Attached files
file | filename |
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EX-32 - ONCOVISTA INNOVATIVE THERAPIES, INC | v184616_ex32.htm |
EX-31.1 - ONCOVISTA INNOVATIVE THERAPIES, INC | v184616_ex31-1.htm |
EX-31.2 - ONCOVISTA INNOVATIVE THERAPIES, INC | v184616_ex31-2.htm |
EX-10.1 - ONCOVISTA INNOVATIVE THERAPIES, INC | v184616_ex10-1.htm |
EX-10.2 - ONCOVISTA INNOVATIVE THERAPIES, INC | v184616_ex10-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended March 31, 2010
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _________ to __________
Commission
file number: 000-28347
ONCOVISTA
INNOVATIVE THERAPIES, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
33-0881303
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
14785
Omicron Drive
Suite
104
San
Antonio, Texas 78245
(Address
of principal executive offices)
(210)
677-6000
(Registrant's
telephone number, including area code)
Check
whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the latest practicable date: 21,149,675 shares of common stock
with a par value of $.001 outstanding as of May 10, 2010.
ONCOVISTA
INNOVATIVE THERAPIES, INC.
FORM
10-Q
FOR
THE QUARTER ENDED MARCH 31, 2010
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
|
2
|
ITEM
1 – FINANCIAL STATEMENTS
|
2
|
ITEM
2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
16
|
ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
20
|
ITEM
4 – CONTROLS AND PROCEDURES
|
20
|
ITEM
4T – CONTROLS AND PROCEDURES
|
20
|
PART
II – OTHER INFORMATION
|
21
|
ITEM
1 – LEGAL PROCEEDINGS
|
21
|
ITEM
1A – RISK FACTORS
|
21
|
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
21
|
ITEM
3 – DEFAULTS UPON SENIOR SECURITIES
|
21
|
ITEM
4 – (REMOVED AND RESERVED)
|
21
|
ITEM
5 – OTHER INFORMATION
|
21
|
ITEM
6 – EXHIBITS
|
22
|
PART I – FINANCIAL
INFORMATION
ITEM
1 – FINANCIAL STATEMENTS
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 61,144 | $ | 108,994 | ||||
Accounts
receivable
|
104,162 | 113,187 | ||||||
Inventory
|
25,310 | 26,962 | ||||||
Prepaid
and other current assets
|
14,331 | 25,329 | ||||||
Total
current assets
|
204,947 | 274,472 | ||||||
Equipment,
net
|
75,689 | 91,341 | ||||||
Deposits
and other assets
|
41,739 | 44,329 | ||||||
Total
assets
|
$ | 322,375 | $ | 410,142 | ||||
LIABILITIES,
CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST AND
DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,307,586 | $ | 1,279,278 | ||||
Accrued
expenses
|
1,317,838 | 1,995,800 | ||||||
Derivative
liability
|
234,419 | 46,704 | ||||||
Loans
payable, related party
|
345,364 | 259,556 | ||||||
Notes
payable (including
$350,000 of related party notes payable)
|
1,522,750 | 1,541,016 | ||||||
Contingently
restructured debt
|
– | 6,176,310 | ||||||
Accrued
interest payable
|
429,121 | 359,983 | ||||||
Total
current liabilities
|
5,157,078 | 11,658,647 | ||||||
Commitments
and contingencies
|
||||||||
Contingently
redeemable noncontrolling interest
|
5,811,345 | – | ||||||
Deficit:
|
||||||||
OncoVista
Innovative Therapies stockholders’ deficit:
|
||||||||
Common
stock, $.001 par value; 147,397,390 shares authorized, 21,149,675 shares
issued and outstanding at March 31, 2010 and December 31, 2009,
respectively
|
21,149 | 21,149 | ||||||
Additional
paid-in capital
|
18,898,906 | 18,560,394 | ||||||
Accumulated
deficit
|
(28,638,430 | ) | (28,357,947 | ) | ||||
Accumulated
other comprehensive loss
|
(881,406 | ) | (1,430,618 | ) | ||||
Total
OncoVista Innovative Therapies stockholders’ deficit
|
(10,599,781 | ) | (11,207,022 | ) | ||||
Noncontrolling
interest
|
(46,267 | ) | (41,483 | ) | ||||
Total
deficit
|
(10,646,048 | ) | (11,248,505 | ) | ||||
− | − | |||||||
Total
liabilities, contingently redeemable noncontrolling interest and
deficit
|
$ | 322,375 | $ | 410,142 |
See
accompanying notes to the condensed consolidated financial
statements
2
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Licensing
|
$ | 41,235 | $ | 9,276 | ||||
Diagnostic
kits
|
294,463 | 158,405 | ||||||
Research
and development revenue
|
– | 10,132 | ||||||
Total
revenues
|
335,698 | 177,813 | ||||||
Operating
expenses:
|
||||||||
Research
and development
|
269,994 | 673,246 | ||||||
General
and administrative
|
485,848 | 1,141,419 | ||||||
Total
operating expenses
|
755,842 | 1,814,665 | ||||||
Loss
from operations
|
(420,144 | ) | (1,636,852 | ) | ||||
Other
income (expense):
|
||||||||
Interest
expense
|
(105,892 | ) | (161,368 | ) | ||||
(Loss)
gain on derivative liability
|
(187,715 | ) | 272,325 | |||||
Extinguishment
of minimum royalty liability
|
520,000 | – | ||||||
Other
|
(109,609 | ) | (44,762 | ) | ||||
Total
other income (expense), net
|
116,784 | 66,195 | ||||||
Net
loss
|
(303,360 | ) | (1,570,657 | ) | ||||
Net
loss attributable to noncontrolling interest
|
4,783 | 15,572 | ||||||
Net
loss attributable to contingently redeemable noncontrolling
interest
|
18,094 | – | ||||||
Net
loss attributable to OncoVista Innovative Therapies
|
$ | (280,483 | ) | $ | (1,555,085 | ) | ||
Net
loss per share - basic and diluted
|
$ | (0.01 | ) | $ | (0.08 | ) | ||
Weighted
average number of shares outstanding during the period - basic and
diluted
|
20,483,008 | 18,316,475 |
See
accompanying notes to the condensed consolidated financial
statements
3
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
