,153, for the fiscal years
ended July 31, 2008 and 2009, respectively.
During
the fiscal year ended July 31, 2008, the Company issued 250,000 stock options to
its CEO, Kuslima Shogen, with an exercise price of $2.18 per share and a
ten-year exercise term. The options, which were granted as a bonus
for entering into an agreement for the marketing rights to ONCONASE® in
the U.S., vested immediately and have a grant date fair market value of $405,000
which was recognized as an expense by the Company during the fiscal year ended
July 31, 2008.
During
the fiscal year ended July 31, 2008, the Company entered into a retirement
agreement (see Note 12) with Kuslima Shogen, its CEO. Under the terms
of the agreement, the Company issued 1,000,000 stock options with an exercise
price of $2.00 per share. The options have a ten-year contractual
term and will become exercisable only upon the approval of an ONCONASE® NDA
by the United States Food and Drug Administration (“FDA”) for the treatment of
malignant mesothelioma. The grant date fair market value of these
options, $1,900,000, is being amortized over the estimated vesting
period. The Company recognized compensation expense of $429,762 and
$619,762 for the fiscal years ended July 31, 2008 and 2009,
respectively.
During
the fiscal year ended July 31, 2009, the Company issued an aggregate of 37,000
shares of its common stock upon the exercise of stock options by various
employees at per share exercise prices ranging from $0.26 to
$0.54. The Company realized aggregate gross proceeds of $13,220 from
these exercises.
During
the fiscal year ended July 31, 2009, the Company issued an aggregate of 265,000
stock options to the independent members of its board of directors with an
exercise price of $0.24 per share and a six-year exercise term. The
aggregate grant date fair market value of these options, $42,400, is being
amortized over the one-year vesting period. Of these options, 35,000
shares were forfeited as of July 31, 2009. The Company recognized an
aggregate compensation expense of $21,128 for the fiscal year ended July 31,
2009.
(6)
|
Common Stock
Warrants
|
During
the fiscal years 1988 and 1991, the Board of Directors granted stock purchase
warrants to acquire a maximum of 400,000 shares of common stock at $5.00 per
share which were not exercised and have since expired.
The
following table summarizes the activity of common stock warrants issued in
connection with the private placements and conversion of notes payable completed
in fiscal years 1994 through 2006:
|
|
Warrants
|
|
|
Exercise Price
|
|
Expiration
|
Sold
in March 1994 Private Placement
|
|
|
800,000 |
|
|
$ |
5.00 |
|
3/21/97
to 6/21/97
|
Outstanding
at July 31, 1994
|
|
|
800,000 |
|
|
|
5.00 |
|
3/21/97
to 6/21/97
|
Sold
in September 1994 Private Placement
|
|
|
288,506 |
|
|
|
5.50 |
|
12/9/97
to 12/14/97
|
Sold
in October 1994 Private Placement
|
|
|
40,000 |
|
|
|
5.50 |
|
1/21/98
|
Sold
in September 1995 Private Placement
|
|
|
47,405 |
|
|
|
4.00 |
|
10/1/98
|
Outstanding
and exercisable at July 31, 1995
|
|
|
1,175,911 |
|
|
|
4.00
- 5.50 |
|
3/21/97
to 10/1/98
|
Issued
to bank in connection with an amendment to the Company's term
loan
|
|
|
10,000 |
|
|
|
4.19 |
|
8/31/97
|
Sold
in September 1995 Private Placement
|
|
|
8,540 |
|
|
|
4.00 |
|
10/1/98
|
Sold
in June 1996 Private Placement
|
|
|
313,800 |
|
|
|
7.50 |
|
8/29/99
to 9/10/99
|
Outstanding
and exercisable at July 31, 1996
|
|
|
1,508,251 |
|
|
|
4.00
– 7.50 |
|
3/21/97
to 9/10/99
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
|
|
Exercised
|
|
|
(147,450 |
) |
|
|
5.00 |
|
|
|
3/21/97
to 6/21/97
|
|
Expired
|
|
|
(652,550 |
) |
|
|
5.00 |
|
|
|
3/21/97
to 6/21/97
|
|
Outstanding
and exercisable at July 31, 1997
|
|
|
708,251 |
|
|
|
4.00
- 7.50 |
|
|
|
12/9/97
to 9/10/99
|
|
Sold
in February 1998 Private Placement
|
|
|
1,168,575 |
|
|
|
2.50 |
|
|
|
8/17/01
|
|
Issued
to the Placement Agent in connection with the February 1998 Private
placement
|
|
|
350,574 |
|
|
|
2.20
– 2.50 |
|
|
|
8/17/01
|
|
Exercised
|
|
|
(4,950 |
) |
|
|
2.20
- 2.50 |
|
|
|
5/19/01
|
|
Expired
|
|
|
(338,506 |
) |
|
|
4.19
- 5.50 |
|
|
|
8/31/97
to 1/21/98
|
|
Outstanding
and exercisable at July 31, 1998
|
|
|
1,883,944 |
|
|
|
2.20
- 7.50 |
|
|
|
10/1/98
to 8/17/01
|
|
Expired
|
|
|
(55,945 |
) |
|
|
4.00 |
|
|
|
10/1/98
|
|
Sold
in February 2000 Private Placement
|
|
|
875,000 |
|
|
|
1.03
- 4.55 |
|
|
|
5/28/03
to 5/28/05
|
|
Expired
|
|
|
(313,800 |
) |
|
|
7.50 |
|
|
|
8/30/99
to 9/11/99
|
|
Outstanding
and exercisable at July 31, 2000
|
|
|
2,389,199 |
|
|
|
1.03
- 4.55 |
|
|
|
5/19/01
to 5/28/05
|
|
Sold
in various private placements
|
|
|
696,665 |
|
|
|
1.50
– 3.00 |
|
|
|
7/07/04
to 10/30/06
|
|
Issued
to related parties upon conversion of note payable
|
|
|
330,000 |
|
|
|
1.50 |
|
|
|
7/07/06
|
|
Outstanding
and exercisable at July 31, 2001
|
|
|
3,415,864 |
|
|
|
1.03
- 4.55 |
|
|
|
8/17/01
to 10/30/06
|
|
Expired
|
|
|
(1,514,199 |
) |
|
|
2.20
- 2.50 |
|
|
|
8/17/01
|
|
Sold
in various private placements
|
|
|
2,673,422 |
|
|
|
0.75
- 1.50 |
|
|
|
11/03/06
to 9/10/07
|
|
Issued
to vendor upon settlement of accounts payable
|
|
|
55,556 |
|
|
|
1.50 |
|
|
|
8/15/06
|
|
Issued
to unrelated party for advisory services
|
|
|
1,500,000 |
|
|
|
0.50
- 1.50 |
|
|
|
2/6/07
|
|
Exercised
|
|
|
(186,000 |
) |
|
|
0.50 |
|
|
|
2/6/07
|
|
Issued
to unrelated parties upon conversion of notes payable
|
|
|
72,214 |
|
|
|
1.50 |
|
|
|
10/31/06
|
|
Issued
to unrelated parties in connection with notes payable
|
|
|
300,000 |
|
|
|
0.60 |
|
|
|
11/13/06
to 7/29/07
|
|
Outstanding
and exercisable at July 31, 2002
|
|
|
6,316,857 |
|
|
|
0.50
- 4.55 |
|
|
|
5/28/03
to 9/10/07
|
|
Expired
|
|
|
(437,500 |
) |
|
|
1.03
- 3.25 |
|
|
|
5/28/03
|
|
Sold
in various private placements
|
|
|
1,315,000 |
|
|
|
1.00
- 1.50 |
|
|
|
1/24/08
to 10/31/08
|
Exercised
|
|
|
(640,000 |
) |
|
|
0.50 |
|
|
|
2/6/07
|
Issued
to unrelated parties in connection with notes payable
|
|
|
665,000 |
|
|
|
0.60 |
|
|
|
9/6/07
to 3/14/08
|
Outstanding
and exercisable at July 31, 2003
|
|
|
7,219,357 |
|
|
|
0.50
- 4.55 |
|
|
|
5/28/05
to 10/31/08
|
Sold
in various private placements
|
|
|
2,372,512 |
|
|
|
1.25
- 12.39 |
|
|
|
9/3/08
to 5/9/09
|
Exercised
|
|
|
(2,014,273 |
) |
|
|
0.50
– 1.50 |
|
|
|
2/6/07
to 10/31/08
|
Issued
to third party as finder’s fee
|
|
|
60,533 |
|
|
|
12.39 |
|
|
|
5/9/09
|
Issued
to unrelated parties in connection with conversion of
notes payable
|
|
|
3,733,839 |
|
|
|
1.00
- 1.10 |
|
|
|
12/4/08
to 7/15/09
|
Outstanding
and exercisable at July 31, 2004
|
|
|
11,371,968 |
|
|
|
0.60
- 12.39 |
|
|
|
5/28/05
to 7/15/09
|
Exercised
|
|
|
(247,272 |
) |
|
|
0.75
– 1.25 |
|
|
|
7/16/07
to 8/5/08
|
Expired
|
|
|
(437,500 |
) |
|
|
2.50
– 4.55 |
|
|
|
5/28/05
|
|
|
|
Warrants
|
|
|
|
Exercise
Price
|
|
|
Issued
to unrelated parties in connection with conversion of notes
payable
|
|
|
2,044,978 |
|
|
|
1.00 |
|
9/14/09
to 5/6/10
|
Issued
to a vendor in connection with services rendered
|
|
|
12,500 |
|
|
|
2.50
– 3.50 |
|
4/25/08
|
Outstanding
and exercisable at July 31, 2005
|
|
|
12,744,674 |
|
|
|
0.60
- 12.39 |
|
11/29/05
to 5/6/10
|
Exercised
|
|
|
(915,582 |
) |
|
|
0.75
– 1.50 |
|
7/7/06
to 9/2/08
|
Expired
|
|
|
(166,666 |
) |
|
|
3.00 |
|
11/29/05
– 12/21/05
|
Sold
in a private placement
|
|
|
6,457,172 |
|
|
|
2.88 |
|
7/17/11
|
Outstanding
at July 31, 2006
|
|
|
18,119,598 |
|
|
|
0.60
- 12.39 |
|
10/7/06
to 7/17/11
|
Exercised
|
|
|
(1,142,559 |
) |
|
|
0.60
– 2.88 |
|
10/7/06
to 7/17/11
|
Expired
|
|
|
(906,291 |
) |
|
|
1.50 |
|
10/12/06
– 4/9/07
|
Outstanding
at July 31, 2007
|
|
|
16,070,748 |
|
|
|
0.60
- 12.39 |
|
9/6/07
to 7/17/11
|
Exercisable
at July 31, 2007
|
|
|
16,070,748 |
|
|
|
0.60
- 12.39 |
|
9/6/07
to 7/17/11
|
Exercised
|
|
|
(760,000 |
) |
|
|
0.60
– 1.25 |
|
9/6/07
to 5/10/08
|
Expired
|
|
|
(448,214 |
) |
|
|
1.00
– 3.50 |
|
9/10/07
– 7/9/08
|
Outstanding
at July 31, 2008
|
|
|
14,862,534 |
|
|
$ |
1.00
- $12.39 |
|
8/13/08
to 7/17/11
|
Exercisable
at July 31, 2008
|
|
|
14,862,534 |
|
|
$ |
1.00
- $12.39 |
|
8/13/08
to 7/17/11
|
Expired
|
|
|
(6,366,884 |
) |
|
|
1.00
– 12.39 |
|
8/13/08
– 7/15/09
|
Outstanding
at July 31, 2009
|
|
|
8,495,650 |
|
|
$ |
1.00 - $2.88 |
|
9/14/09 to 7/17/11
|
Exercisable
at July 31, 2009
|
|
|
8,495,650 |
|
|
$ |
1.00 - $2.88 |
|
9/14/09 to
7/17/11
|
(7) Stock
Options
2004 Stock Incentive
Plan
The
Company's stockholders approved the 2004 Stock Incentive Plan (the “2004 Plan”)
for the issuance of up to 8,500,000 shares, which provides that common stock and
stock options may be granted to employees, directors and
consultants. The 2004 Plan provides for the granting of stock
options, stock appreciation rights, restricted shares, or other share based
awards to eligible employees and directors, as defined in the 2004
Plan. Options granted under the 2004 Plan will have an exercise price
equal to the market value of the Company’s common stock on the date of the
grant. The term, vesting period and time and method of exercise of options
granted under the 2004 Plan are fixed by the Board of Directors or a committee
thereof.
1997 Stock Option
Plan
The
Company’s stockholders approved the 1997 stock option plan for the issuance of
options for up to 2,000,000 shares, which provides that options may be granted
to employees, directors and consultants. Options are granted at
market value on the date of the grant and generally are exercisable in 20%
increments annually over five years starting one year after the date of grant
and terminate five years from their initial exercise date. This plan
expired in May 2007 except to the extent there are outstanding
options.
1993 Stock Option
Plan
The
Company's stockholders approved the 1993 stock option plan for the issuance of
options for up to 3,000,000 shares, which provides that options may be granted
to employees, directors and consultants. Options are granted at
market value on the date of the grant and generally are exercisable in 20%
increments annually over five years starting one year after the date of grant
and terminate five years from their initial exercise date. This plan
expired in November 2003 except to the extent there are outstanding
options. As of July 31, 1994, 1,703,159 options were granted and
outstanding under the 1993 stock option plan.
The
Company recorded the following stock-based compensation expense for employees
under SFAS 123(R) based on the fair value of stock options.
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Research
and development
|
|
$ |
364,149 |
|
|
$ |
717,059 |
|
|
$ |
794,262 |
|
General
and administrative
|
|
|
585,159 |
|
|
|
1,346,820 |
|
|
|
1,427,859 |
|
Total
stock-based compensation expense
|
|
$ |
949,308 |
|
|
$ |
2,063,879 |
|
|
$ |
2,222,121 |
|
Basic
and diluted loss per common share
|
|
$ |
0.02 |
|
|
$ |
.04 |
|
|
$ |
0.05 |
|
At July
31, 2008, the Company reversed a total of $1,225,112 compensation expense
related to 1,072,489 performance stock options issued to employees in May
2007. The Company assessed that the performance condition tied to
these stock options is deemed improbable; therefore, no compensation expense
should be recognized in accordance to the guidance of SFAS123R.
The fair
value of the stock options at the grant date was estimated using the
Black-Scholes option pricing model based on the weighted-average assumptions as
noted in the following table. The risk-free interest rate for periods
approximating the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant. The expected stock price
volatility is based on historical volatility of the Company’s stock
price. For post July 31, 2005 grants, the expected term until
exercise is derived using the “simplified” method as allowed under the
provisions of the SEC’s SAB No. 110, “Disclosures about Fair Value of Financial
Instruments” and represents the period of time that options granted are expected
to be outstanding.
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Expected
dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk-free
interest rate
|
|
|
1.00 |
% |
|
|
3.45 |
% |
|
|
4.78 |
% |
Expected
volatility
|
|
|
102.13 |
% |
|
|
108.2 |
% |
|
|
107.7 |
% |
Expected
term (years)
|
|
|
3.5 |
|
|
|
7.53 |
|
|
|
5.36 |
|
Weighted
average fair value of options at grant date
|
|
$ |
0.16 |
|
|
$ |
1.64 |
|
|
$ |
1.46 |
|
Weighted
average fair value exercise price
|
|
$ |
0.16 |
|
|
$ |
1.94 |
|
|
$ |
1.80 |
|
As of
July 31, 2009, there was approximately $882,000 of total unrecognized
compensation expense related to unvested options granted to employees that is
expected to be recognized over a weighted average period of 2.33
years.
Shares,
warrants and options issued to non-employees for services are accounted for in
accordance with SFAS 123(R) and EITF Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or In
Conjunction with Selling Goods or Services” (“EITF 96-18”). The fair
value of such securities is recorded as an expense and additional paid-in
capital in stockholders’ equity over the applicable service periods using
variable accounting through the vesting date based on the fair value of the
securities at the end of each period or the vesting date. During the
fiscal year ended July 31, 2009, under the variable accounting provisions of
EITF 96-18, the Company reduced an aggregate total of $16,892 of non-cash
expense for options issued to non-employees.