Net
loss
|
$ | (303,360 | ) | $ | (1,570,657 | ) | ||
Other
comprehensive income (loss):
|
||||||||
Foreign
currency translation gain
|
549,212 | 488,568 | ||||||
Total
other comprehensive income
|
549,212 | 488,568 | ||||||
Comprehensive
income (loss)
|
245,852 | (1,082,089 | ) | |||||
Comprehensive
loss attributable to noncontrolling interest
|
4,783 | 44,862 | ||||||
Comprehensive
loss attributable to contingently redeemable noncontrolling
interest
|
18,094 | — | ||||||
Comprehensive
income (loss) attributable to OncoVista Innovative
Therapies
|
$ | 268,729 | $ | (1,037,227 | ) |
See
accompanying notes to the condensed consolidated financial
statements
4
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (303,360 | ) | $ | (1,570,657 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
|
11,897 | 17,194 | ||||||
Amortization
of debt discount
|
25,637 | 96,344 | ||||||
Employee
stock-based compensation
|
307,301 | 530,927 | ||||||
Non-employee
stock-based consulting
|
31,211 | 35,214 | ||||||
Non-employee
stock-based consulting (warrants)
|
– | 92,028 | ||||||
Loss
(gain) on derivative liability
|
187,715 | (272,325 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
2,202 | 29,152 | ||||||
Prepaid
and other assets
|
9,728 | 6,109 | ||||||
Accounts
payable
|
50,366 | 127,042 | ||||||
Accrued
expenses
|
(671,421 | ) | 278,069 | |||||
Accrued
interest payable
|
85,987 | 39,679 | ||||||
Net
cash used in operating activities
|
(262,737 | ) | (591,224 | ) | ||||
Cash
flows from investing activities
|
||||||||
Purchase
of equipment
|
– | (636 | ) | |||||
Net
cash used in investing activities
|
– | (636 | ) | |||||
Cash
flows from financing activities
|
||||||||
Proceeds
from notes and loans payable, related party
|
95,000 | 350,000 | ||||||
Proceeds
from notes payable
|
– | 400,000 | ||||||
Net
cash provided by financing activities
|
95,000 | 750,000 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(167,737 | ) | 158,140 | |||||
Effect
of exchange rate changes on cash
|
119,887 | 65,801 | ||||||
Cash
and cash equivalents at beginning of period
|
108,994 | 91,482 | ||||||
Cash
and cash equivalents at end of period
|
$ | 61,144 | $ | 315,423 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 21,227 | $ | 31,897 |
See
accompanying notes to the condensed consolidated financial
statements
5
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Note
1.
|
BASIS
OF PRESENTATION, ORGANIZATION AND NATURE OF
OPERATIONS
|
OncoVista
Innovative Therapies, Inc. (“OVIT” or the “Company”) is a biopharmaceutical
company involved in the commercialization of diagnostic tests for metastatic
tumors, as well as the development of targeted anticancer therapies by utilizing
tumor-associated biomarkers. The Company has developed diagnostic kits for
breast, colon, ovarian and prostate cancers, and currently markets diagnostic
kits in Europe for the detection of circulating tumor cells (“CTCs”) in patients
with breast, colon, ovarian, and prostate cancer. The Company has
also developed research products for the detection of steroid receptors (ER/PR)
and cancer stem cells.
In August
2009, with the exception of the CEO, the Company terminated the employment of
all employees of OncoVista, Inc. (“OncoVista”), the Company’s U.S. operating
subsidiary. AdnaGen AG (“AdnaGen”), the Company’s German operating
subsidiary, has eight full-time employees. The Company is currently attempting
to raise additional funding to provide working capital. The Company has received
and continues to receive cash advances from companies affiliated with the CEO to
support continuing operations.
In
December 2005, OncoVista acquired a controlling (51%) interest in AdnaGen, a
research and development company based in Langenhagen,
Germany. AdnaGen focuses on the development of innovative tumor
diagnostics by utilizing its proprietary technology for the detection and
analysis of rare cells. In December 2007, OncoVista purchased from a
now former shareholder of AdnaGen an additional 34% equity interest in AdnaGen,
for consideration of $599,241. In June 2008, OncoVista purchased an additional
10% equity interest in AdnaGen, for consideration of $70,374 from now former
AdnaGen shareholders. As a result of these purchases, OncoVista now
owns approximately 95% of AdnaGen subject to the contingent debt restructuring
described below and in Note 6.
In April
2009, the Company negotiated a contingent debt restructuring with three of its
major creditors which resulted in exchanging approximately €4.3 million ($5.8
million) of debt and related accrued interest for an equity share of
approximately 18% of AdnaGen. The shares were contingently issued in
January 2010 and are presented as contingently redeemable noncontrolling
interest as of March 31, 2010. In addition, as part of the contingent
restructuring, OncoVista agreed to forgive approximately $1.1 million in
receivables, advances, loans and related interest as of March 31, 2010, due from
AdnaGen. The debt restructuring and the related share issuance is
contingent on AdnaGen raising a minimum of €2.0 million ($2.7 million) that was
originally to be due no later than July 30, 2009 (extended to May 31,
2010). After the contingent restructuring, OncoVista owns
approximately 78% of AdnaGen.