Option
Activity
The
following table summarizes stock option activity for the period August 1, 1994
to July 31, 2009:
|
|
Shares
Available
for
Grant
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Weighted
Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
Balance
August 1, 1994
|
|
|
1,926,841 |
|
|
|
5,935,337 |
|
|
$ |
3.76 |
|
|
|
Granted
|
|
|
(818,850 |
) |
|
|
818,850 |
|
|
|
2.60 |
|
|
|
Exercised
|
|
|
-- |
|
|
|
(185,000 |
) |
|
|
2.36 |
|
|
|
Canceled/Expired
|
|
|
-- |
|
|
|
(1,897,500 |
) |
|
|
4.30 |
|
|
|
Balance
August 1, 1995
|
|
|
1,107,991 |
|
|
|
4,671,687 |
|
|
|
3.39 |
|
|
|
Granted
|
|
|
(296,205 |
) |
|
|
296,205 |
|
|
|
3.99 |
|
|
|
Exercised
|
|
|
-- |
|
|
|
(656,334 |
) |
|
|
2.92 |
|
|
|
Canceled/Expired
|
|
|
6,500 |
|
|
|
(235,333 |
) |
|
|
4.89 |
|
|
|
Balance
July 31, 1996
|
|
|
818,286 |
|
|
|
4,076,225 |
|
|
|
3.43 |
|
|
|
Authorized
by 1997 Plan
|
|
|
2,000,000 |
|
|
|
-- |
|
|
|
- |
|
|
|
Granted
|
|
|
(932,500 |
) |
|
|
932,500 |
|
|
|
4.90 |
|
|
|
Exercised
|
|
|
-- |
|
|
|
(639,500 |
) |
|
|
3.82 |
|
|
|
Canceled/Expired
|
|
|
484,845 |
|
|
|
(484,845 |
) |
|
|
4.70 |
|
|
|
Balance
July 31, 1997
|
|
|
2,370,631 |
|
|
|
3,884,380 |
|
|
|
3.56 |
|
|
|
Granted
|
|
|
(234,333 |
) |
|
|
234,333 |
|
|
|
3.31 |
|
|
|
Canceled/Expired
|
|
|
91,100 |
|
|
|
(91,100 |
) |
|
|
3.81 |
|
|
|
Balance
July 31, 1998
|
|
|
2,227,398 |
|
|
|
4,027,613 |
|
|
|
3.54 |
|
|
|
|
|
|
Shares
Available
for
|
|
|
|
Options
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Granted
|
|
|
(595,000 |
) |
|
|
595,000 |
|
|
|
0.62 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
443,934 |
|
|
|
(555,737 |
) |
|
|
3.97 |
|
|
|
|
|
|
|
Balance
July 31, 1999
|
|
|
2,076,332 |
|
|
|
4,066,876 |
|
|
|
3.05 |
|
|
|
|
|
|
|
Granted
|
|
|
(827,000 |
) |
|
|
827,000 |
|
|
|
0.52 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(95,000 |
) |
|
|
0.48 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
638,395 |
|
|
|
(1,031,880 |
) |
|
|
2.73 |
|
|
|
|
|
|
|
Balance
July 31, 2000
|
|
|
1,887,727 |
|
|
|
3,766,996 |
|
|
|
2.65 |
|
|
|
|
|
|
|
Granted
|
|
|
(447,000 |
) |
|
|
447,000 |
|
|
|
0.85 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(165,555 |
) |
|
|
0.51 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
774,315 |
|
|
|
(1,018,557 |
) |
|
|
3.42 |
|
|
|
|
|
|
|
Balance
July 31, 2001
|
|
|
2,215,042 |
|
|
|
3,029,884 |
|
|
|
2.24 |
|
|
|
|
|
|
|
Granted
|
|
|
(544,221 |
) |
|
|
544,221 |
|
|
|
0.69 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
655,840 |
|
|
|
(900,081 |
) |
|
|
2.31 |
|
|
|
|
|
|
|
Balance
July 31, 2002
|
|
|
2,326,661 |
|
|
|
2,674,024 |
|
|
|
1.90 |
|
|
|
|
|
|
|
Granted
|
|
|
(630,000 |
) |
|
|
630,000 |
|
|
|
0.50 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(124,000 |
) |
|
|
0.47 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
485,118 |
|
|
|
(736,358 |
) |
|
|
3.09 |
|
|
|
|
|
|
|
Balance
July 31, 2003
|
|
|
2,181,779 |
|
|
|
2,443,666 |
|
|
|
1.26 |
|
|
|
|
|
|
|
Authorized
by
2004 Stock Incentive
Plan
|
|
|
8,500,000 |
|
|
|
-- |
|
|
|
- |
|
|
|
|
|
|
|
Granted
|
|
|
(1,388,996 |
) |
|
|
1,388,996 |
|
|
|
5.03 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(666,717 |
) |
|
|
0.98 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
(262,783 |
) |
|
|
(208,500 |
) |
|
|
3.20 |
|
|
|
|
|
|
|
Balance
July 31, 2004
|
|
|
9,030,000 |
|
|
|
2,957,445 |
|
|
|
2.95 |
|
|
|
|
|
|
|
Granted
|
|
|
(1,073,000 |
) |
|
|
1,073,000 |
|
|
|
4.36 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(191,100 |
) |
|
|
0.75 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
290,500 |
|
|
|
(341,500 |
) |
|
|
4.57 |
|
|
|
|
|
|
|
Balance
July 31, 2005
|
|
|
8,247,500 |
|
|
|
3,497,845 |
|
|
|
3.35 |
|
|
|
|
|
|
|
Granted
|
|
|
(745,000 |
) |
|
|
745,000 |
|
|
|
1.76 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(207,245 |
) |
|
|
0.90 |
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
171,250 |
|
|
|
(205,250 |
) |
|
|
4.67 |
|
|
|
|
|
|
|
Balance
July 31, 2006
|
|
|
7,673,750 |
|
|
|
3,830,350 |
|
|
|
3.10 |
|
|
|
|
|
|
|
Granted
|
|
|
(2,187,489 |
) |
|
|
2,187,489 |
|
|
|
1.80 |
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(295,800 |
) |
|
|
1.19 |
|
|
|
|
|
|
332,936 |
|
Cancelled/Expired
|
|
|
(26,250 |
) |
|
|
(125,000 |
) |
|
|
3.07 |
|
|
|
|
|
|
|
|
Forfeited
|
|
|
325,000 |
|
|
|
(730,000 |
) |
|
|
1.69 |
|
|
|
|
|
|
|
|
Balance
July 31, 2007
|
|
|
5,785,011 |
|
|
|
4,867,039 |
|
|
|
2.85 |
|
|
|
6.28 |
|
|
|
2,277,048 |
|
Granted
|
|
|
(1,885,000 |
) |
|
|
1,885,000 |
|
|
|
1.94 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(236,000 |
) |
|
|
0.62 |
|
|
|
|
|
|
|
392,430 |
|
Cancelled/Expired
|
|
|
1,000 |
|
|
|
(137,000 |
) |
|
|
1.45 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
25,972 |
|
|
|
(25,972 |
) |
|
|
2.00 |
|
|
|
|
|
|
|
|
|
Balance
July 31, 2008
|
|
|
3,926,983 |
|
|
|
6,353,067 |
|
|
$ |
2.69 |
|
|
|
6.72 |
|
|
$ |
84,115 |
|
Granted
|
|
|
(265,000 |
) |
|
|
265,000 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(37,000 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
8,126 |
|
Cancelled/Expired
|
|
|
1,058,005 |
|
|
|
(1,512,905 |
) |
|
|
2.74 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
292,512 |
|
|
|
(296,512 |
) |
|
|
1.42 |
|
|
|
|
|
|
|
|
|
Balance
July 31, 2009
|
|
|
5,012,500 |
|
|
|
4,771,650 |
|
|
$ |
2.64 |
|
|
|
3.84 |
|
|
$ |
12,230 |
|
Exercisable
at July 31, 2007
|
|
|
|
|
|
|
2,616,333 |
|
|
$ |
3.25 |
|
|
|
4.22 |
|
|
$ |
1,627,756 |
|
Exercisable
at July 31, 2008
|
|
|
|
|
|
|
3,326,816 |
|
|
$ |
3.33 |
|
|
|
4.88 |
|
|
$ |
84,115 |
|
Exercisable
at July 31, 2009
|
|
|
|
|
|
|
3,415,650 |
|
|
$ |
3.02 |
|
|
|
2.14 |
|
|
$ |
3,030 |
|
Stock
option activity prior to adoption of SFAS 123 (see Note 1) is as
follows:
1981 Non-Qualified Stock
Option Plan
In 1981,
the Board of Directors adopted a non-qualified stock option plan and had
reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not
exercised within five years. Option grants of 60,000 shares expired unexercised
by July 31, 1991.
Non-Qualified Stock
Options
The Board
of Directors issued non-qualified stock options which were not part of the 1981
non-qualified stock option plan or the 1989 Stock Plan as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted
|
|
|
1,782,000 |
|
|
$ |
3.00-3.87 |
|
Exercised
|
|
|
(276,989 |
) |
|
|
3.00-3.50 |
|
Canceled
|
|
|
(106,000 |
) |
|
|
3.00-3.50 |
|
Expired
|
|
|
(649,011 |
) |
|
|
3.00-3.50 |
|
Granted
pursuant to conversion of certain liabilities:
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
1,324,014 |
|
|
|
3.20 |
|
Unrelated
party
|
|
|
73,804 |
|
|
|
3.20 |
|
Repurchased
stock options
|
|
|
(102,807 |
) |
|
|
3.20 |
|
Balance
at July 31, 1994
|
|
|
2,045,011 |
|
|
$ |
3.20-3.87 |
|
In
connection with certain private placements, the Board of Directors had included
in the agreements, options to purchase additional shares of the Company's common
stock as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted
(42,167 options were repriced and extended)
|
|
|
894,887 |
|
|
$ |
2.50-7.00 |
|
Exercised
|
|
|
(81,000 |
) |
|
|
3.97-6.50 |
|
Expired
|
|
|
(201,720 |
) |
|
|
3.97-6.50 |
|
Balance
at July 31, 1994
|
|
|
612,167 |
|
|
$ |
2.50-7.00 |
|
All of
the above options expired as of July 31, 2001.
1989 Stock
Plan
On
February 14, 1989, the Company adopted the Alfacell Corporation 1989 Stock Plan
(the "1989 Stock Plan"), pursuant to which the Board of Directors could issue
awards, options and grants.
No more
options are being granted pursuant to this plan. The per share option
exercise price was determined by the Board of Directors. All options
and shares issued upon exercise were nontransferable and forfeitable in the
event employment was terminated within two years of the date of
hire. In the event the option was exercised and said shares were
forfeited, the Company would return to the optionee the lesser of the current
market value of the securities or the exercise price paid.
The stock
option activity is as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted,
February 14, 1989
|
|
|
3,460,000 |
|
|
$ |
3.50-5.00 |
|
Options
issued in connection with share purchase
|
|
|
36,365 |
|
|
|
2.75 |
|
Expired
|
|
|
(1,911,365 |
) |
|
|
2.75-5.00 |
|
Canceled
|
|
|
(10,000 |
) |
|
|
5.00 |
|
Balance
at July 31, 1994
|
|
|
1,575,000 |
|
|
$ |
3.50-5.00 |
|
(8)
|
Stock Grant and
Compensation Plans
|
The
Company had adopted a stock grant program effective September 1, 1981, and
pursuant to said program, had reserved 375,000 shares of its common stock for
issuance to key employees. The stock grant program was superseded by
the 1989 Stock Plan, and no further grants will be given pursuant to the grant
plan. The following stock transactions occurred under the Company's
stock grant program:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1983
|
|
|
20,000 |
|
|
$ |
5.50 |
|
|
$ |
110,000 |
|
1984
|
|
|
19,750 |
|
|
|
5.125 |
|
|
|
101,219 |
|
1985
|
|
|
48,332 |
|
|
|
5.125-15.00 |
|
|
|
478,105 |
|
1986
|
|
|
11,250 |
|
|
|
5.125-15.00 |
|
|
|
107,032 |
|
1988
|
|
|
19,000 |
|
|
|
3.50 |
|
|
|
6,500 |
|
On
January 26, 1984, the Company adopted a stock bonus plan for directors and
consultants. The plan was amended on October 6, 1986 to reserve
500,000 shares for issuance under the plan and to clarify a requirement that
stock issued under the Plan could not be transferred until three years after the
date of the grant. The stock bonus plan for directors and consultants
was superseded by the 1989 Stock Plan and no further grants will be given
pursuant to the stock bonus plan for directors and consultants. The
following stock transactions occurred under the Company's stock bonus
plan:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1984
|
|
|
130,250 |
|
|
$ |
2.50-3.88 |
|
|
$ |
385,917 |
|
1985
|
|
|
99,163 |
|
|
|
3.50-15.00 |
|
|
|
879,478 |
|
1985
|
|
|
(42,500 |
) |
|
|
2.50 |
|
|
|
(105,825 |
)* |
1986
|
|
|
15,394 |
|
|
|
9.65-15.00 |
|
|
|
215,400 |
|
1987
|
|
|
5,000 |
|
|
|
15.00 |
|
|
|
75,000 |
|
* Shares
granted in 1984 were renegotiated in 1985 and canceled as a result of the
recipient's termination.
1989 Stock
Plan
Under the
1989 Stock Plan, one million shares of the Company's common stock were reserved
for issuance as awards to employees. The 1989 Stock Plan also
provided for the granting of options to purchase common stock of the
Company. In addition, the 1989 Stock Plan provided for the issuance
of 1,000,000 shares of the Company's common stock as grants. To be
eligible for a grant, grantees must have made substantial contributions and
shown loyal dedication to the Company.
Awards
and grants were authorized under the 1989 Stock Plan during the following fiscal
years:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1989
|
|
|
30,000 |
|
|
$ |
5.00 |
|
|
$ |
150,000 |
|
1990
|
|
|
56,000 |
|
|
|
6.00 |
|
|
|
336,000 |
|
1991
|
|
|
119,000 |
|
|
|
4.00 |
|
|
|
476,000 |
|
1992
|
|
|
104,000 |
|
|
|
2.75 |
|
|
|
286,000 |
|
1993
|
|
|
117,000 |
|
|
|
2.00 |
|
|
|
234,000 |
|
1994
|
|
|
5,000 |
|
|
|
3.00 |
|
|
|
15,000 |
|
Compensation
expense was recorded for the fair value of all stock awards and grants over the
vesting period. The 1994 stock award was immediately
vested. There were no stock awards in fiscal year ended 1999 and the
plan expired in 1999.
(9) Income
Taxes
The
Company accounts for income taxes under the provisions of SFAS
109. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect for all years in which the temporary differences are expected to
reverse.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain state tax benefits. For
the state fiscal year 2009 (July 1, 2008 to June 30, 2009), the Company had
approximately $1,274,000 of total available state tax benefit that was
saleable. On December 1, 2008, the Company received approximately
$1,140,000 from the sale of its total available state tax benefit, which was
recognized as state tax benefit in the fiscal year ended July 31,
2009.
For the
state fiscal year 2008 (July 1, 2007 to June 30, 2008), the Company had
approximately $2,496,000 of total available state tax benefits that were
saleable, of which New Jersey permitted the Company to sell approximately
$1,969,000. In December 2007, the Company received approximately
$1,755,000 from the sale of the $1,969,000 of state tax benefits, which was
recognized as a state tax benefit for the fiscal year ended July 31,
2008.
For the
state fiscal year 2007 (July 1, 2006 to June 30, 2007), the Company had
approximately $2,338,000 of total available state tax benefits that were
saleable, of which New Jersey permitted the Company to sell approximately
$574,000. In December 2006, the Company received approximately
$510,000 from the sale of the $574,000 of state tax benefits, which was
recognized as a state tax benefit for the fiscal year ended July 31,
2007.
If still
available under New Jersey law, the Company will attempt to qualify and sell its
new state tax benefit between July 1, 2008 and June 30, 2009 (state fiscal year
2009) in the amount of approximately $722,000. This amount represents
the net losses and research and development credits during the state fiscal year
2009. The Company cannot estimate, however, what percentage of its
saleable state tax benefit New Jersey will permit it to sell, how much money
will be received in connection with the sale, if any, if the Company will be
able to qualify and find a buyer for its state tax benefit or if such funds will
be available in a timely manner.
At July
31, 2009 and 2008, the tax effects of temporary differences that give rise to
the deferred tax assets are as follows:
Deferred
tax assets:
|
|
2009
|
|
|
2008
|
|
Excess
of book over tax depreciation and amortization
|
|
$ |
(2,867 |
) |
|
$ |
4,581 |
|
Stock
options
|
|
|
2,628,892 |
|
|
|
2,350,272 |
|
Deferred
revenue
|
|
|
2,080,000 |
|
|
|
2,080,000 |
|
Temporary
differences
|
|
|
479,020 |
|
|
|
521,403 |
|
Federal
and state net operating loss carryforwards
|
|
|
23,641,138 |
* |
|
|
23,033,058 |
* |
Research
and experimentation credit carryforwards
|
|
|
2,578,601 |
* |
|
|
3,067,618 |
* |
Total
gross deferred tax assets
|
|
|
31,404,784 |
|
|
|
31,056,932 |
|
Valuation
allowance
|
|
|
(31,404,784 |
) |
|
|
(31,056,932 |
) |
Net
deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
* Net
of amount sold pursuant to New Jersey state tax legislation.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
tax benefit assumed using the federal statutory tax rate of 34% has been reduced
to the actual benefits reflected on the statements of operations due principally
to the aforementioned valuation allowance. In 2009, 2008 and 2007 the
valuation allowance increased by $348,000, $3,877,000, and $3,074,000,
respectively.
At July
31, 2009, the Company has federal net operating loss carryforwards of
approximately $67,955,000 that expire in the years 2010 to 2029 (approximately
$18,927,000 expires
in the years 2010 to 2014) and state net operating loss carryforwards of
approximately $8,942,000 that expire in years 2017 to 2018. The
Company also has federal research and experimentation tax credit carryforwards
of approximately $2,217,000 that expire in the years 2010 to 2029 (approximately
$490,000 expires in the years 2010 to 2014) and state research and
experimentation tax credits of approximately $361,000 that expire in the years
2023 to 2024. Ultimate utilization/availability of such net operating
losses and credits is dependent upon the Company’s ability to generate taxable
income in future periods and may be significantly curtailed if a significant
change in ownership occurs in accordance with the provisions of the Tax Reform
Act of 1986.
Effective
August 1, 2007, the Company adopted FIN 48 which clarifies the accounting and
disclosure for uncertainty in income taxes. The adoption of this
interpretation did not have any material impact on the Company’s financial
statements, as there were no unrecognized tax benefits as of August 1, 2007 or
during the fiscal year ended July 31, 2009 and 2008.
The
Company files income tax returns in the U.S. federal jurisdiction and New
Jersey. For federal income tax purposes, fiscal 2006 through 2009 tax
years generally remain open for examination by the tax authorities under the
normal three-year statute of limitations. For New Jersey tax
purposes, fiscal 2005 through 2009 tax years generally remain open for
examination under a four-year statute of limitations.
(10) Related Party
Transactions
In March
2008 and September 2008, the Company engaged Champions Biotechnology, Inc. to
provide certain services for approximately $12,300 and $81,200,
respectively. The Company’s non-executive Chairman of the Board of
Directors, Dr. David Sidransky, is also the chairman of the board of directors
as well as a principal stockholder of Champions Biotechnology,
Inc. As of July 31, 2009, the agreed amount was paid in
full.
On
October 19, 2009, Charles Muniz, the Company’s President, Chief Executive
Officer and Chief Financial Officer, was a party to the Securities Purchase
Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow
Agreement. The Company’s entry into an employment agreement with Mr.
Muniz upon terms reasonably acceptable to the investors in the Offering was a
condition to the Closing. See Note 13 – Subsequent
Events.
(11) Commitments
Employment
and Retirement Agreements
On April
28, 2008, the Company entered into a retirement agreement (the “Retirement
Agreement”) with Ms. Shogen. Under the terms of the Retirement
Agreement, Ms. Shogen will be entitled to receive her current annual salary of
$300,000 and participate in all benefit plans available for the Company’s
executives through her retirement date, which will occur on or before March 31,
2009 (the “Termination Date”). Ms. Shogen will receive retirement
payments of $300,000 for each of the two years after the Termination
Date. During the fiscal year ended July 31, 2008, the Company accrued
these benefits in the amount of $612,000.
On
September 14, 2009, the Company entered into an amendment (the “Amendment”) to
the Retirement Agreement amending certain terms. Pursuant to the
Amendment, effective as of September 14, 2009, periodic payments owed to Ms.
Shogen under the Retirement Agreement during the two year period commencing
April 1, 2008 will be paid at the rate of $150,000 per year, rather than at the
rate of $300,000 per year as originally provided in the Retirement
Agreement. Under the Retirement Agreement, Ms. Shogen was entitled to
receive continuing payments equal to 15% of any royalties received by Alfacell
pursuant to any and all license agreements entered into by Alfacell for the
marketing and distribution of Licensed Products. Under the Amendment, the amount
of such royalties related to net sales of Licensed Products to be received by
Ms. Shogen has been reduced to 5%. Under the Retirement Agreement,
Ms. Shogen was entitled to receive continuing payments equal to 5% of net sales
of Licensed Products booked by Alfacell on its financial
statements. Under the Amendment the amount of such net sales booked
by Alfacell has been reduced to 2%. Under the Amendment, in the event Alfacell
obtains marketing approval for ONCONASE® from
the Food and Drug Administration or the European Medicines Agency, Ms. Shogen
will be entitled to receive an additional payment equal to the difference
between the periodic payments actually paid to Ms. Shogen during the two year
period commencing April 1, 2008 and $600,000, the original amount of periodic
payments to which Ms. Shogen was entitled under the Retirement
Agreement. Such additional payment may be made by Alfacell, at its
option, in cash, Alfacell common stock or a combination of both. The
Amendment is binding on the parties as of September 14, 2009 provided that the
changes in payments to Ms. Shogen under the Retirement Agreement described above
do not go into effect unless and until Alfacell obtains additional equity or
debt financing. Except as specifically amended in the Amendment, all
terms and conditions of the Retirement Agreement remain in full force and
effect.
On
October 19, 2009, the Company entered into an Employment Agreement (the
“Employment Agreement”) with Mr. Muniz. Pursuant to the Employment
Agreement, Mr. Muniz shall serve as the Company’s President, Chief
Executive Officer and Chief Financial Officer. Mr. Muniz will receive an
annual base salary of $300,000 and is entitled to receive cash incentive
compensation or annual stock option awards as determined by the Board or the
Compensation Committee of the Board from time to time. In addition,
Mr. Muniz is entitled to participate in any and all employee benefit plans
established and maintained by the Company for executive officers of the Company.
Pursuant to the Employment Agreement, Mr. Muniz will receive an option (the
“Option”), granted under and in accordance with the Company’s 2004 Stock
Incentive Plan, to purchase an aggregate of 500,000 shares of Common Stock
exercisable for ten years from the date the Option is granted. The Option shall
vest in equal amounts on each of the first, second and third year anniversary of
the grant so long as Mr. Muniz remains employed by the Company. The exercise
price of the Option will equal the fair market value of the Common Stock on the
date of grant.
The
Employment Agreement continues in effect for two years following the date of the
agreement and automatically renews for successive one-year periods, unless Mr.
Muniz’s employment is terminated by him or by the Company. In the event that
Mr. Muniz’s employment is terminated by the Company for any reason, then
Mr. Muniz is entitled to receive his earned but unpaid base salary and
incentive compensation, unpaid expense reimbursements, accrued but unused
vacation and any vested benefits under any employee benefit plan of the Company.
In the event that Mr. Muniz’s employment is terminated by the Company without
“cause” or by Mr. Muniz for “good reason” (as such terms are defined in the
Employment Agreement), then in addition to the above mentioned payments and
benefits, Mr. Muniz is entitled to receive an amount equal to his then current
annual base salary, payable in equal installments over 12 months in accordance
with the Company’s payroll practice and all medical and health benefits for 18
months following the termination date. Mr. Muniz’s Employment Agreement
requires him to refrain from competing with the Company and from hiring our
employees and soliciting our customers for a period of one year following the
termination of his employment with the Company for any reason.
Mr. Muniz
is an investor in the Company’s Offering and is party to the Securities Purchase
Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow
Agreement.
Lease
Commitments
In
November 2007, the Company entered into a capital lease agreement for its
building security system for the term of five years with a payment of $635 per
month. The lease agreement also gives the Company the right to
purchase the leased equipment at the end of the lease term for $1.00 plus
applicable taxes.
On March
14, 2007 the Company entered into an operating lease agreement for a period of
ten years to lease space to relocate its corporate headquarters and laboratories
to a new location in Somerset, New Jersey. This lease expires on the
tenth anniversary plus 150 days after the commencement date of the lease which
expiration date is expected to be November 2017. The first rental
payment occurred on July 3, 2007 which is the lease commencement
date. The lease may be renewed at the option of the Company for a
period of two additional terms of 60 months each. In addition, the
Company has received an incentive allowance of $205,000 with an option to
receive an additional incentive allowance of $105,000. As of July 31,
2007 the Company has not exercised the additional incentive allowance of
$105,000. Both allowances must be used for the cost of leasehold
improvements made to the premises. If all or any portion of the
remaining allowance is not used by the end of the original lease
term of ten years any remaining balance may not be applied to the
balance of any rent due at the conclusion of the initial lease
term. As part of the operating lease agreement signed on March 14,
2007 the Company agreed to enter into an irrevocable letter of credit in the
amount of $350,000 as security for such operating lease. This
irrevocable letter of credit is collateralized by $350,000 in cash which is
recorded in “Other Assets” in fiscal year ended July 31, 2008. If no
event of default occurs under the operating lease the Company may reduce its
security deposit under the operating lease to $250,000 on July 1, 2011, the
fourth anniversary of the lease commencement date. In the event of no
default as of July 1, 2012, the fifth anniversary of the lease commencement
date, the irrevocable letter of credit may be reduced to $150,000 until the
initial term of the lease expires in 2017. As of July 31, 2009, the
irrevocable letter of credit was reduced by $83,720 for payment of
rent. Rent expense charged to operations was approximately $308,000
and $300,000 for fiscal year ended July 31, 2009 and 2008,
respectively.
Prior to
July 2007, the Company leased its facility on a month-to-month
basis. Rent expense charged to operations was approximately $160,000,
and $136,000 in each of fiscal years ended July 31, 2007 and 2006,
respectively.
In June
2007, the Company entered into an operating lease agreement for its office
equipment for the term of five years with a payment of approximately $1,600 per
month. As part of the lease agreement, the Company agreed to
terminate its existing office equipment lease. As a result of the
early termination of the existing lease, the Company recognized an expense of
approximately $31,000 which will be amortized using straight-line method over
the term of the lease and will be charged as a reduction from the equipment
rental expense. The new lease did not commence until August
2007. Rent expense charged to operations was approximately $12,000
for fiscal years ended July 31, 2009 and 2008. Under the previous
lease agreement, equipment rental expense charged to operations was $16,000 and
$12,000 in each of fiscal years ended July 31, 2007 and 2006,
respectively.
Future
minimum lease payments under noncancelable operating leases (with initial or
remaining terms in excess of one year) as of July 31, 2009:
|
|
|
|
|
Payments
Due in Fiscal Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and
Thereafter
|
|
Building
lease
|
|
$ |
2,750,685 |
|
|
$ |
302,036 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Equipment
lease
|
|
|
83,612 |
|
|
|
31,024 |
|
|
|
25,976 |
|
|
|
25,976 |
|
|
|
636 |
|
|
|
- - |
|
|
|
- |
|
Total
contractual cash obligations
|
|
$ |
2,834,297 |
|
|
$ |
333,060 |
|
|
$ |
343,422 |
|
|
$ |
343,422 |
|
|
$ |
318,082 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Defined
Contribution Retirement Plan (401(k) Plan)
Effective
October 1, 1998, the Company adopted a 401(k) Savings Plan (the
“Plan”). Qualified employees may participate by contributing to the
Plan subject to certain Internal Revenue Service restrictions. The
Company will match an amount equal to 50% of the first 6% of each participant’s
contribution. The Company’s contribution is subject to a vesting
schedule of 0%, 25%, 50%, 75% and 100% for employment of less than one year, one
year, two years, three years and four years, respectively, except for existing
employees which vesting schedule was based from the date the Plan was
adopted. In April 2009, the Plan was amended to suspend the Company’s
matching contribution. For the fiscal years ended July 31, 2009, 2008
and 2007, the Company's contributions to the Plan amounted to $17,252, $46,921,
and $34,080, respectively.
The
Company has product liability insurance coverage for clinical trials in the U.S.
and in other countries where it conducts its clinical trials. No
product liability claims have been filed against the Company. If a
claim arises and the Company is found liable in an amount that significantly
exceeds the policy limits, it may have a material adverse effect upon the
financial condition and results of operations of the Company.
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the
Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
Premier
Research Group filed and served a lawsuit against the Company in the Superior
Court of New Jersey, Law Division, Essex County, on or about July 26, 2009,
seeking the recovery of professional fees that arose from clinical trials
purportedly performed in Europe by Premier Research Group as signee of a
contract between Alfacell Corporation and IMFORM GmbH dated October 27,
2005. An Answer with Separate Defenses and Counterclaim was filed on
or about July 30, 2009. This case remains in the early stages of
discovery.
I & G
Garden State, LLC (“Landlord”) filed and served a complaint against the Company
in the Superior Court of New Jersey Law Division, Special Civil Part
Landlord-Tenant Section, Somerset County, on or about October 30, 2009, for
non-payment of rent and failure to maintain security deposit. The
complaint seeks to have the Company vacate the property. Although
Landlord filed this complaint, Landlord has been drawing funds from the
Company’s secured irrevocable letter of credit which was placed in March 2007 in
the amount of $350,000.
On
September 8, 2009, the Company and Par entered into a Termination and Mutual
Release Agreement (the “Termination Agreement”) pursuant to which the License
Agreement and Supply Agreement, each dated January 14, 2008 between Alfacell and
Par, were terminated. See Note 1 – Summary of Significant
Accounting Policies – Revenue
Recognition.
On
September 14, 2009, the Company entered into an amendment (the “Amendment”) to
the Retirement Agreement between the Company and Kuslima Shogen, the Company’s
former CEO and scientific founder. See Note 11 – Commitments – Employment and Retirement
Agreements.
On
October 19, 2009, the Company entered into an Employment Agreement (the
“Employment Agreement”) with Mr. Muniz the Company’s President, Chief Executive
Officer and Chief Financial Officer. See Note 11 – Commitments – Employment and Retirement
Agreements.
On
October 19, 2009, the Company completed a sale of 65 units (the “Units”) in a
private placement (the “Offering”) to certain investors pursuant to a securities
purchase agreement (the “Securities Purchase Agreement”) entered into on October
19, 2009. Each Unit consists of (i) $50,000 principal amount of
5% Senior Secured Convertible Promissory Notes (collectively, the “Notes”)
convertible into shares of the Company’s common stock, par value $.001 per share
(“Common Stock”), (ii) Series A Common Stock Purchase Warrants (the “Series
A Warrants”) to purchase in the aggregate that number of shares of Common Stock
initially issuable upon conversion of the aggregate amount of Notes issued as
part of the Unit, at an exercise price of $0.15 per share with a three year term
and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants”,
together with the Series A Warrants, the “Warrants”) to purchase in the
aggregate that number of shares of Common Stock initially issuable upon
conversion of the aggregate amount of Notes issued as part of the Unit, at an
exercise price of $0.25 per share with a five year term. The closing of the
Offering occurred on October 19, 2009 (the “Closing”) and the Company received
an aggregate of $3,250,000 in gross proceeds.