Note
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
accompanying unaudited interim condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the United States
Securities and Exchange Commission (the “Commission”) for interim financial
information. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of financial position, results of
operations, and changes in deficit or cash flows. It is management's opinion,
however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement
presentation. The interim results for the period ended March 31, 2010
are not necessarily indicative of results for the full fiscal year.
The
unaudited interim consolidated financial statements should be read in
conjunction with the required financial information included as part of the
Company’s Form 10-K for the year ended December 31, 2009, filed with the
Commission on March 31, 2010.
Principles
of Consolidation
The
consolidated financial statements include the accounts of OVIT, OncoVista and
AdnaGen (collectively, the “Company”). All intercompany balances have
been eliminated.
6
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“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 revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Significant
estimates include the valuation of warrants and stock options granted for
services or compensation, estimates of the probability and potential magnitude
of contingent liabilities, estimates relating to the fair value of derivative
liabilities and the valuation allowance for deferred tax assets.
Comprehensive
Income (Loss)
Comprehensive
income or loss is comprised of net income or loss and other comprehensive income
or loss, which includes certain changes in equity that are excluded from net
earnings, primarily foreign currency translation adjustments.
Accounts
and Other Receivables
There has
been no identifiable bad debt expense during the three months ended March 31,
2010 and 2009, respectively. Additionally, the Company has not
recorded any allowance for doubtful accounts. The allowance is
generally determined based on an account-by-account review. Accounts
are charged off when collection efforts have failed and the account is deemed
uncollectible. The Company does not charge interest on accounts
receivable.
Noncontrolling
interest
On
January 1, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) issued authoritative guidance related to Noncontrolling Interests in
Consolidated Financial Statements, the provisions of which, among others,
require the recognition of a noncontrolling interest (previously referred to as
minority interest) as a component of equity in the consolidated financial
statements and separate from the parent’s equity for all periods presented. In
addition, the amount of net income or loss attributable to the noncontrolling
interest is included in consolidated net income or loss on the face of the
consolidated statement of operations. Under GAAP, certain noncontrolling
interests in consolidated entities meet the definition of mandatorily redeemable
financial instruments if the ability to redeem the interest is outside of the
control of the consolidating entity. As described in Note 1, the Company
negotiated a contingent debt restructuring with three of its major creditors. As
such, the contingently redeemable noncontrolling interest is shown as a separate
caption between liabilities and equity (mezzanine section). The carrying value
of the contingently redeemable noncontrolling interest reflects the carrying
value of the debt and related interest.
Customer
Concentration
For the
three months ended March 31, 2010 and 2009, the Company derived a substantial
portion of its revenues from three customers accounting for 73% of the Company’s
revenue (50%, 14% and 9%), and three customers for 60% of the Company’s revenue
(28%, 22% and 10%), respectively.
Three
customers accounted for approximately 76% of the accounts receivable balance
(44%, 18% and 14%) at March 31, 2010, and two customers accounted for
approximately 75% of the balance (44% and 31%) at December 31,
2009.
Net
Loss per Share
Basic
earnings (loss) per share are computed by dividing the net income (loss) by the
weighted average number of common shares outstanding. Unvested restricted stock
is excluded from the basic weighted average number of common shares outstanding
as these shares are subject to certain contingencies. Diluted earnings per share
is computed by dividing net income by the weighted average number of common
shares outstanding including the effect of share equivalents. Common
stock equivalents consist of shares issuable upon the exercise of certain common
stock purchase warrants and stock options.
7
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
At March
31, 2010 and 2009, the following numbers of shares have been excluded since such
inclusion in the computation would be anti-dilutive:
2010
|
2009
|
|||||||
Stock
options outstanding under various stock option plans
|
650,000 | 2,190,000 | ||||||
Warrants
|
3,681,712 | 3,681,712 | ||||||
Total
|
4,331,712 | 5,871,712 |
Reclassifications
Certain
prior year balances have been reclassified to conform to the current year
presentation.
Note
3.
|
GOING
CONCERN
|
As
reflected in the accompanying consolidated financial statements, the Company
reported a net loss of approximately $303,000 and net cash used in operations of
approximately $263,000 for the three months ended March 31, 2010, a working
capital deficit of approximately $5.0 million, an accumulated deficit of
approximately $28.7 million and a total deficit of approximately $10.6
million at March 31, 2010. The Company is also in default on certain loans,
notes, and related accrued interest aggregating $137,611 at March 31, 2010 (see
Note 7). These factors raise significant doubt about the Company’s ability to
continue as a going concern.
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. These financial
statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on
management’s ability to further implement its strategic plan, resolve its
liquidity problems, principally by obtaining additional debt and/or equity
financing, and generate additional revenues from collaborative agreements or
sale of pharmaceutical products.
In
January 2009, the Company secured $750,000 in bridge financing and has engaged
several investment banks to assist in raising funding to support ongoing
development activities. The Company also obtained additional funding of
approximately $95,000 during the three months ended March 31, 2010 from related
parties. As described in Note 1, the Company also restructured approximately
$5.8 million of debt and related accrued interest subject to the Company raising
a certain amount of additional funding. There can be no assurance that these
financings will be sufficient or that additional financing will be available in
amounts or terms acceptable to the Company, if at all.
Note
4.
|
EQUIPMENT
|
Equipment
balances at March 31, 2010 and December 31, 2009 are summarized
below:
2010
|
2009
|
|||||||
Equipment
|
$ | 498,248 | $ | 528,795 | ||||
Computer
and office equipment
|
102,177 | 108,747 | ||||||
Furniture
and fixtures
|
5,554 | 5,554 | ||||||
605,979 | 643,096 | |||||||
Less:
accumulated depreciation
|
(530,290 | ) | (551,755 | ) | ||||
Equipment,
net
|
$ | 75,689 | $ | 91,341 |
8
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Note
5.
|
ACCRUED
EXPENSES
|
Accrued
expenses at March 31, 2010 and December 31, 2009 are summarized
below:
2010
|
2009
|
|||||||
Legal
and professional
|
$ | 403,967 | $ | 988,584 | ||||
Clinical
and other studies
|
279,197 | 279,197 | ||||||
Compensation
|
283,030 | 347,526 | ||||||
Other
|
351,644 | 380,493 | ||||||
Total
accrued expenses
|
$ | 1,317,838 | $ | 1,995,800 |
In March
2010, we terminated our license agreements and returned the intellectual
property related to technologies associated with tubulin isotype-specific
anti-mitotics and a proprietary database of tubulin structures. In
return, we are no longer obligated to pay $520,000 in liabilities for minimum
royalties associated with these licenses. Accordingly, in March 2010 we reversed
the accrued liability which was included in current liabilities on the Company’s
consolidated balance sheets.
Note
6.
|
DERIVATIVE
LIABILITY
|
In
January 2010, the Company amended certain terms of the 2009 Bridge Note
financing agreement (which did not effect the liability classification of
the associated warrants). In consideration for the modification, the
Company extended the expiration date for the warrants to July 15, 2014, and the
exercise price of the warrants was reduced to $0.10 per share. The modification
of the terms of the warrants resulted in an additional expense at the amendment
date of $67,172. At March 31, 2010 and December 31, 2009, the estimated fair
value of the derivative liability was $234,419 and $46,704,
respectively.
The
Company uses the Black-Scholes pricing model to calculate fair value of its
warrant liabilities. Key assumptions used to apply these models are as
follows:
March 31, 2010
|
|||||
Expected
term
|
4.25
years
|
|
|||
Volatility
|
86.5%
|
||||
Risk-free
interest rate
|
0.43%
|
||||
Dividend
yield
|
0%
|
Fair
value measurements
Assets
and liabilities measured at fair value as of March 31, 2010, are as
follows:
Value at
March 31,
2010
|
Quoted prices
in active
markets
(Level 1)
|
Significant
other observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||||
Derivative
liability
|
$ | 234,419 | $ | – | $ | 234,419 | $ | – |
The fair
value framework requires a categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to price the assets and
liabilities. Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment. The three levels are
defined as follows:
Level 1:
Unadjusted quoted prices in active markets for identical assets and
liabilities.
Level 2:
Observable inputs other than those included in Level 1. For example, quoted
prices for similar assets or liabilities in active markets or quoted prices for
identical assets or liabilities in inactive markets.
Level 3:
Unobservable inputs reflecting management’s own assumptions about the inputs
used in pricing the asset or liability
9
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
There
were no financial assets or liabilities measured at fair value, with the
exception of cash and cash equivalents and the above mentioned derivative
liability as of March 31, 2010 and December 31, 2009, respectively. The fair
values of accounts receivable, accounts payable and third-party debt approximate
the carrying amounts due to the short-term nature of these
instruments. The fair value of debt due to related parties is not
practicable to estimate due to the related party nature of the underlying
transactions.
Note
7.
|
DEBT
|
The
Company had the following outstanding loans and notes payable at March 31, 2010
and December 31, 2009:
2010
|
2009
|
|||||||
Unsecured
loans payable to third parties with interest at 10% and due on demand1
|
$ | – | $ | 1,341,062 | ||||
Unsecured
note payable to a third party with interest at 5%, maturing in December
20101
|
– | 2,149,950 | ||||||
Unsecured
note payable to a third party with interest at 9%, maturing in December
20101
|
– | 1,433,300 | ||||||
– | 4,924,312 | |||||||
Unsecured
loans payable to related parties with interest at 10% and due on
demand2
|
345,364 | 259,556 | ||||||
Unsecured
notes payable to third parties with interest at 10%, maturing in July
20103
|
750,000 | 724,366 | ||||||
Unsecured
convertible notes payable to a third party with interest at 8% and due on
demand, matured in December 20054
|
100,000 | 100,000 | ||||||
Unsecured
note payable to a third party with interest at 5.5%, matured in June
20085
|
672,750 | 716,650 | ||||||
Total
loans and notes payable
|
1,868,114 | 6,724,884 | ||||||
Less:
current portion
|
(1,868,114 | ) | (6,724,884 | ) | ||||
Total
long-term debt
|
$ | – | $ | – |
1 In
April 2009, the Company negotiated a contingent debt restructuring with three of
its major creditors (see Note 1).
3 Includes
Bridge Notes in the principal amount of $350,000 to affiliates of Dr. Weis and
Bridge Notes in the principal amount of $300,000 to Wexford Spectrum Trading
Limited. Wexford Capital LLC is the investment sub-advisor of Wexford
Spectrum Trading Limited which beneficially owns approximately 11% of the
Company’s outstanding common stock. Prior to the January 2010 amendment
described below, the notes bear interest at 10% per annum increasing to 18% in
the case of an event of default and mature on the earlier of (i) January 15,
2010, (ii) the date upon which the Company consummates a financing, the
aggregate gross proceeds of which equal or exceed $5,000,000 (a “Qualified
Financing"), and (iii) the acceleration of the maturity of the Bridge Notes as
described therein.
4 The
debt holder, at its option, may convert the principal and any accrued interest
into shares of common stock at a price of $2.50 per share.
5 Amount
relates to an unsecured note payable in the amount of €500,000 with a contingent
repayment plan for which principal is payable at the maturity date only if
AdnaGen is profitable and achieves certain positive shareholder’s
equity.