The Notes
mature on the earlier of (i) October 19, 2012; (ii) the closing of a public or
private offering of the Company’s debt or equity securities subsequent to the
date of issuance resulting in gross proceeds of at least $8,125,000 other than a
transaction involving a stockholder who holds 5% or more of the Company’s
outstanding capital stock as of the date of issuance; or (iii) on the demand of
the holder of the Note upon the Company’s consummation of a merger, sale of
substantially all of its assets, or the acquisition by any entity, person or
group of 50% or more of the voting power of the Company. Interest accrues on the
principal amount outstanding under the Notes at a rate of 5% per annum, and is
due upon maturity. Upon an event of default under the Notes, the interest rate
shall increase to 7%, provided that if the Company is unable to obtain
stockholder approval by April 1, 2010 to amend its certificate of incorporation
to increase its authorized capital stock, the interest rate shall increase to
15% and such failure will be an Event of Default under the Notes. The Notes are
convertible into Common Stock at the option of the holder of the Note at a price
of $0.15 per share at any time prior to the date on which the Company makes
payment in full of all amounts outstanding under the Note. The Notes are not
prepayable for a period of one year following the issuance
thereof. The Notes are secured by a senior security interest and lien
on all of the Company’s right, title and interest to all of the assets owned by
the Company as of the Closing or thereafter acquired pursuant to the terms of a
security agreement (the “Security Agreement”) entered into the by the Company
with each of the investors. The Warrants are exercisable immediately following
the Closing.
Pursuant
to the terms of the Securities Purchase Agreement, certain investors party
thereto are permitted to appoint a designee to the Company’s Board of Directors
(the “Board”) within a reasonable period of time following the
Closing. In addition, as a condition to Closing, each member of the
Board other than David Sidransky, Chairman of the Board, and Mr. Muniz agreed to
resign from the Board upon the request of Dr. Sidransky made at any time
following the Closing and December 31, 2009.
In
connection with the Offering, the Company entered into an investor rights
agreement (the “Investor Rights Agreement”) with each of the investors.
The Investor Rights Agreement provides that the Company will file a “resale”
registration statement (the “Initial Registration Statement”) covering all of
the shares issuable upon conversion of the Notes (the “Note Shares”) and the
shares issuable upon exercise of the Warrants (the “Warrant Shares”, together
with the Note Shares, the “Securities”), up to the maximum number of shares able
to be registered pursuant to applicable Securities and Exchange Commission
(“SEC”) regulations, within 120 days of the Closing. If any Securities are
unable to be included on the Initial Registration Statement, the Company has
agreed to file subsequent registration statements until all the Securities have
been registered. Under the terms of the Investor Rights Agreement, the
Company is obligated to maintain the effectiveness of the “resale” registration
statement until all securities therein are sold or are otherwise can be sold
pursuant to Rule 144, without any restrictions. A cash penalty at the
rate of 1% per month will be triggered in the event the Company fails to file or
obtain the effectiveness of a registration statement prior to the deadlines set
forth in the Investor Rights Agreement or if the Company ceases to be current in
filing its periodic reports with the SEC. The aggregate penalty accrued with
respect to each investor may not exceed 6% of the original purchase price paid
by that investor, or 12% if the only effectiveness failure is the Company’s
failure to be current in its periodic reports with the SEC.
In
connection with the Offering, the Company also entered into an escrow agreement
(the “Escrow Agreement”) whereby certain investors placed $1,600,000 of the
proceeds paid for their Units in an escrow account pursuant to the terms of the
Securities Purchase Agreement. Such amounts can be disbursed from the
escrow account only to satisfy obligations of the Company owed to clinical
research organizations, hospitals, doctors and other vendors and service
providers associated with the clinical trials which the Company intends to
conduct for its ONCONASE®
product. The Escrow Agreement shall terminate on the earlier of the date that
all funds have been disbursed from the escrow account and April 19, 2011, at
which time any remaining funds will be disbursed to the Company.
Charles
Muniz, the Company’s President, Chief Executive Officer and Chief Financial
Officer, subscribed for 20 Units, certain trusts and individuals related to
James O. McCash, a beneficial owner of more than five percent of the Company’s
voting securities, subscribed for an aggregate of 20 Units, Europa International
Inc., a beneficial owner of more than five percent of the Company’s voting
securities, subscribed for 15 Units and Unilab LP, an affiliate of US Pharmacia,
an affiliate of the Company’s distributor for ONCONASE® in
Eastern Europe and a current stockholder, subscribed for 10 units. These
investors are party to the Securities Purchase Agreement, the Investor Rights
Agreement, the Security Agreement and the Escrow Agreement. The Company’s entry
into an employment agreement with Mr. Muniz upon terms reasonably acceptable to
the investors in the Offering was a condition to the Closing.
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the
Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
(14) Unaudited Quarterly
Financial Data
The
following table is the quarterly data for the two years ended July 31, 2009 and
2008:
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Totals
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Totals
|
|
Investment income
|
|
$ |
19 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
|
1 |
|
|
$ |
26 |
|
|
$ |
61 |
|
|
$ |
66 |
|
|
$ |
67 |
|
|
|
34 |
|
|
$ |
228 |
|
Operating
loss
|
|
|
(2,821 |
) |
|
|
(1,798 |
) |
|
|
(696 |
) |
|
|
(384 |
) |
|
|
(5,699 |
) |
|
|
(2,787 |
) |
|
|
(3,507 |
) |
|
|
(5,092 |
) |
|
|
(2,915 |
) |
|
|
(14,301 |
) |
Net
loss
(a)
|
|
|
(2,803 |
) |
|
|
(654 |
) |
|
|
(696 |
) |
|
|
(386 |
) |
|
|
(4,539 |
) |
|
|
(2,727 |
) |
|
|
(1,687 |
) |
|
|
(5,026 |
) |
|
|
(2,881 |
) |
|
|
(12,321 |
) |
Loss
per share – basic and diluted
|
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.26 |
) |
|
(a)
|
The
net loss of $654 for the second quarter of 2009 and $1,687 for the second
quarter of 2008 is net of state tax benefits of $1,140 and $1,755,
respectively, related to the sale of certain state tax operating loss
carryforwards.
|
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
BALANCE SHEETS
January
31, 2010 and July 31, 2009
|
|
January
31,
2010
(Unaudited)
|
|
|
July
31,
2009
(See Note 1)
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
683,370 |
|
|
$ |
129,194 |
|
Prepaid
expenses
|
|
|
138,022 |
|
|
|
54,494 |
|
Total
current assets
|
|
|
821,392 |
|
|
|
183,688 |
|
Property
and equipment, net of accumulated depreciation and amortization of
$370,635 at January 31, 2010 and $377,134 at July 31, 2009
|
|
|
39,896 |
|
|
|
108,018 |
|
Restricted
cash
|
|
|
1,681,219 |
|
|
|
266,280 |
|
Deferred
financing cost
|
|
|
117,201 |
|
|
|
– |
|
Total
assets
|
|
$ |
2,659,708 |
|
|
$ |
557,986 |
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
519,339 |
|
|
$ |
407,273 |
|
Accrued
clinical trial expenses
|
|
|
431,246 |
|
|
|
459,911 |
|
Accrued
professional service fees
|
|
|
356,352 |
|
|
|
350,486 |
|
Accrued
compensation expense
|
|
|
183,436 |
|
|
|
207,245 |
|
Derivative
liability
|
|
|
9,486,914 |
|
|
|
- |
|
Current
portion of obligations under capital lease
|
|
|
4,797 |
|
|
|
4,299 |
|
Convertible
debt, less debt discount of $2,944,292
|
|
|
305,708 |
|
|
|
- |
|
Other
accrued expenses
|
|
|
81,103 |
|
|
|
2,890 |
|
Total
current liabilities
|
|
|
11,368,895 |
|
|
|
1,432,104 |
|
Other
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, net of current portion
|
|
|
444,223 |
|
|
|
444,223 |
|
Obligations
under capital lease, net of current portion
|
|
|
10,111 |
|
|
|
12,641 |
|
Accrued
retirement benefits
|
|
|
257,250 |
|
|
|
335,250 |
|
Accrued
interest, convertible debt (related party, $17,451)
|
|
|
45,857 |
|
|
|
- |
|
Deferred
rent
|
|
|
15,482 |
|
|
|
284,134 |
|
Deferred
revenue
|
|
|
5,200,000 |
|
|
|
5,200,000 |
|
Total
other liabilities
|
|
|
5,972,923 |
|
|
|
6,276,248 |
|
Total
liabilities
|
|
|
17,341,818 |
|
|
|
7,708,352 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
deficiency:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value. Authorized and unissued, 1,000,000
shares at January 31, 2010 and July 31, 2009
|
|
|
– |
|
|
|
– |
|
Common
stock $.001 par value. Authorized 100,000,000 shares at January
31, 2010 and July 31, 2009; issued and outstanding 47,313,880 shares at
January 31, 2010 and July 31, 2009
|
|
|
47,314 |
|
|
|
47,314 |
|
Capital
in excess of par value
|
|
|
101,150,684 |
|
|
|
101,734,572 |
|
Deficit
accumulated during development stage
|
|
|
(115,880,108 |
) |
|
|
(108,932,252 |
) |
Total
stockholders’ deficiency
|
|
|
(14,682,110 |
) |
|
|
(7,150,366 |
) |
Total
liabilities and stockholders’ deficiency
|
|
$ |
2,659,708 |
|
|
$ |
557,986 |
|
See
accompanying notes to condensed financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
STATEMENTS OF OPERATIONS
Three and
six months ended January 31, 2010 and 2009,
and the
Period from August 24, 1981
(Date of
Inception) to January 31, 2010
(Unaudited)
|
|
Three
Months Ended
January
31,
|
|
|
Six
Months Ended
January
31,
|
|
|
August
24, 1981 (Date of
Inception) to
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
January
31, 2010
|
|
Sales
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
18,750 |
|
|
$ |
- |
|
|
$ |
572,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
336,495 |
|
Research
and development
|
|
|
121,774 |
|
|
|
1,097,853 |
|
|
|
282,655 |
|
|
|
2,825,234 |
|
|
|
72,864,535 |
|
General
and administrative
|
|
|
428,214 |
|
|
|
700,236 |
|
|
|
827,687 |
|
|
|
1,793,709 |
|
|
|
41,791,576 |
|
Total
operating expenses
|
|
|
549,988 |
|
|
|
1,798,089 |
|
|
|
1,110,342 |
|
|
|
4,618,943 |
|
|
|
114,992,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(549,988 |
) |
|
|
(1,798,089 |
) |
|
|
(1,091,592 |
) |
|
|
(4,618,943 |
) |
|
|
(114,420,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
417 |
|
|
|
5,519 |
|
|
|
668 |
|
|
|
24,083 |
|
|
|
2,302,749 |
|
Other
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
99,939 |
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
parties, net
|
|
|
(10,725 |
) |
|
|
- |
|
|
|
(17,451 |
) |
|
|
- |
|
|
|
(1,164,998 |
) |
Debt
discount and fair value adjustment – derivative
security
|
|
|
3,643,697 |
|
|
|
- |
|
|
|
(5,795,386 |
) |
|
|
- |
|
|
|
(5,795,386 |
) |
Others
|
|
|
(42,332 |
) |
|
|
(1,068 |
) |
|
|
(44,095 |
) |
|
|
(2,181 |
) |
|
|
(2,927,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before state tax benefit
|
|
|
3,041,069 |
|
|
|
(1,793,638 |
) |
|
|
(6,947,856 |
) |
|
|
(4,597,041 |
) |
|
|
(121,905,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
tax benefit
|
|
|
- |
|
|
|
1,139,867 |
|
|
|
- |
|
|
|
1,139,867 |
|
|
|
6,025,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
3,041,069 |
|
|
$ |
(653,771 |
) |
|
$ |
(6,947,856 |
) |
|
$ |
(3,457,174 |
) |
|
$ |
(115,880,108 |
) |
Income
(loss) per common share - basic
|
|
$ |
0.06 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
Loss
per common share - diluted
|
|
$ |
(
0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
Weighted
average number of shares
outstanding
- basic
|
|
|
47,313,880 |
|
|
|
47,313,880 |
|
|
|
47,313,880 |
|
|
|
47,312,195 |
|
|
|
|
|
Weighted
average number of shares
outstanding
- diluted
|
|
|
90,647,208 |
|
|
|
47,313,880 |
|
|
|
47,313,880 |
|
|
|
47,312,195 |
|
|
|
|
|
See
accompanying notes to condensed financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Period
from July 31, 2009 to January 31, 2010
(Unaudited)
|
|
Common
Stock
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Accumulated
During
Development
Stage
|
|
|
Total
Stockholders’
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2009
|
|
|
47,313,880 |
|
|
$ |
47,314 |
|
|
$ |
101,734,572 |
|
|
$ |
(108,932,252 |
) |
|
$ |
(7,150,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
— |
|
|
|
— |
|
|
|
163,347 |
|
|
|
— |
|
|
|
163,347 |
|
Derivative
liability
|
|
|
— |
|
|
|
— |
|
|
|
(747,235 |
) |
|
|
— |
|
|
|
(747,235 |
) |
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,947,856 |
) |
|
|
(6,947,856 |
) |
Balance
at January 31, 2010
|
|
|
47,313,880 |
|
|
$ |
47,314 |
|
|
$ |
101,150,684 |
|
|
$ |
(115,880,108 |
) |
|
$ |
(14,682,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial statements.