10
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
In
January 2010, the Company issued contingently redeemable shares of AdnaGen to
certain holders of debt with a principal balance of $4,924,312 together with
accrued interest of $1,251,998 as of December 31, 2009, which is recorded as
contingently redeemable noncontrolling interest as of March 31, 2010 (Note
1).
In
January 2010, the Company obtained consent from the holders of the Bridge Note
financing to extend the maturity date from January 15, 2010 until the earlier of
July 15, 2010 or such time that the Company obtains a “Qualified
Financing.” The term “Qualified Financing” was also revised from
aggregate gross proceeds which equal or exceed $5.0 million to $3.0 million and
the interest rate was increased from 10% to 12%.
In March
2010, the Company also obtained consent from the holders of the Bridge Note
financing to formalize agreements for advances from the CEO and affiliates of
the CEO to the Company with terms identical to the Bridge Notes issued in
January 2009, as amended in January 2010.
Note
8.
|
RELATED
PARTY TRANSACTIONS
|
The
Company’s CEO, Chairman of the Board, President and a significant shareholder,
is a beneficial owner of Lipitek International, Inc. (“Lipitek”) and Lipitek
Research, LLC (“Lipitek Research”). The Company leases its laboratory
space from Lipitek under a five-year lease agreement for approximately $17,000
per month that expired in December 2009. The Company continues to
occupy this space on a month-to-month basis and has been accruing approximately
$17,000 per month in payments for this space.
In
November 2005, the Company entered into a purchase agreement with Lipitek and
the Company’s CEO, Chairman of the Board, and President, under which Lipitek
granted the Company an option to purchase all membership interests in Lipitek
Research for a purchase price of $5.0 million, which is payable quarterly based
upon revenues of Lipitek Research up to $50,000 per quarter. Through
March 31, 2010, the Company has paid $300,000 toward this agreement and has
accrued $350,000 representing one-half of the amounts for 2008, all of the 2009
and the first quarter of 2010, which are included in accounts payable in the
consolidated balance sheets. During 2010 and 2009, the Company paid no amounts
toward the agreement.
Prior to
the full payment of the purchase price, the Company has the option, upon 30 days
written notice, to abandon the purchase of Lipitek Research and would forfeit
the amounts already paid. All intellectual property developments by
Lipitek Research through the term of the agreement or December 2012, whichever
is later, shall remain the Company’s property, irrespective of whether the
option is exercised. In addition, the Company will receive 80% of the
research and development revenue earned by Lipitek while the agreement is in
place. In 2009, the Company did not recognize, and thus far in 2010, the Company
has not recognized, any revenue from its share of Lipitek revenues.
11
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
Company’s CEO, Chairman of the Board, President and a significant shareholder,
is also a beneficial owner of Biomarkers LLC (“Biomarkers”). In September 2008,
AdnaGen entered into an exclusive distribution and license agreement with
Biomarkers. Pursuant to the terms of the license agreement, AdnaGen granted
Biomarkers the right to distribute diagnostic kits in North America. Biomarkers
will have the capability to run AdnaGen assays in a Clinical Laboratory
Improvement Amendments (“CLIA”) laboratory based in New York in order to support
on-going and planned clinical trials. In January 2009, AdnaGen also entered into
an exclusive distribution and license agreement with Biomarkers granting
Biomarkers the exclusive right to commercialize the AdnaGen diagnostic kits in
South America and the Middle East. Pursuant to the terms of these license
agreements, AdnaGen also granted Biomarkers the right to appoint sub-licensees
at Biomarkers’ sole discretion. These agreements continue through December 2013,
unless terminated by either party under the terms of the agreement. The Company
recorded approximately $18,000 (€13,000) and $33,000 (€24,000) in revenue from
the sale of diagnostic kits to Biomarkers in the three months ended March 31,
2010 and 2009, respectively.
Note
9.
|
CHANGES
IN DEFICIT
|
Common
Stock
The
Company is authorized to issue up to 147,397,390 shares of common stock. At
March 31, 2010, shares of common stock reserved for future issuance are as
follows:
Stock
options outstanding
|
650,000 | |||
Warrants
outstanding
|
3,681,712 | |||
Stock
options available for grant
|
2,916,800 | |||
7,248,512 |
Restricted
Stock
In
October 2007, the Company granted an aggregate of 2,000,000 shares of restricted
stock to certain officers valued at $3.5 million based upon the quoted closing
trading price on the date of issuance. These shares vest, subject to future
service requirements, two-thirds on January 1, 2010 and one-third on January 1,
2011. As of March 31, 2010, there was approximately $875,000 of total
unrecognized compensation cost related to unvested restricted stock. For the
three months ended March 31, 2010 and 2009, the Company recognized compensation
expense of $291,667 for vested restricted stock grants.
Stock
Option Plans
All
option grants are expensed in the appropriate period based upon each award’s
vesting terms, in each case with an offsetting credit to additional paid in
capital. Under the authoritative guidance for share based compensation, in the
event of termination, the Company will cease to recognize compensation expense.
There is no deferred compensation recorded upon initial grant date, instead, the
fair value of the share-based payment is recognized ratably over the stated
vesting period. Vesting periods for the Company’s stock option awards during
2008 included the following: one-half vesting on the first anniversary and
one-half on the second anniversary, and annually over four years. The Company
granted stock options to acquire 1,010,000 shares of common stock for future
services having a fair value $1,054,560 during the three months ended March 31,
2009. No options were granted during the three months ended March 31,
2010.