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
Six
months ended January 31, 2010 and 2009,
and the
Period from August 24, 1981
(Date of
Inception) to January 31, 2010
(Unaudited)
|
|
Six
Months Ended
January 31,
|
|
|
August
24, 1981
(Date
of Inception)
to
|
|
|
|
2010
|
|
|
2009
|
|
|
January 31, 2010
|
|
Cash
flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,947,856 |
) |
|
$ |
(3,457,174 |
) |
|
$ |
(115,880,108 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of marketable equity securities
|
|
|
- |
|
|
|
- |
|
|
|
(25,963 |
) |
Depreciation
and amortization
|
|
|
70,372 |
|
|
|
18,443 |
|
|
|
1,815,966 |
|
Loss
on disposal of property and equipment
|
|
|
- |
|
|
|
- |
|
|
|
18,926 |
|
Loss
on lease termination
|
|
|
- |
|
|
|
- |
|
|
|
30,964 |
|
Share-based
compensation
|
|
|
163,347 |
|
|
|
764,339 |
|
|
|
14,027,279 |
|
Amortization
of deferred rent
|
|
|
(268,652 |
) |
|
|
21,439 |
|
|
|
(82,482 |
) |
Amortization
of debt discount
|
|
|
305,708 |
|
|
|
- |
|
|
|
899,927 |
|
Fair
value of derivative liability
|
|
|
5,489,678 |
|
|
|
- |
|
|
|
5,489,678 |
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
11,442,000 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in prepaid expenses
|
|
|
(83,528 |
) |
|
|
5,471 |
|
|
|
(197,889 |
) |
Decrease
in loan receivable, related party
|
|
|
- |
|
|
|
- |
|
|
|
96,051 |
|
Increase
in restricted cash
|
|
|
(1,414,939 |
) |
|
|
- |
|
|
|
(1,681,219 |
) |
Increase
in deferred financing cost
|
|
|
(117,201 |
) |
|
|
- |
|
|
|
(117,201 |
) |
Increase
in interest payable-related party
|
|
|
17,451 |
|
|
|
- |
|
|
|
761,990 |
|
Increase
(decrease) in accounts payable
|
|
|
112,066 |
|
|
|
(414,787 |
) |
|
|
1,470,197 |
|
Increase
in accrued payroll and expenses, related parties
|
|
|
- |
|
|
|
- |
|
|
|
2,348,145 |
|
(Decrease)
increase in accrued retirement benefits
|
|
|
(104,442 |
) |
|
|
- |
|
|
|
413,250 |
|
Increase
(decrease) in accrued expenses
|
|
|
86,454 |
|
|
|
(414,601 |
) |
|
|
1,643,427 |
|
Increase
in deferred revenue
|
|
|
- |
|
|
|
- |
|
|
|
5,200,000 |
|
Net
cash used in operating activities
|
|
|
(2,691,542 |
) |
|
|
(3,476,870 |
) |
|
|
(72,327,062 |
) |
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of marketable equity securities
|
|
|
- |
|
|
|
- |
|
|
|
(290,420 |
) |
Purchase
of short-term investments
|
|
|
- |
|
|
|
- |
|
|
|
(1,993,644 |
) |
Proceeds
from sale of marketable equity securities
|
|
|
- |
|
|
|
- |
|
|
|
316,383 |
|
Proceeds
from sale of short-term investments
|
|
|
- |
|
|
|
- |
|
|
|
1,993,644 |
|
Capital
expenditures
|
|
|
(2,250 |
) |
|
|
- |
|
|
|
(1,607,316 |
) |
Patent
costs
|
|
|
- |
|
|
|
- |
|
|
|
(97,841 |
) |
Net
cash used in investing activities
|
|
|
(2,250 |
) |
|
|
- |
|
|
|
(1,679,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
See
accompanying notes to condensed financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS, Continued
Six
months ended January 31, 2010 and 2009,
and the
Period from August 24, 1981
(Date of
Inception) to January 31, 2010
(Unaudited)
|
|
Six
Months Ended
January 31,
|
|
|
August
24, 1981
(Date
of Inception) to
|
|
|
|
2010
|
|
|
2009
|
|
|
January 31, 2010
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
874,500 |
|
Payment
of short-term borrowings
|
|
|
- |
|
|
|
- |
|
|
|
(653,500 |
) |
Increase
in loans payable - related party, net
|
|
|
- |
|
|
|
- |
|
|
|
2,628,868 |
|
Proceeds
from bank debt and other long-term debt, net of
costs
|
|
|
- |
|
|
|
- |
|
|
|
3,667,460 |
|
Reduction
of bank debt and long-term debt
|
|
|
- |
|
|
|
- |
|
|
|
(2,966,568 |
) |
Payment
of capital lease obligation
|
|
|
(2,032 |
) |
|
|
(1,633 |
) |
|
|
(8,870 |
) |
Proceeds
from issuance of common stock, net
|
|
|
- |
|
|
|
- |
|
|
|
53,102,893 |
|
Proceeds
from exercise of stock options and warrants, net
|
|
|
- |
|
|
|
13,220 |
|
|
|
14,080,850 |
|
Proceeds
from issuance of convertible debentures, related party
|
|
|
3,250,000 |
|
|
|
- |
|
|
|
3,547,000 |
|
Proceeds
from issuance of convertible debentures,
unrelated party
|
|
|
- |
|
|
|
- |
|
|
|
416,993 |
|
Net
cash provided by financing activities
|
|
|
3,247,968 |
|
|
|
11,587 |
|
|
|
74,689,626 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
554,176 |
|
|
|
(3,465,283 |
) |
|
|
683,370 |
|
Cash
and cash equivalents at beginning of period
|
|
|
129,194 |
|
|
|
4,661,656 |
|
|
|
- |
|
Cash
and cash equivalents at end of period
|
|
$ |
683,370 |
|
|
$ |
1,196,373 |
|
|
$ |
683,370 |
|
Supplemental
disclosure of cash flow information – interest paid
|
|
$ |
3,374 |
|
|
$ |
2,181 |
|
|
$ |
1,726,634 |
|
Noncash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible subordinated debenture for loan payable to
officer
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,725,000 |
|
Issuance
of common stock upon the conversion of convertible subordinated
debentures, related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,242,000 |
|
Conversion
of short-term borrowings to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
226,000 |
|
Conversion
of accrued interest, payroll and expenses by related parties to stock
options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,194,969 |
|
Repurchase
of stock options from related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(198,417 |
) |
Conversion
of accrued interest to stock options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
142,441 |
|
Conversion
of accounts payable to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
506,725 |
|
(continued)
|
See
accompanying notes to condensed financial
statements.
|
ALFACELL
CORPORATION
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS, Concluded
Six
months ended January 31, 2010 and 2009,
and the
Period from August 24, 1981
(Date of
Inception) to January 31, 2010
(Unaudited)
|
|
Six
Months Ended
January 31,
|
|
|
August
24, 1981
(Date
of Inception) to
|
|
|
|
2010
|
|
|
2009
|
|
|
January 31, 2010
|
|
Conversion
of notes payable, bank and accrued interest to long-term
debt
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,699,072 |
|
Conversion
of loans and interest payable, related party and accrued payroll and
expenses, related parties to long-term
accrued
payroll and other, related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,863,514 |
|
Issuance
of common stock upon the conversion of convertible subordinated
debentures, other
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,584,364 |
|
Issuance
of common stock for services rendered
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,460 |
|
Lease
incentive allowance
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
67,000 |
|
Derivative
liability – warrant reclassification
|
|
$ |
747,235 |
|
|
$ |
- |
|
|
$ |
747,235 |
|
Issuance
of warrants with notes payable
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
594,219 |
|
Acquisition
of equipment through capital lease obligation
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
23,778 |
|
See
accompanying notes to condensed financial statements.
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF
PRESENTATION
In the opinion of management, the
accompanying unaudited condensed financial statements of Alfacell Corporation
(“Alfacell” or the “Company”) have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not contain all of the information and
notes required by U.S. GAAP for complete financial statements. In the
opinion of management, the accompanying unaudited condensed interim
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company’s financial position as of
January 31, 2010, the results of its operations for the three and six
months ended January 31, 2010 and 2009, and the period from August 24, 1981
(date of inception) to January 31, 2010, the changes in stockholders’ deficiency
for the six months ended January 31, 2010, and its cash flows for the six month
periods ended January 31, 2010 and 2009, and the period from August 24, 1981
(date of inception) to January 31, 2010. The results of operations for the
three and six months ended January 31, 2010 are not necessarily indicative of
operating results for fiscal year 2010 or future interim periods. The
July 31, 2009 balance sheet presented herein has been derived from the audited
financial statements included in the Company’s Annual Report on Form 10-K for
the fiscal year ended July 31, 2009, filed with the Securities and Exchange
Commission.
Certain footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. The condensed financial statements in this report should
be read in conjunction with the financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31,
2009.
Financial
instruments consist primarily of cash and cash equivalents, accounts receivable,
and accounts payable. The carrying value of these financial
instruments approximates fair value due to the relative short term nature of
these investments and the carrying value of the notes approximates their fair
value.
The Company evaluated all events or
transactions that occurred after January 31, 2010 through the date the financial
statements were issued.
The Company is a development stage
company as defined in the Accounting Standards Codification (“ASC”) “Development
Stage Entities.” The Company is devoting substantially all of its
present efforts to establishing its business. Its planned principal
operations have not commenced and, accordingly, no significant revenue has been
derived therefrom.
The Company is continuing to develop
its drug product candidates, which require substantial capital for research,
product development, and market development activities. The Company
has not yet initiated marketing of a commercial drug product. Future product
development will require clinical testing, regulatory approval, and substantial
additional investment prior to commercialization. The future success
of the Company is dependent on its ability to make progress in the development
of its drug product candidates and, ultimately, upon its ability to attain
future profitable operations through the successful manufacturing and marketing
of those drug product candidates. There can be no assurance that the
Company will be able to obtain the necessary financing or regulatory approvals
to be able to successfully develop, manufacture, and market its products, or
attain successful future operations. Accordingly, the Company’s
future success is uncertain.
2. LIQUIDITY
The Company has reported net income of
approximately $3,041,000 for the three months ended January 31, 2010 due
primarily to the change in fair value of derivative liability at January 31,
2010 and net losses of approximately $6,948,000 for the six months ended January
31, 2010, and $4,539,000, $12,321,000 and $8,755,000 for the fiscal years ended
July 31, 2009, 2008 and 2007, respectively. As of January 31, 2010,
the Company had a working capital deficit of approximately $10,547,000 and cash
and cash equivalents of approximately $683,000. The loss from date of
inception, August 24, 1981, to January 31, 2010 amounts to approximately
$115,880,000.
The Company expects that its cash
balances, including the proceeds received in February 2010 from the sale of its
state tax benefit of approximately $0.6 million, and the $1.6 million restricted
cash intended to be used for future clinical trials as of January 31, 2010, will
be sufficient to support its activities through July 2010, based on its reduced
level of operations. The Company’s long-term continued operations
will depend on its ability to raise additional funds through various potential
sources such as equity and debt financing, convertible debentures, collaborative
agreements, strategic alliances, sale of tax
benefits,
revenues from the commercial sale and named-patient basis sale of ONCONASE®,
licensing of its proprietary RNase technology and its ability to realize
revenues from its technology and its drug candidates via out-licensing
agreements with other companies. The Company may pursue available
strategic alternatives which focus on, but not limited to, strategic partnership
transactions. Such additional funds and various alternatives may not
become available as the Company may need them or be available on terms
acceptable to the Company, if at all. Insufficient funds could
require the Company to delay, scale back, or eliminate one or more of its
research and development programs or to out-license to third parties drug
product candidates or technologies that the Company would otherwise seek to
develop and commercialize without relinquishing its rights
thereto. Unless and until the Company’s operations generate
significant revenues and cash flow, the Company will attempt to continue to fund
operations from cash on hand and through the sources of capital described
above. There can be no assurance that the Company will be able to
raise the capital it needs on terms which are acceptable, if at
all.
The audit report of the Company’s
independent registered public accounting firm on the Company’s fiscal year ended
July 31, 2009 financial statements expressed that there was substantial doubt
about the Company’s ability to continue as a going concern. Continued
operations are dependent on the Company’s ability to raise additional capital
from various sources such as those described above. Such capital
raising opportunities may not be available or may not be available on reasonable
terms. The Company’s financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
3.
|
INCOME (LOSS) PER
COMMON SHARE
|
The
Company presents “basic” income (loss) per common share and, if applicable,
“diluted” income per common share pursuant to the provisions of ASC “Earnings
per Share”. Basic income (loss) per common share is calculated
by dividing net income or loss by the weighted average number of common shares
outstanding during each period. The calculation of diluted earnings
per share is similar to that of basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common shares, such as
those issuable upon the exercise of outstanding stock options and warrants and
the conversion of outstanding convertible debentures were issued during the
period and the treasury stock method had been applied to the proceeds from the
exercise of the options and warrants and net income or loss was adjusted for
interest on the convertible debentures.
As of
January 31, 2010, there were stock options, warrants and convertible notes
outstanding for the purchase of a total of 3,624,267, 51,183,890 and 21,666,664
shares of common stock, respectively (see Notes 4 and 6
herein). However, diluted per share amounts presented in the
accompanying condensed consolidated statements of operations for the three
months ended January 31, 2009 and the six months ended January 31, 2010 and
2009 are the same as basic per common share amounts because the Company has
incurred a net loss for these periods and the basic and diluted per common share
amounts are the same, since the inclusion of all potentially dilutive securities
would be anti-dilutive. For the three months ended January 31, 2010,
the accompanying condensed consolidated statements of operations presented an
income per basic common share and a loss per diluted common share after
including interest expense related to convertible debentures and in-the-money
potentially dilutive securities.
The
following table sets forth the computation of basic and diluted net income
(loss) per common share:
Basic income (loss) per common
share:
|
|
Three
Months Ended
January 31,
|
|
|
Six
Months Ended
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
3,041,069 |
|
|
$ |
(653,771 |
) |
|
$ |
(6,947,856 |
) |
|
$ |
(3,457,174 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of common shares outstanding
|
|
|
47,313,880 |
|
|
|
47,313,880 |
|
|
|
47,313,880 |
|
|
|
47,312,195 |
|
Basic
income (loss) per common share
|
|
$ |
0.06 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.07 |
) |
Diluted loss per common
share:
|
|
Three
Months Ended
January 31, 2010
|
|
Numerator:
|
|
|
|
Net
income
|
|
$ |
3,041,069 |
|
Add: Interest
expense on convertible notes
|
|
|
51,444 |
|
Deduct: Debt
discount and fair value change on derivative security
|
|
|
(3,643,697 |
) |
Adjusted
net loss
|
|
$ |
(551,184 |
) |
Denominator:
|
|
|
|
|
Basic
weighted average number of common shares outstanding
|
|
|
47,313,880 |
|
Add: Potentially
dilutive securities
|
|
|
|
|
Warrants
|
|
|
21,666,664 |
|
Convertible
notes
|
|
|
21,666,664 |
|
Diluted
weighted average number of common shares
|
|
|
90,647,208 |
|
Diluted
loss per common share
|
|
$ |
(0.01 |
) |
4. SHARE-BASED
COMPENSATION
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued amended
guidance on accounting for “Stock Compensation”. The amended guidance
requires all share-based payments, including stock option grants to employees,
to be recognized as an operating expense in the statement of
operations. The expense is recognized over the requisite service
period based on fair values measured on the date of grant. The
Company adopted the amended guidance on Stock Compensation effective August 1,
2005 using the modified prospective method and, accordingly, prior period
amounts have not been restated. Under the modified prospective
method, the fair value of all new stock options issued after July 31, 2005 and
the unamortized fair value of unvested outstanding stock options at August 1,
2005 are recognized as expense as services are rendered.
Shares,
warrants and options have been issued to non-employees for
services. The fair value of such securities is recorded as an expense
and additional paid-in capital in stockholders’ equity over the applicable
service periods using variable accounting through the vesting date based on the
fair value of the securities at the end of each period or the vesting
date.
The
Company recorded the following stock-based compensation expense based on the
fair value of stock options:
|
|
Three
Months Ended
January 31,
|
|
|
Six
Months Ended
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Research
and development
|
|
$ |
18,516 |
|
|
$ |
26,927 |
|
|
$ |
16,808 |
|
|
$ |
268,144 |
|
General
and administrative
|
|
|
69,946 |
|
|
|
104,137 |
|
|
|
146,539 |
|
|
|
496,195 |
|
Total
share-based compensation expense
|
|
$ |
88,462 |
|
|
$ |
131,064 |
|
|
$ |
163,347 |
|
|
$ |
764,339 |
|
Basic
and diluted loss per common share
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.02 |
|
The fair
value of the stock options at the grant dates was estimated using the
Black-Scholes option pricing model based on the weighted-average assumptions as
noted in the following table. The risk-free interest rate for periods
approximating the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant. The expected stock price
volatility is based on the historical volatility of the Company’s stock
price. For post July 31, 2005 grants, the expected term until
exercise is derived using the “simplified” method as allowed under the
provisions of SAB 107 and SAB 110 and represents the period of time that options
granted are expected to be outstanding. The “simplified” method was
used since the Company does not have sufficient historical data to provide a
basis to estimate a justifiable expected term. There were no stock
options granted during the three months ended January 31, 2010.
|
|
Three
Months Ended
January 31,
|
|
|
Six
Months Ended
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Expected
dividend yield
|
|
|
- |
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Risk-free
interest rate
|
|
|
- |
|
|
|
1.00 |
% |
|
|
2.64 |
% |
|
|
1.00 |
% |
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2010 |
|
|
|
2009 |
|
Expected
stock price volatility
|
|
|
- |
|
|
|
102.13 |
% |
|
|
111.39 |
% |
|
|
102.13 |
% |
Expected
term (years)
|
|
|
- |
|
|
|
3.5 |
|
|
|
5.89 |
|
|
|
3.5 |
|
Weighted
average grant date fair value
|
|
|
- |
|
|
$ |
0.16 |
|
|
$ |
0.28 |
|
|
$ |
0.16 |
|
The
following table summarizes the stock option activity for the period August 1,
2009 to January 31, 2010:
|
|
Stock
Options
Outstanding
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Weighted
Average Remaining Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance
August 1, 2009
|
|
|
4,771,650 |
|
|
$ |
2.64 |
|
|
|
3.84 |
|
|
$ |
12,230 |
|
Granted
|
|
|
511,667 |
|
|
|
0.34 |
|
|
|
9.86 |
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,651,050 |
) |
|
|
3.73 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,000 |
) |
|
|
1.29 |
|
|
|
|
|
|
|
|
|
Balance
January 31, 2010
|
|
|
3,624,267 |
|
|
$ |
1.82 |
|
|
|
5.72 |
|
|
$ |
0 |
|
Exercisable
as of January 31, 2010
|
|
|
2,124,267 |
|
|
$ |
2.09 |
|
|
|
3.59 |
|
|
$ |
0 |
|
As of
January 31, 2010, there was approximately $854,000 of total unrecognized
compensation expense related to unvested options granted that is expected to be
recognized over a weighted average period of 3.4 years.
5. RESTRICTED
CASH
Lease
security deposit held by a bank as collateral for a standby letter of
credit in favor of the Company. The cash held by the bank is
restricted as to use for the term of the standby letter of
credit. In February 2010, this amount was drawn by the landlord
as a court judgment in their favor. |
$
81,084 |
Escrow
agreement held by bank which can be disbursed only to satisfy obligations
of the Company owed to clinical research organizations, hospitals, doctors
and other vendors and service providers associated with the clinical
trials which the Company intends to conduct for its ONCONASE®
product. The escrow agreement shall terminate on the earlier of the date
that all funds have been disbursed from the escrow account and April 19,
2011, at which time any remaining funds will be disbursed to the
Company.
|
1,600,135
|
Total
|
$1,681,219
|
6. CONVERTIBLE NOTES AND
WARRANTS
On October 19, 2009, the Company
completed a sale of 65 units (the “Units”) in a private placement (the
“Offering”) to certain investors pursuant to a securities purchase agreement
(the “Securities Purchase Agreement”) entered into on October 19,
2009. Each Unit consists of (i) $50,000 principal amount of 5%
Senior Secured Convertible Promissory Notes (collectively, the “Notes”)
convertible into shares of the Company’s common stock, par value $.001 per share
(“Common Stock”), (ii) Series A Common Stock Purchase Warrants (the “Series
A Warrants”) to purchase in the aggregate that number of shares of Common Stock
initially issuable upon conversion of the aggregate amount of Notes issued as
part of the Unit, at an exercise price of $0.15 per share with a three year term
and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants”,
together with the Series A Warrants, the “Warrants”) to purchase in the
aggregate that number of shares of Common Stock initially issuable upon
conversion of the aggregate amount of Notes issued as part of the Unit, at an
exercise price of $0.25 per share with a five year term. The closing of the
Offering occurred on October 19, 2009 (the “Closing”) and the Company received
an aggregate of $3,250,000 in gross proceeds.
The Notes
mature on the earlier of (i) October 19, 2012; (ii) the closing of a public or
private offering of the Company’s debt or equity securities subsequent to the
date of issuance resulting in gross proceeds of at least $8,125,000 other than a
transaction involving a stockholder who holds 5% or more of the Company’s
outstanding capital stock as of the date of issuance; or (iii) on the demand of
the holder of the Note upon the Company’s consummation of a merger, sale of
substantially all of its assets, or the acquisition by any entity, person or
group of 50% or more of the voting power of the Company. Interest accrues on the
principal amount outstanding under the Notes at 5% per annum, and is due upon
maturity. Upon an event of default under the Notes, the interest rate shall
increase to 7%, provided that if the Company is unable to obtain stockholder
approval by May 1, 2010, which date was extended from April 1, 2010 pursuant to
an amendment to the Securities Purchase Agreement entered into by the Company
and the investors on February 26, 2010 and reported on Form 8-K filed by the
Company on March 4, 2010, to amend its certificate of incorporation to increase
its authorized capital stock, the interest rate shall increase to 15% and such
failure will be an Event of Default under the Notes. The Notes are convertible
into Common Stock at the option of the holder of the Note at a price of $0.15
per share at any time prior to the date on which the Company makes payment in
full of all amounts outstanding under the Note. The Notes are not prepayable for
a period of one year following the issuance thereof. The Notes are
secured by a senior security interest and lien on all of the Company’s right,
title and interest to all of the assets owned by the Company as of the Closing
or thereafter acquired pursuant to the terms of a security agreement (the
“Security Agreement”) entered into by the Company with each of the investors.
The Warrants are exercisable immediately following the Closing.
Pursuant
to the terms of the Securities Purchase Agreement, certain investors party
thereto are permitted to appoint a designee to the Company’s Board of Directors
(the “Board”) within a reasonable period of time following the
Closing. In addition, as a condition to Closing, each member of the
Board other than David Sidransky, Chairman of the Board, and Charles Muniz,
President, Chief Executive Officer and Chief Financial Officer, agreed to resign
from the Board upon the request of Dr. Sidransky made at any time following the
Closing and December 31, 2009. On January 2, 2010 and January 29,
2010, respectively, Donald Conklin and Kuslima Shogen resigned from the
Board. Stephen Carter will not seek reelection at the Company’s
upcoming annual meeting of the stockholders, which is presently scheduled to
occur on Tuesday, April 27, 2010.
In
connection with the Offering, the Company entered into an investor rights
agreement (the “Investor Rights Agreement”) with each of the investors.
The Investor Rights Agreement provides that the Company will file a “resale”
registration statement (the “Initial Registration Statement”) covering all of
the shares issuable upon conversion of the Notes (the “Note Shares”) and the
shares issuable upon exercise of the Warrants (the “Warrant Shares”, together
with the Note Shares, the “Securities”), up to the maximum number of shares able
to be registered pursuant to applicable Securities and Exchange Commission
(“SEC”) regulations, within 120 days of the Closing (the “Filing
Deadline”). On February 26, 2010, the Company and the investors amended
the Investor Rights Agreement (the “Rights Agreement Amendment”) to extend the
Filing Deadline to May 1, 2010, which Rights Agreement Amendment was filed with
the Form 8-K filed by the Company on March 4, 2010. If any Securities
are unable to be included on the Initial Registration Statement, the Company has
agreed to file subsequent registration statements until all the Securities have
been registered. Under the terms of the Investor Rights Agreement, the
Company is obligated to maintain the effectiveness of the “resale” registration
statement until all securities therein are sold or otherwise can be sold
pursuant to Rule 144, without any restrictions. A cash penalty at 1%
per month will be triggered in the event the Company fails to file or obtain the
effectiveness of a registration statement prior to the deadlines set forth in
the Investor Rights Agreement, which deadlines were extended by the Rights
Agreement Amendment, or if the Company ceases to be current in filing its
periodic reports with the SEC. The aggregate penalty accrued with respect to
each investor may not exceed 6% of the original purchase price paid by that
investor, or 12% if the only effectiveness failure is the Company’s failure to
be current in its periodic reports with the SEC.
In
connection with the Offering, the Company also entered into an escrow agreement
(the “Escrow Agreement”) whereby certain investors placed $1,600,000 of the
proceeds paid for their Units in an escrow account pursuant to the terms of the
Securities Purchase Agreement. Such amounts can be disbursed from the
escrow account only to satisfy obligations of the Company owed to clinical
research organizations, hospitals, doctors and other vendors and service
providers associated with the clinical trials which the Company intends to
conduct for its ONCONASE®
product. The Escrow Agreement shall terminate on the earlier of the date that
all funds have been disbursed from the escrow account and April 19, 2011, at
which time any remaining funds will be disbursed to the Company.
Charles
Muniz, the Company’s President, Chief Executive Officer and Chief Financial
Officer, subscribed for 20 Units; certain trusts and individuals related to
James O. McCash, a beneficial owner of more than five percent of the Company’s
voting securities, subscribed for an aggregate of 20 Units; Europa International
Inc., a beneficial owner of more than five percent of the Company’s voting
securities, subscribed for 15 Units; and Unilab LP, an affiliate of US
Pharmacia, an affiliate of the Company’s distributor for ONCONASE® in
Eastern Europe and a current stockholder, subscribed for 10 units. These
investors are party to the Securities Purchase Agreement, the Investor Rights
Agreement, the Security Agreement and the Escrow Agreement. The Company’s entry
into an employment agreement with Mr. Muniz upon terms reasonably acceptable to
the investors in the Offering was a condition to the Closing.
The
Company concluded that it should account for the warrants and conversion options
embedded in the Notes in accordance with ASC Topic 815, “Derivatives and
Hedging”. Accordingly, the Company determined that the warrants and
the conversion options embedded in the Notes should be accounted for as free
standing derivatives that will be measured at fair value and classified as
liabilities at the closing of the Offering. Each subsequent reporting
period, the Company will mark to market the warrants and conversion feature of
Notes with any change in fair value recorded through the statement of
operations. This accounting treatment is due to the fact that the
settlement terms of the warrants and conversion feature of the Notes do not
allow them to qualify for equity presentation. Accordingly, on
October 19, 2009, in connection with the closing of the Offering, the
convertible feature of the Notes were recorded as a derivative liability of
approximately $6.1 million and the Series A and Series B warrants were recorded
as a derivative liability of approximately $6.1 million each,
respectively.
At the
closing for the Offering, the fair value of the conversion feature,
approximately $6.1 million, exceeded the proceeds of $3.25 million. The
difference of approximately $2.9 million was charged to expense as the change in
the fair market value of the conversion liability. Accordingly, the Company
recorded an initial discount of $3.25 million equal to the face value of
the Notes, which will be amortized over the three-year term, using the
straight-line method.
At
January 31, 2010, the Company accounted for the conversion feature using
the fair value method, with the resultant gain recognition recorded in the
statement of operations. At January 31, 2010, the fair value of the conversion
feature liability was approximately $3.1 million, comprised of the $6.1
million recorded at the closing for the Offering and $3 million gain recorded to
mark to market the liability at January 31, 2010. The conversion feature was
valued at October 19, 2009 and January 31, 2010 using the Black-Scholes
valuation model and the following assumptions:
|
October 19, 2009
|
|
January 31, 2010
|
|
|
|
|
Volatility
|
126%
|
|
128.6%
|
Risk-free
interest rate
|
1.50%
|
|
1.38%
|
Remaining
contractual life (years)
|
3.0
|
|
2.72
|
At the closing, the Company
recorded the Series A and Series B warrants as liabilities at their fair values
of approximately $6.1 million each, based upon the Black-Scholes valuation
model. The warrants will be accounted for using mark-to-market
accounting and charged to the statement of operations in a manner similar to the
conversion feature at each reporting date.
At
January 31, 2010, the Company accounted for the warrant liabilities using the
fair value method, with the resultant gain recognition recorded in the statement
of operations. At January 31, 2010, the fair value of the Series A
and Series B warrant liabilities were approximately $3.1 million and $3.2
million, respectively. The fair value of the Series A warrant is
comprised of the 6.1 million recorded at the closing for the Offering and
approximately $3 million gain recorded to mark to market the liability at
January 31, 2010. The fair value of the Series B warrant is
comprised of the $6.1 million recorded at the closing for the Offering and
approximately $2.9 million gain recorded to mark to market the liability at
January 31, 2010.
The
Series A and Series B warrant liabilities were valued at October 19, 2009
and January 31, 2010 using the Black-Scholes valuation model and the
following assumptions:
|
Series A Warrants
|
|
Series B Warrants
|
|
October 19, 2009
|
January 31, 2010
|
|
October 19, 2009
|
January 31, 2010
|
|
|
|
|
|
|
Volatility
|
126%
|
128.63%
|
|
113.17%
|
113.82%
|
Risk-free
interest rate
|
1.50%
|
1.38%
|
|
2.36%
|
2.34%
|
Remaining
contractual life (years)
|
3.0
|
2.72
|
|
5.0
|
4.72
|
In
addition, the Company evaluated the classification of all non-employee share
commitments issued outside of the plans which existed prior to the Offering (the
“Prior Non-Employee Commitments”). As a result, at October 19, 2009, the Company
reclassified $747,235 from equity to liability for all Prior Non-Employee
Commitments and has included this amount as a part of derivative
liability. The Company marked to market the Prior Non-Employee
Commitments at January 31, 2010 and recorded a gain of $578,913 for the change
in fair value from October 19 to January 31, 2010. Once stockholders
approve an increase in the amount of authorized shares to cover all existing
share commitments, the marked-to-market liabilities for Prior Non-Employee
Commitments will be reclassified to equity.
7. REVENUE
RECOGNITION
The Company recognizes revenue in
accordance with SAB No. 104, “Revenue Recognition” issued by the staff of the
SEC. Under SAB 104, revenue is recognized when persuasive evidence of
an arrangement exists, delivery has occurred and/or services have been rendered,
the sales price is fixed or determinable, and collectability is reasonably
assured.
The Company enters into marketing and
distribution agreements, which contain multiple deliverables. The
Company evaluates whether these deliverables constitute separate units of
accounting to which total arrangement consideration is allocated. A
deliverable qualifies as a separate unit of accounting when the item delivered
to the customer has standalone value, there is objective and reliable evidence
of fair value of items that have not been delivered to the customer and if there
is a general right of return for the items delivered to the customer, delivery
or performance of the undelivered items is considered probable and substantially
in the control of the Company. Arrangement consideration is allocated
to units of accounting on a relative fair-value basis or the residual method if
the Company is unable to determine the fair value of all deliverables in the
arrangement. Consideration allocated to a unit of accounting is limited to the
amount that is not contingent upon future performance by the
Company. Upon determination of separate units of accounting and
allocated consideration, the general criteria for revenue recognition is applied
to each unit of accounting.
In
January 2008, the Company entered into a U.S. License Agreement for
ONCONASE® with
Par Pharmaceutical, Inc. (“Par”). Under the terms of the License
Agreement, Strativa Pharmaceuticals (“Strativa”), the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. The
Company retained all rights and obligations for product manufacturing, clinical
development and obtaining regulatory approvals, as well as all rights for those
non-U.S. jurisdictions in which the Company has not currently granted any such
rights or obligations to third parties. The Company received a cash
payment of $5 million upon the signing of the License Agreement.
On
September 8, 2009, the Company and Par entered into a Termination and Mutual
Release Agreement (the “Termination Agreement”) pursuant to which the Company’s
License Agreement and Supply Agreement with Par were terminated. The License
Agreement was terminated and all rights under the license granted to Par revert
back to the Company under the Termination Agreement. Under the Supply
Agreement, the Company had agreed to supply all of Par’s requirements for
ONCONASE®. Pursuant
to the Termination Agreement, Par will be entitled to a royalty of 2% of net
sales of ONCONASE® or
any other ranpirnase product developed by the Company for use in the treatment
of cancer in the United States and its territories commencing with the first
sale of such product and terminating upon the later to occur of the twelfth
anniversary of the first sale and the date of expiration of the last valid claim
of a pending application or issued patent owned or controlled by the Company
with respect to such product.
The
Company has evaluated both the License Agreement and the Termination Agreement
and has determined that the Company is obligated to provide royalty payments in
the event the Company has net sales. As such, as of January 31, 2010,
the Company has not recognized into income any of the $5 million upfront payment
received under the License Agreement.
8. COMMITMENTS
Employment and Retirement
Agreements
Except as
disclosed below, there have been no material changes with respect to the
Company’s employment and retirement agreements as disclosed in the “Notes to the
Financial Statements – Commitments” in the Company’s Annual Report on Form 10-K
for the fiscal year ended July 31, 2009.
On April
28, 2008, the Company entered into a retirement agreement (the “Retirement
Agreement”) with Ms. Shogen. Under the terms of the Retirement
Agreement, Ms. Shogen was entitled to receive her then current annual salary of
$300,000 and participate in all benefit plans available for the Company’s
executives through her retirement date, which occurred on March 31, 2009 (the
“Termination Date”). Ms. Shogen will receive retirement payments of
$300,000 for each of the two years after the Termination Date. During
the fiscal year ended July 31, 2008, the Company accrued these benefits in the
amount of $612,000.