12
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
stock-based compensation expense recorded by the Company for the three months
ended March 31, 2010 and 2009, with respect to awards under the Company’s stock
plans are as follows:
2010
|
2009
|
|||||||
Research
and development
|
$ | – | $ | 116,380 | ||||
General
and administrative
|
15,634 | 122,880 | ||||||
Total
employee stock-based compensation
|
$ | 15,634 | $ | 239,260 |
In
addition to options granted to employees, the Company historically granted
options to consultants and for the three months ended March 31, 2010 and 2009,
recognized $31,211 and $35,214, respectively, as consulting
expense. Such amounts are included in general and administrative
expense in the consolidated statements of operations in each of the three months
ended March 31, 2010 and 2009.
The
Company has followed fair value accounting and the related authoritative
guidance for share based compensation. The fair value of each option or warrant
granted is estimated on the date of grant using the Black-Scholes option-pricing
model.
The
Black-Scholes assumptions used in the three months ended March 31, 2009 are as
follows:
Risk-free
interest rate
|
0.45-1.46%
|
|||
Expected
dividend yield
|
0%
|
|||
Expected
volatility
|
86.5%
|
|||
Expected
life of option
|
|
10
years
|
||
Expected
forfeitures
|
0%
|
The
following is a summary of the Company’s stock option activity:
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding
at January 1, 2010
|
650,000 | $ | 1.57 | ||||||||||
Granted
|
– | – | |||||||||||
Exercised
|
– | – | |||||||||||
Forfeited
|
– | – | |||||||||||
Outstanding
at March 31, 2010
|
650,000 | $ | 1.57 |
6.13
years
|
$ | 74,800 | |||||||
Options
Exercisable at March 31, 2010
|
522,500 | $ | 1.47 |
5.93
years
|
$ | 74,800 |
The
following summarizes the activity of the Company’s stock options that have not
vested for the three months ended March 31, 2010:
Shares
|
Weighted
Average
Fair Value
|
|||||||
Nonvested
at January 1, 2010
|
140,000 | $ | 1.92 | |||||
Granted
|
– | – | ||||||
Vested
|
(12,500 | ) | 1.39 | |||||
Cancelled
or forfeited
|
– | – | ||||||
Outstanding
at March 31, 2010
|
127,500 | 1.97 |
13
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Warrants
The
following is a summary of the Company’s warrant activity:
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at January 1, 2010
|
3,681,712 | $ | 2.06 | |||||
Granted
|
− | − | ||||||
Exercised
|
− | − | ||||||
Forfeited
|
− | − | ||||||
Outstanding
at March 31, 2010
|
3,681,712 | 2.06 | ||||||
Exercisable
at March 31, 2010
|
3,681,712 | 2.06 |
Note
10.
|
SEGMENT
INFORMATION
|
The
Company’s revenue is substantially derived from the operation in a single
business segment, the development of innovative tumor diagnostics for detection,
analysis, and treatment of rare (cancer) cells. Sales to customers
outside the United States (in Europe) are made by AdnaGen, the Company’s German
subsidiary.
A summary
of the Company’s operations for the three months ended March 31, 2010 and 2009
is provided below:
2010
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 335,698 | $ | 335,698 | ||||||
Operating
expenses
|
420,303 | 335,539 | 755,842 | |||||||||
(Loss)
income from operations
|
(420,303 | ) | 159 | (420,144 | ) | |||||||
Other
expense
|
220,932 | (104,148 | ) | 116,784 | ||||||||
Net
loss
|
$ | (199,371 | ) | $ | (103,989 | ) | $ | (303,360 | ) | |||
Total
assets
|
$ | 45,693 | $ | 276,682 | $ | 322,375 |
2009
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 177,813 | $ | 177,813 | ||||||
Operating
expenses
|
1,356,906 | 457,759 | 1,814,665 | |||||||||
Loss
from operations
|
(1,356,906 | ) | (279,946 | ) | (1,636,852 | ) | ||||||
Other
expense
|
110,359 | (44,164 | ) | 66,195 | ||||||||
Net
loss
|
$ | (1,246,547 | ) | $ | (324,110 | ) | $ | (1,570,657 | ) | |||
Total
assets
|
$ | 250,947 | $ | 449,200 | $ | 700,147 |
14
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Note
11.
|
SUBSEQUENT
EVENTS
|
In May
2010, the Company issued to a consulting firm warrants to acquire 250,000 shares
of its common stock, with up to 150,000 vesting in equal monthly installments
over six months at an exercise price of $0.38 for shares vesting in the first
three months, and an exercise price equal to the last ten day average closing
price at the end of the third month for the shares vesting the last three
months. Of the remaining warrants to acquire 100,000 shares of common
stock, 50,000 vested immediately at an exercise price of $0.38, and 50,000 vest
on the first day of the fourth month at an exercise price of equal to the last
ten day average closing price through the last trading day of the third
month.
15
ITEM
2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by
their very nature, uncertain and risky. These risks and uncertainties
include international, national and local general economic and market
conditions; demographic changes; our ability to sustain, manage, or forecast
growth; our ability to successfully make and integrate acquisitions; raw
material costs and availability; new product development and introduction;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; competition; the loss of significant
customers or suppliers; fluctuations and difficulty in forecasting operating
results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability
to protect technology; and other risks that might be detailed from time to time
in our filings with the Commission.
Although
the forward-looking statements in this report reflect the good faith judgment of
our management, such statements can only be based on facts and factors currently
known by them. Consequently, and because forward-looking statements
are inherently subject to risks and uncertainties, the actual results and
outcomes may differ materially from the results and outcomes discussed in the
forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report and in our other reports as we
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, and results of operations and
prospects.
As used
in this Quarterly Report, the terms “we,” “us,” and “our,” mean OncoVista
Innovative Therapies, Inc. and our subsidiaries, OncoVista, Inc. (“OncoVista”)
and AdnaGen A.G. (“AdnaGen”), collectively, unless otherwise
indicated.
Overview
We are a
biopharmaceutical company commercializing diagnostic tests for metastatic
tumors, as well as developing targeted anticancer therapies by utilizing
tumor-associated biomarkers. We have developed diagnostic kits for breast,
colon, ovarian, and prostate cancers, and currently market diagnostic kits in
Europe for the detection of circulating tumor cells (“CTCs”) in patients
with breast, colon and prostate cancer. Subject to availability of
sufficient working capital and AdnaGen generating positive cash flow to support
their operations within the next 12 months, we believe we are positioned to
leverage our ownership in our diagnostics company, AdnaGen, to realize revenues
from sales of AdnaGen’s CE-marked diagnostic kits in Europe, while utilizing the
diagnostic technology to guide and expedite our anticancer drug development
efforts.
Our
product pipeline is comprised of advanced (Phase II) and early (Phase I)
clinical-stage compounds, late preclinical drug candidates and early preclinical
leads. We are not committed to any single treatment modality or class of
compound, but believe that successful treatment of cancer requires a tailored
approach based upon individual patient disease characteristics.
As a
result of the unavailability of sufficient capital resources and AdnaGen’s cash
needs, we were forced to scale back our research and development operations
during the previous 12 months. In August 2009, with the exception of our Chief
Executive Officer, we terminated the employment of all employees of OncoVista,
our U.S. subsidiary, and instead engage independent contractors on an
as-needed basis. We are currently attempting to raise additional funds to
provide working capital. We have received and continue to receive cash advances
from companies affiliated with our Chief Executive Officer to support continuing
operations. See Note 3 of the condensed consolidated financial
statements.
Development
Programs
Our most
advanced drug candidate is OVI-237, a liposomal formulation of a thymidylate
synthase (“TS”) inhibitor which has been administered in over 150 patients so
far in various Phase I and Phase II trials. The drug was in-licensed in
November 2007 and we finalized the protocol and selected clinical sites to
conduct a Phase II study of OVI-237 monotherapy and combination therapy with
cisplatin for the treatment of metastatic breast cancer. Subject to the
availability of sufficient working capital, we plan on initiating the trial in
2010.
16
Our next
most advanced product candidate is Cordycepin (OVI-123) which is in Phase I/II
clinical trials for refractory leukemia patients who express the enzyme terminal
deoxynucleotidyl transferase (“TdT”). We have received orphan drug designation
from the U.S. Food and Drug Administration (“FDA”) for Cordycepin which affords
us seven years of market exclusivity once the drug is approved for marketing. We
initiated a Phase I/II trial based on the “original” ADA-sensitive compound in
the second quarter of 2008. The trial was initiated at two U.S. centers, The
Dana Farber Cancer Institute in Boston, Massachusetts and the Cancer Therapy
Research Center at the University of Texas Health Sciences Center at San
Antonio, Texas, and is designed to enroll up to 24 patients in the first stage
and up to 20 patients in the second stage. In October 2009, after
enrolling five patients in this clinical trial, we placed the clinical trial on
administrative hold until such time that additional capital can be
raised.
We
completed the GLP animal drug safety studies for our lead drug candidate from
the L-nucleoside conjugate program (OVI-117). We have begun to compile the
Investigational New Drug (“IND”) application for submission to the FDA, which is
a key step to conducting human clinical trials. Subject to availability of
sufficient working capital, we plan to submit the completed IND for review
during 2010.
We are
also marketing kits in Europe for the detection of CTCs in breast, colon,
ovarian, and prostate cancer patients. The kits are manufactured by AdnaGen, our
German subsidiary, and marketed through non-exclusive distribution agreements in
Europe. We have also developed research products for the detection of steroid
receptors (ER/PR) and cancer stem cells. We have developed the
protocol for a pivotal trial in metastatic breast cancer to obtain approval to
market the kit in the U.S.
Results
of Operations
Three
Months Ended March 31, 2010 and 2009
Revenue. Revenues were
approximately $336,000 for the three months ended March 31, 2010, an increase of
$158,000, or 88%, compared to approximately $178,000 for the three months ended
March 31, 2009. Our revenues reflect royalties earned from the sale
of diagnostic kits, licensing and research and development
revenue. Revenues are summarized in the following table:
2010
|
2009
|
|||||||
Diagnostic
kits
|
$ | 294,463 | $ | 158,405 | ||||
Licensing
|
41,235 | 9,276 | ||||||
Research
and development
|
– | 10,132 | ||||||
Total
revenues
|
$ | 335,698 | $ | 177,813 |
The increase in revenue in the three
months ended March 31, 2010 is primarily attributable to an increase in sales
from diagnostic kits. AdnaGen executed several non-exclusive distribution
agreements to sell kits in the European territory. During the three months ended
March 31, 2010, we recorded $18,000 (€13,000) in revenue from the sale of
diagnostic kits to Biomarkers.
Research and
development. Research and development expenses decreased by
approximately $400,000, or 60%, to approximately $270,000 for the three months
ended March 31, 2010, as compared to approximately $670,000 for the three months
ended March 31, 2009. The decrease in 2010 was primarily due to the
scaling back of our research and development operations as a result of the
unavailability of sufficient capital resources and AdnaGen’s cash
needs.
General and
administrative. General and administrative expenses decreased
by approximately $656,000, or 57%, to approximately $486,000 for the three
months ended March 31, 2010 compared to approximately $1.1 million for the three
months ended March 31, 2009. In 2010, the decrease was due primarily
to reduced costs for legal and professional services. Additionally, the decrease
is related to terminating the employment of certain OncoVista
employees.