On
September 14, 2009, the Company entered into an amendment (the “Amendment”) to
the Retirement Agreement amending certain terms. Pursuant to the
Amendment, effective as of September 14, 2009, periodic payments owed to Ms.
Shogen under the Retirement Agreement during the two year period commencing
April 1, 2008 will be paid at the rate of $150,000 per year, rather than
$300,000 per year as originally provided in the Retirement
Agreement. Under the Retirement Agreement, Ms. Shogen was entitled to
receive continuing payments equal to 15% of any royalties received by Alfacell
pursuant to any and all license agreements entered into by Alfacell for the
marketing and distribution of Licensed Products. Under the Amendment, the amount
of such royalties related to net sales of Licensed Products to be received by
Ms. Shogen has been reduced to 5%. Under the Retirement Agreement,
Ms. Shogen was entitled to receive continuing payments equal to 5% of net sales
of Licensed Products booked by Alfacell on its financial
statements. Under the Amendment the amount of such net sales booked
by Alfacell has been reduced to 2%. Under the Amendment, in the event Alfacell
obtains marketing approval for ONCONASE® from
the Food and Drug Administration or the European Medicines Agency, Ms. Shogen
will be entitled to receive an additional payment equal to the difference
between the periodic payments actually paid to Ms. Shogen during the two year
period commencing April 1, 2008 and $600,000, the original amount of periodic
payments to which Ms. Shogen was entitled under the Retirement
Agreement. Such additional payment may be made by Alfacell, at its
option, in cash, Alfacell common stock or a combination of both. The
Amendment is binding on the parties as of September 14, 2009. Except
as specifically amended in the Amendment, all terms and conditions of the
Retirement Agreement remain in full force and effect.
On
October 19, 2009, the Company entered into an Employment Agreement (the
“Employment Agreement”) with Mr. Muniz. Pursuant to the Employment
Agreement, Mr. Muniz shall serve as the Company’s President, Chief
Executive Officer and Chief Financial Officer. Mr. Muniz will receive an
annual base salary of $300,000 and is entitled to receive cash incentive
compensation or annual stock option awards as determined by the Board or the
Compensation Committee of the Board from time to time. In addition,
Mr. Muniz is entitled to participate in any and all employee benefit plans
established and maintained by the Company for executive officers of the Company.
Pursuant to the Employment Agreement, Mr. Muniz received an option (the
“Option”), granted under and in accordance with the Company’s 2004 Stock
Incentive Plan, to purchase an aggregate of 500,000 shares of Common Stock
exercisable for ten years from the date the Option is granted. The Option shall
vest in equal amounts on each of the first, second and third year anniversary of
the grant so long as Mr. Muniz remains employed by the Company. The exercise
price of the Option was equal to the fair market value of the Common Stock on
the date of grant. The Employment Agreement continues in effect for
two years following the date of the agreement and automatically renews for
successive one-year periods, unless Mr. Muniz’ employment is terminated by him
or by the Company. In the event that Mr. Muniz’s employment is terminated
by the Company for any reason, then Mr. Muniz is entitled to receive his
earned but unpaid base salary and incentive compensation, unpaid expense
reimbursements, accrued but unused vacation and any vested benefits under any
employee benefit plan of the Company. In the event that Mr. Muniz’s employment
is terminated by the Company without “cause” or by Mr. Muniz for “good
reason” (as such terms are defined in the Employment Agreement), then in
addition to the above mentioned payments and benefits, Mr. Muniz is entitled to
receive an amount equal to his then current annual base salary, payable in equal
installments over 12 months in accordance with the Company’s payroll practice
and all medical and health benefits for 18 months following the termination
date. Mr. Muniz’s Employment Agreementrequires him to refrain from
competing with the Company and from hiring our employees and soliciting our
customers for a period of one year following the termination of his employment
with the Company for any reason.
Lease Commitments
Except as stated below, there have been
no material changes with respect to the Company’s operating leases as disclosed
in the “Notes to the Financial Statements – Commitments” in the Company’s Annual
Report on Form 10-K for the fiscal year ended July 31, 2009.
On January 15, 2010, Charles Muniz, the
Company’s President and CEO, as an individual, entered into a quarterly lease
agreement with I&G Garden State, LLC (“I&G”) for office space at the
fourth floor of 300 Atrium Drive, Somerset, NJ, which space the Company will
occupy as its new office. The lease expires on March 31, 2010,
renewable for successive three-month periods upon thirty days prior notice and
payment of $15,790.50 for the following three months’ rent. Since the
beginning of the lease term, the Company has been paying the quarterly rent
payments directly to I&G.
In
January 2010, the Company vacated its old facility pursuant to the complaint
filed by its landlord, I&G in November 2009. In February 2010,
I&G withdrew the remaining balance of the Company’s secured irrevocable
letter of credit which was placed in March 2007 in the amount of approximately
$81,000. On February 5, 2010, I&G commenced an action against the
Company. The lawsuit seeks unspecified damages for an alleged
breach of a lease agreement dated March 14, 2007 between the Company
and I&G. The Company intends to vigorously defend this
action.
9. CONTINGENCIES
The Company has product liability
insurance coverage for clinical trials in the U.S. and in other countries where
it conducts its clinical trials. No product liability claims have been filed
against the Company. If a claim arises and the Company is found liable in an
amount that significantly exceeds the policy limits, it may have a material
adverse effect upon the financial condition and results of operations of the
Company.
Except as disclosed below, there have
been no material changes with respect to the Company’s contingencies as
disclosed in the “Notes to the Financial Statements – Contingencies” in the
Company’s Annual Report on Form 10-K for the fiscal year ended July 31,
2009.
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the
Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patient deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
I & G
Garden State, LLC (“I&G”) filed and served a complaint against the Company
in the Superior Court of New Jersey Law Division, Special Civil Part
Landlord-Tenant Section, Somerset County, on or about October 30, 2009, for
non-payment of rent and failure to maintain security deposit. The
complaint seeks to have the Company vacate the property. On November
13, 2009, the Company and I&G mutually agreed that the Company will vacate
the property on or before December 31, 2009. In January 2010, the
Company vacated the facility as per mutual agreement. In February
2010, I&G withdrew the remaining balance of the Company’s secured
irrevocable letter of credit which was placed in March 2007 in the amount of
approximately $81,000. On February 5, 2010, I&G commenced an
action against the Company. The lawsuit seeks unspecified
damages for an alleged breach of a lease agreement dated March 14,
2007 between the Company and I&G. The Company intends to
vigorously defend this action.
10. SALES
The Company was granted approval by the
Swiss government to sell its product ONCONASE® on a
named-patient basis. During the quarter ended October 31, 2009, the
Company received gross proceeds of $18,750 from such sale.
11. RELATED PARTY
TRANSACTIONS
On
October 19, 2009, Charles Muniz, the Company’s President, Chief Executive
Officer and Chief Financial Officer, was a party to the Securities Purchase
Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow
Agreement. The Company’s entry into an employment agreement with Mr.
Muniz upon terms reasonably acceptable to the investors in the Offering was a
condition to the Closing. See Note 6 – Convertible Notes and
Warrants.
As
previously reported in the Company’s Form 8-K filed with the SEC on February 10,
2010, the Company received $646,649 from the sale of its total available state
tax benefit, which will be recognized as state tax benefit in the period it was
received.
On February 5, 2010, the
Company’s former landlord, I&G, commenced an action against the
Company. The lawsuit seeks unspecified damages for an alleged
breach of a lease agreement dated March 14, 2007 between the Company
and I&G. The Company intends to vigorously defend this
action.
PART
II - OTHER INFORMATION
Item 13. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
The
following table sets forth the various expenses expected to be incurred in
connection with the sale and distribution of the securities being registered,
all of which will be borne the Registrant (not including any underwriting
discounts and commissions and expenses incurred by the Selling Security Holders
for brokerage, accounting, tax, or legal services or any other expenses incurred
by the Selling Security Holders in disposing of the shares). All amounts shown
are estimates except the Securities and Exchange Commission registration
fee.
Securities
and Exchange registration fee
|
|
$
|
1,183.34
|
|
Legal
fees and expenses
|
|
$
|
45,000
|
|
Accounting
fees and expenses
|
|
$
|
18,000
|
|
Blue
sky fees and expenses
|
|
$
|
5,000
|
|
Transfer
Agent and Registrar fees and expenses
|
|
$
|
0
|
|
Miscellaneous
|
|
$
|
0
|
|
Total:
|
|
$
|
69,183.34
|
|
Item
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the
General Corporation Law of Delaware a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he or she is or was our director, officer, employee
or agent, or is or was serving at our request against expenses (including
attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to our best interests, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
In addition, the Delaware GCL also
provides that we also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in our right to procure a judgment in our favor by reason of the fact
that he or she is or was our director, officer, employee or agent, or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to our best interests. However, in such an action by or on our
behalf, no indemnification may be made in respect of any claim, issue or matter
as to which the person is adjudged liable to us unless and only to the extent
that the court determines that, despite the adjudication of liability but in
view of all the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Our certificate of incorporation, as
amended, is consistent with the Delaware GCL and our by-laws provide that each
of our directors, officers, employees and agents shall be indemnified to the
extent permitted by the Delaware GCL.
We have entered into indemnification
agreements with each of our directors. The indemnity agreements are consistent
with our by-laws and our policy to indemnify directors to the fullest extent
permitted by law. The indemnity agreements provide for indemnification of
directors for liabilities arising out of claims against such persons acting as
our directors (or any entity controlling, controlled by or under common control
with us) due to any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done, or suffered or
wrongfully attempted by such directors, except as prohibited by law. The
indemnity agreements also provide for the advancement of costs and expenses,
including attorneys’ fees, reasonably incurred by directors in defending or
investigating any action, suit, proceeding or claim, subject to an undertaking
by such directors to repay such amounts if it is ultimately determined that such
directors are not entitled to indemnification. The indemnity agreements cover
future acts and omissions of directors for which actions may be
brought.
The indemnity agreements also provide
that directors, officers, employees and agents are entitled to indemnification
against all expenses (including attorneys’ fees) reasonably incurred in seeking
to collect an indemnity claim or to obtain advancement of expenses from us. The
rights of directors under the indemnity agreements are not exclusive of any
other rights directors may have under Delaware GCL, any liability insurance
policies that may be obtained, our by-laws or otherwise. We would not be
required to indemnify a director for any claim based upon the director gaining
in fact a personal profit or advantage to which such director was not legally
entitled, any claim for an accounting of profits made in connection with a
violation of Section 16(b) of the Securities Exchange Act of 1934 or a similar
state or common law provision or any claim brought about or contributed to by
the dishonesty of the director.
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Item
15. RECENT SALES OF UNREGISTERED SECURITIES
During
the quarter ended January 31, 2007, we issued an aggregate total of 95,000
shares of common stock upon the exercise of warrants at an exercise price of
$1.50 per share by unrelated parties, which resulted in gross proceeds of
$142,500 to us. We have previously registered the resale of these shares by the
stockholders on a Form S-3 registration statement. The above
transactions with the unrelated parties, who we reasonably believed was
accredited investors as such term is defined under Regulation D of the
Securities had such knowledge and experience in financial and business matters
that capable of evaluating the merits and risks of the prospective investment,
were exempt from registration under Section 4(2) of the Securities
Act. We did not engage in any public advertising or general
solicitation in connection with the either the issuance or exercise of the above
warrants. The net proceeds from these transactions were used for general
corporate purposes.
During
the quarter ended April 30, 2007, we issued an aggregate total of 206,500 shares
of common stock upon the exercise of warrants at exercise prices ranging from
$0.60 to $2.88 per share by unrelated parties, which resulted in gross proceeds
of $228,720. We have previously registered the resale of these shares by the
stockholders on a Form S-3 registration statement. The above
transactions with the unrelated parties, who we reasonably believed was
accredited investors as such term is defined under Regulation D of the
Securities Act/had such knowledge and experience in financial and business
matters that he was capable of evaluating the merits and risks of the
prospective investment, were exempt from registration under Section 4(2) of the
Securities Act. We did not engage in any public advertising or
general solicitation in connection with the either the issuance or exercise of
the above warrants. The net proceeds from these transactions were used for
general corporate purposes.
In July
2007, in connection with a Distribution and Marketing Agreement with USP Pharma
Spolka Z.O.O., an affiliate of US Pharmacia, we entered into a Securities
Purchase Agreement with Unilab LP, an affiliate of US Pharmacia, pursuant to
which we issued a total of 553,360 shares of restricted common stock for
approximately $1.4 million, or $2.53 per share. The above
transaction with the Unilab LP, who we reasonably believed was an accredited
investor, was exempt from registration under Section 4(2) of the Securities
Act. We did not engage in any public advertising or general
solicitation in connection with the either the issuance or exercise of the above
warrants. The net proceeds from these transactions were used for
general corporate purposes.
During the quarter ended
October 31, 2007, we issued 50,000 shares to Donna McCash Irrevocable Trust and
200,000 shares to McCash Family Limited Partnership upon the exercise of
warrants at an exercise price of $0.60 per share, which resulted in gross
proceeds of $150,000. We have previously registered the resale of
these shares by the stockholders on a Form S-3 registration
statement. The above transactions with Donna McCash
Irrevocable Trust and McCash Family Limited Partnership, who are accredited
investors as such term is defined under Regulation D of the Securities Act, were
exempt from registrations under Section 4(2) of the Securities
Act. We did not engage in any public advertising or general
solicitation in connection with the issuance or exercise of the above
warrants. The net proceeds from these transactions were used for
general corporate purposes.
During the quarter ended January 31,
2008, we issued 200,000, 65,000 and 35,000 shares to McCash Family Limited
Partnership, Donna McCash Irrevocable Trust and an unrelated private party,
respectively, upon the exercise of warrants at an exercise price ranging from
$0.60 to $1.00 per share, which resulted in gross proceeds of
$194,000. We have previously registered the resale of these shares by
the stockholders on a Form S-3 registration statement. The above transactions with the McCash
Family Limited Partnership and Donna McCash Irrevocable Trust, who are
accredited investors as such term is defined under Regulation D of the
Securities Act, were exempt from registrations under Section 4(2) of the
Securities Act. We did not engage in any public advertising or
general solicitation in connection with the either the issuance or exercise of
the above warrants. The net proceeds from these transactions were
used for general corporate purposes.
During
the quarter ended April 30, 2008, we issued 100,000 shares to McCash Revocable
Trust upon the exercise of warrants at an exercise price of $0.60 per share,
which resulted in gross proceeds of $60,000. This transaction was
exempt from registrations under Section 4(2) of the Securities Act of 1933, as
amended. We have previously registered the resale of these shares by
the stockholders on a Form S-3 registration statement. We did not
engage in any public advertising or general solicitation in connection with the
either the issuance or exercise of the above warrants. The net
proceeds from these transactions were used for general corporate
purposes.
On
October 19, 2009, we completed a sale of 65 Units in a private financing to
certain investors pursuant to the Securities Purchase Agreement entered into on
October 19, 2009. Each Unit consists of (i) $50,000 principal amount
of Notes convertible into shares of the Company’s common stock at a price of
$0.15 per share, (ii) Series A Warrants to purchase in the aggregate
that number of shares of common stock initially issuable upon conversion of the
aggregate amount of the Notes issued as part of the Unit, at an exercise price
of $0.15 per share with a three year term and (iii) Series B Warrants to
purchase in the aggregate that number of shares of common stock initially
issuable upon conversion of the aggregate amount of the Notes issued as part of
the Unit, at an exercise price of $0.25 per share with a five year term. We
received an aggregate of $3,250,000 in gross proceeds from the private
financing. We did not engage in any
public advertising or general solicitation in connection with the either the
issuance or exercise of the above warrants. The securities
were offered pursuant to the exemptions from registration set forth in section
4(2) of the Securities Act and Regulation D promulgated thereunder.
The net proceeds
from these transactions were used for general corporate
purposes.
Item
16. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
The
following exhibits are filed herewith or incorporated by reference into this
Form S-1:
Exhibit No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
3.1
|
Certificate
of Incorporation, dated June 12, 1981 (incorporated by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No.
333-112865, filed on February 17, 2004)
|
*
|
3.2
|
Amendment
to Certificate of Incorporation, dated February 18, 1994 (incorporated by
reference to Exhibit 3.2 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.3
|
Amendment
to Certificate of Incorporation, dated December 26, 1997 (incorporated by
reference to Exhibit 3.3 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.4
|
Amendment
to Certificate of Incorporation, dated January 14, 2004 (incorporated by
reference to Exhibit 3.4 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.5
|
Certificate
of Designation for Series A Preferred Stock, dated September 2, 2003
(incorporated by reference to Exhibit 3.5 to the Company’s Registration
Statement on Form S-1, File No. 333-112865, filed on February 17,
2004)
|
*
|
3.6
|
Certificate
of Elimination of Series A Preferred Stock, dated February 3, 2004
(incorporated by reference to Exhibit 3.6 to the Company’s Registration
Statement on Form S-1, File No. 333-112865, filed on February 17,
2004)
|
*
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation, dated April 27, 2010
(incorporated by reference to Exhibit 3.1 to the Company's Current Report
on Form 8-K, filed on April 30, 2010)
|
*
|
3.8
|
By-Laws
(incorporated by reference to Exhibit 3.4 to Registration Statement on
Form S-1, File No. 333-111101, filed on December 11, 2003)
|
*
|
4.1
|
Form
of 5% Senior Secured Convertible Promissory Notes dated October 19, 2009
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report
on Form 8-K, filed on October 20, 2009)
|
*
|
4.2
|
Amendment
to each 5% Senior Secured Convertible Promissory Notes dated February 26,
2010 by and among the Company and the holders thereof (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed on March 4, 2010)
|
|
4.3
|
Form
of Series A Common Stock Purchase Warrant dated October 19, 2010
(incorporated by reference to Exhibit 4.2 to the Company’s Current Report
on Form 8-K, filed on October 20, 2009)
|
*
|
4.4
|
Form
of Series B Common Stock Purchase Warrant dated October 19, 2010
(incorporated by reference to Exhibit 4.3 to the Company’s Current Report
on Form 8-K, filed on October 20, 2009)
|
*
|
5.1
|
Legality
Opinion of Goodwin Procter LLP
|
+
|
10.1
|
1993
Stock Option Plan and Form of Option Agreement (incorporated by reference
to Exhibit 10.10 to Registration Statement on Form SB-2, File No.
33-76950, filed on August 1, 1994)
|
*
|
10.2
|
1997
Stock Option Plan (incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1, File No. 333-111101, filed on December
11, 2003)
|
*
|
10.2.1
|
Amendment
No. 1 to 1997 Stock Option Plan (incorporated by reference to Exhibit
10.2.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.3
|
2004
Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Registration Statement on Form S-1, File No. 333-112865, filed
on February 17, 2004)
|
*
|
10.3.1
|
Amendment
No. 1 to 2004 Stock Incentive Plan (incorporated by reference to Exhibit
10.3.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.4
|
Form
of Subscription Agreement and Warrant Agreement used in Private Placements
completed in February 2000 (incorporated by reference to Exhibit 10.21 to
the Company’s Annual Report on Form 10-K, filed on October 30,
2000)
|
*
|
10.5
|
Form
of Subscription Agreement and Warrant Agreement used in the August and
September 2000 Private Placements (incorporated by reference to Exhibit
10.24 to the Company’s Quarterly Report on Form 10-Q, filed on December
15, 2000)
|
*
|
10.6
|
Form
of Subscription Agreement and Warrant Agreement used in the April 2001
Private Placements (incorporated by reference to Exhibit 10.23 to
Registration Statement on Form S-1, File No. 333-38136, filed on July 30,
2001)
|
*
|
10.7
|
Form
of Convertible Note entered into in April 2001 (incorporated by reference
to Exhibit 10.24 to Registration Statement on Form S-1, File No.
333-38136, filed on July 30, 2001)
|
*
|
10.8
|
Form
of Subscription Agreement and Warrant Agreement used in the July 2001
Private Placements (incorporated by reference to Exhibit 10.25 to
Registration Statement on Form S-1, File No. 333-38136, filed on July 30,
2001)
|
*
|
10.9
|
Form
of Subscription Agreement and Warrant Agreement used in the August and
October 2001 private placement (incorporated by reference to Exhibit 10.26
to Registration Statement on Form S-1, File No. 333-38136, filed on
December 14, 2001)
|
*
|
10.10
|
Form
of Subscription Agreement and Warrant Agreement used in the September
2001, November 2001 and January 2002 private placements (incorporated by
reference to Exhibit 10.27 to Registration Statement on Form S-1, File No.
333-38136, filed on February 21, 2002)
|
*
|
10.11
|
Warrant
issued in the February 2002 private placement (incorporated by reference
to Exhibit 10.28 to Registration Statement on Form S-1, File No.
333-38136, filed on February 21, 2002)
|
*
|
10.12
|
Form
of Subscription Agreement and Warrant Agreement used in the March 2002,
April 2002 and May 2002 private placements (incorporated by reference to
Exhibit 10.29 to Registration Statement on Form S-1, File No. 333-89166,
filed on May 24, 2002)
|
*
|
10.13
|
Form
of Subscription Agreement and Warrant Agreement used in the June 2002 and
October 2002 private placements (incorporated by reference to Exhibit
10.30 to the Post-Effective Amendment to Registration Statement on Form
S-1, File No. 333-38136, filed on March 3, 2003)
|
*
|
10.14
|
Form
of Note Payable and Warrant Certificate entered into April, June, July,
September, November and December 2002 (incorporated by reference to
Exhibit 10.31 to the Post-Effective Amendment to Registration Statement on
Form S-1, File No. 333-38136, filed on March 3, 2003)
|
*
|
10.15
|
Form
of Note Payable and Warrant Certificate entered into November 2001,
January, March and May 2003 (incorporated by reference to Exhibit 10.23 to
the Company’s Annual Report on Form 10-K, filed on October 29,
2003)
|
*
|
10.16
|
Form
of Subscription Agreement and Warrant Agreement used in the February 2003
and April through August 2003 private placements (incorporated by
reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K,
filed on October 29, 2003)
|
*
|
10.17
|
Form
of Amended Notes Payable which amends the November 2001, April 2002, June
2002, July 2002, September 2002, November 2002 December 2002, January
2003, March 2003 and May 2003 notes payable (incorporated by reference to
Exhibit 10.27 to The Company’s Annual Report on Form 10-K, filed on
October 29, 2003)
|
*
|
10.18
|
Securities
Purchase Agreement and Warrant Agreement used in September 2003 private
placement and Form of Warrant Certificate issued on January 16, 2004 and
January 29, 2004 to SF Capital Partners Ltd. (incorporated by reference to
Exhibit 10.25 to the Company’s Annual Report on Form 10-K, filed on
October 29, 2003)
|
*
|
10.19
|
Registration
Rights Agreement used in September 2003 private placement with SF Capital
Partners Ltd. (incorporated by reference to Exhibit 10.26 to the Company’s
Annual Report on Form 10-K, filed on October 29, 2003)
|
*
|
10.20
|
Form
of Securities Purchase Agreement used in May 2004 private placement with
Knoll Capital Fund II, Europa International, Inc. and Clifford and Phyllis
Kalista JTWROS (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-1, File No. 333-112865, filed on May 18,
2004)
|
*
|
10.21
|
Form
of Registration Rights Agreement used in May 2004 private placement with
Knoll Capital Fund II, Europa International, Inc. and Clifford and Phyllis
Kalista JTWROS (incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-1, File No. 333-112865, filed on May 18,
2004)
|
*
|
10.22
|
Form
of Warrant Certificate issued on May 11, 2004 to Knoll Capital Fund II,
Europa International, Inc. and Clifford and Phyllis Kalista JTWROS
(incorporated by reference to Exhibit 4.5 to Registration Statement on
Form S-1, File No. 333-112865, filed on May 18, 2004)
|
*
|
10.23
|
Form
of Stock Option Agreement issued to the Company’s Board of Directors under
the Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit
10.23 to the Company’s Quarterly Report on Form 10-Q filed on June 9,
2005)
|
*
|
10.24
|
Form
of Stock Option Agreement issued to the Company’s Executive Officers under
the Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit
10.24 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2005)
|
*
|
10.25
|
Separation
Agreement and General Release with Andrew Savadelis dated May 26, 2005
(incorporated by reference to Exhibit 10.25 to the Company’s Annual Report
on Form 10-K, filed on October 15, 2005)
|
*
|
10.26
|
Securities
Purchase Agreement used in May 2005 private placement with Jeffrey
D’Onofrio dated May 1, 2006 (incorporated by reference to Exhibit 10.26 to
the Company’s Annual Report on Form 10-K, filed on October 16,
2006)
|
*
|
10.27
|
Form
of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K, filed on July 19, 2006)
|
*
|
10.28
|
Registration
Rights Agreement dated July 17, 2006 (incorporated by reference to Exhibit
4.2 to the Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.29
|
Agreement
to Amend Knoll Warrant dated July 17, 2006 (incorporated by reference to
Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.30
|
Form
of Amended Knoll Warrant (incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.31
|
Agreement
to Amend SF Capital Warrant dated July 17, 2006 (incorporated by reference
to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on July
19, 2006)
|
*
|
10.32
|
Form
of Amended Warrant for SF Capital Partners, Ltd. (incorporated by
reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K,
filed on July 19, 2006)
|
*
|
10.33
|
Securities
Purchase Agreement dated July 17, 2006 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July
19, 2006)
|
*
|
10.34
|
Form
of Stock Option Agreement for Executive Officers under the Company’s 2004
Stock Incentive Plan (incorporated by reference to Exhibit 10.34 to the
Company’s Quarterly Report on Form 10-Q, filed on March 12,
2007)
|
*
|
10.35
|
Offer
letter agreement with Lawrence A. Kenyon dated January 16, 2007
(incorporated by reference to Exhibit 10.35 to the Company’s Quarterly
Report on Form 10-Q, filed on March 12, 2007)
|
*
|
10.36
|
Summary
of the Company’s Non-Employee Director Compensation Policy (incorporated
by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form
10-Q, filed on March 12, 2007)
|
*
|
10.37
|
Royalty
Agreement between the Company and Kuslima Shogen, dated July 24, 1991 and
Amendment to Royalty Agreement, dated April 16, 2001 (incorporated by
reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q,
filed on March 12, 2007)
|
*
|
10.38
|
Office
Lease Agreement, dated March 14, 2007, between I&G Garden State, LLC
and the Company (incorporated by reference to Exhibit 10.38 to the
Company’s Quarterly Report on Form 10-Q, filed on June 18,
2007)
|
*
|
10.39
|
Form
of Distribution and Marketing Agreement, dated July 25, 2007, between the
Company and USP Pharma Spolka Z.O.O. (incorporated by reference to Exhibit
10.39 to the Company’s Quarterly Report on Form 10-Q, filed on October 15,
2007)
|
*^
|
10.40
|
Form
of Securities Purchase Agreement, dated July 25, 2007, between the Company
and Unilab LP. (incorporated by reference to Exhibit 10.40 to the
Company’s Quarterly Report on Form 10-Q, filed on October 15,
2007)
|
*
|
10.41
|
License
Agreement, dated January 14, 2008, between the Company and Par
Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.41 to the
Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*^
|
10.42
|
Supply
Agreement, dated January 14, 2008, between the Company and Par
Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.42 to the
Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*
|
10.43
|
Purchase
and Supply Agreement, dated January 14, 2008, between the Company and
Scientific Protein Laboratories LLC (incorporated by reference to Exhibit
10.43 to the Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*
|
10.44
|
Amendment
No. 1 to 1993 Stock Option Plan (incorporated by reference to Exhibit
10.44 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.45
|
Retirement
Agreement, dated April 25, 2008, between the Company and Kuslima Shogen
(incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K, filed on April 28, 2008)
|
*~
|
10.46
|
Securities
Purchase Agreement dated October 19, 2009 by and among the Company and the
investors named therein (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed on October 20,
2009)
|
*
|
10.47
|
Amendment
to Securities Purchase Agreement dated February 26, 2010 by and among the
Company and the investors named therein (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March
4, 2010)
|
*
|
10.48
|
Investors
Rights Agreement dated October 19, 2009 by and among the Company and the
investors named therein (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed on October 20,
2009)
|
*
|
10.49
|
Amendment
to Investor Rights Agreement dated February 26, 2010 by and among the
Company and the investors named therein (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on March
4, 2010)
|
*
|
10.50
|
Security
Agreement dated October 19, 2009 by and among the Company, the agent named
therein and the secured parties named therein (incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on
October 20, 2009)
|
*
|
10.51
|
Escrow
Agreement by and among the Company and the parties named therein dated
October 19, 2009 (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report 8-K, filed on October 20, 2009)
|
*
|
10.52
|
Employment
Agreement by and between the Company and Charles Muniz dated October 19,
2009 (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K, filed on October 20, 2009)
|
*~
|
10.53
|
Termination
Agreement between the Company and Par Pharmaceutical, Inc. (incorporated
by reference to Exhibit 10.51 to the Company’s Quarterly Report on Form
10-Q, filed on November 13, 2009)
|
*
|
10.54
|
Amendment
to the Retirement Agreement, dated April 25, 2008, between the Company and
Kuslima Shogen (incorporated by reference to Exhibit 10.52 to the
Company’s Quarterly Report on Form 10-Q, filed on November 13,
2009)
|
*
|
21.1
|
Subsidiaries
of Registrant (incorporated by reference to Exhibit 21. to the Company’s
Annual Report on Form 10-K, filed on October 16, 2006)
|
*
|
23.1
|
Consent
of J.H. Cohn LLP
|
+
|
23.2
|
Consent
of KPMG LLP
|
+
|
23.3
|
Consent
of Goodwin Procter LLP (See Exhibit 5.1)
|
+
|
*
|
Previously
filed; incorporated herein by reference
|
+
|
Filed
herewith
|
^
|
Portions
of this exhibit have been redacted and filed separately with the SEC
pursuant to a confidential treatment request.
|
~
|
Management
contract or compensatory plan or
arrangement.
|
Item
17. UNDERTAKINGS
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933 (the “Securities Act”);
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
|
(5) For
purposes of determining any liability under the Securities Act, if the
registrant is subject to Rule 430C under the Securities Act, each prospectus
filed pursuant to Rule 424(b) under the Securities Act as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B under the Securities Act or other than
prospectuses filed in reliance on Rule 430A under the Securities Act, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
(6) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURE
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Somerset, New Jersey, on April 30,
2010.
|
TAMIR
BIOTECHNOLOGY, INC.
|
|
|
|
|
|
|
By:
|
/s/ Charles Muniz |
|
|
|
Charles
Muniz |
|
|
|
President,
Chief Executive Officer and Chief Financial Officer
|
|
POWER OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints, Charles Muniz, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective amendments),
and any and all Registration Statements filed pursuant to Rule 462 under the
Securities Act of 1933, in connection with or related to the offering
contemplated by this Registration Statement and its amendments, if any, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates
indicated:
Dated:
April 30, 2010
|
/s/
Charles Muniz
|
|
|
Charles
Muniz, President, Chief Executive Officer, Chief Financial Officer and
Director
|
|
|
|
Dated: April
30, 2010
|
/s/David Sidransky
|
|
|
David
Sidransky, M.D., Director
|
|
|
|
Dated: April
30, 2010
|
/s/
John P. Brancaccio
|
|
|
John
P. Brancaccio, Director
|
|
|
|
Dated: April
30, 2010
|
/s/Paul M. Weiss
|
|
|
Paul
M. Weiss, Ph.D., Director
|