Other Income (Expense). Other
income (expense) increased approximately $51,000, or 76%, to income of
approximately $117,000 for the three months ended March 31, 2010 compared to
income of approximately $66,000 for the three months ended March 31,
2009. In 2010, the income is due primarily to extinguishing $520,000
in liabilities related to minimum royalty payments as a result of signing a
letter agreement and returning technology related to tubulin isotype-specific
anti-mitotics. This increase was partially offset by a loss on the
derivative liability of $188,000 in 2010 compared to a gain on the derivative
liability of $272,000 in 2009.
17
Net Income (Loss). As a
result of the foregoing, our net loss decreased by approximately $1.3 million,
or 81%, to approximately $303,000 for the three months ended March 31, 2010 from
a net loss of approximately $1.6 million for the three months ended March 31,
2009.
Going
Concern
Our
consolidated financial statements for the three months ended March 31, 2010 have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. We have a net loss of approximately $303,000 and net cash
used in operations of approximately $263,000 for the three months ended March
31, 2010, a working capital deficit of approximately $5.0 million, an
accumulated deficit of approximately $28.7 million and a total deficit of
approximately $10.6 million at March 31, 2010.
These
conditions raise doubt about our ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. We expect AdnaGen to be profitable in 2010, however, we
expect OncoVista to continue to incur losses from operations in
2010.
Our
ability to continue as a going concern depends on the success of management’s
plans to bridge such cash shortfalls in 2010 including the
following:
|
·
|
Aggressively
seeking investment capital;
|
|
·
|
Furthering
the development of our product
pipeline;
|
|
·
|
Advancing
scientific progress in our research and development;
and
|
|
·
|
Continuing
to monitor and implement cost control initiatives to conserve
cash.
|
Liquidity
and Capital Resources
At March
31, 2010, we had cash and cash equivalents of approximately $61,000 compared to
$109,000 at December 31, 2009. In order to preserve principal and maintain
liquidity, our funds are primarily in operating or money market accounts with
the primary objective of capital preservation. Based on our current projections,
we believe that our available resources and cash flow are insufficient to meet
our anticipated operating cash needs in the next two to three
months. As such, we have received and continue to receive cash
advances in the amount of approximately $345,000 from our CEO or companies
affiliated with our CEO to support continuing operations. Our ability
to continue as a going concern is dependent upon our ability to further
implement our strategic plan; resolve our liquidity problems, principally by
obtaining additional debt and/or equity financing; and generate additional
revenues from collaborative agreements or sale of pharmaceutical
products. These factors raise doubt about our ability to continue as
a going concern.
To date,
we have financed our operations principally through proceeds of offerings of
securities exempt from the registration requirements of the Securities Act. In
January 2009, we completed a bridge round of debt financing, whereby we issued
secured promissory notes (the “Bridge Notes”) in the aggregate principal amount
of $750,000, in exchange for cash equal to the face amount of such Bridge Notes,
to accredited investors. In January 2010, we obtained consent from the holders
of the Bridge Note financing to extend the maturity date from January 15, 2010
until the earlier of July 15, 2010 or such time that we obtain a “Qualified
Financing.” We revised the term “Qualified Financing” from aggregate
gross proceeds of which equal or exceed $5.0 million to $3.0 million, and
increased the interest rate from 10% to 12%. Additionally, we
extended the expiration date for the warrants granted in connection with the
financing to July 15, 2014, and the exercise price was reduced to $0.10 per
share. We have also loaned or advanced to AdnaGen approximately €670,000
($910,000) during the previous 24 months to support their
operations.
In March
2010, we obtained consent from the holders of the Bridge Note financing to
formalize agreements for advances from the CEO and affiliates of the CEO to the
Company with terms identical to the Bridge Notes issued in January 2009, as
amended in January 2010.
18
We also
believe the ability to execute our strategy relies largely on the continued
viability of AdnaGen. As such, we will likely continue to provide advances to
AdnaGen until they attain revenue levels adequate to support their continued
operations and, based on current projections, we expect that they will require
at least €200,000 to €300,000 ($275,000 to $400,000) over the course of the next
three to six months.
We can
provide no assurance that additional funding will be available on terms
acceptable to us, or at all. Accordingly, we may not be able to secure the
funding which is required to expand research and development programs beyond
their current levels or at levels that may be required in the future. If we
cannot secure adequate financing, we may be required to delay, scale back or
eliminate one or more of our research and development programs or to enter into
license or other arrangements with third parties to commercialize products or
technologies that we would otherwise seek to develop and commercialize
ourselves. Our future capital requirements will depend upon many factors,
including:
|
·
|
capital
needs of AdnaGen;
|
|
·
|
continued
scientific progress in our research and development
programs;
|
|
·
|
costs
and timing of conducting clinical trials and seeking regulatory approvals
and patent prosecutions;
|
|
·
|
competing
technological and market
developments;
|
|
·
|
our
ability to establish additional collaborative relationships;
and
|
|
·
|
the
effect of commercialization activities and facility expansions if and as
required.
|
Accordingly,
we will be required to issue equity or debt securities or enter into other
financial arrangements, including relationships with corporate and other
partners, in order to raise additional capital. Depending upon market
conditions, we may not be successful in raising sufficient additional capital
for our short or long-term requirements. In such event, our business, prospects,
financial condition, and results of operations would be materially adversely
affected.
In April
2009, the Company negotiated a contingent debt restructuring with three of its
major creditors which resulted in exchanging approximately €4.3 million ($5.8
million) of debt and related accrued interest for an equity share of
approximately 18% of AdnaGen. The shares were contingently issued in
January 2010 and are presented as contingently redeemable noncontrolling
interest as of March 31, 2010. In addition, as part of the contingent
restructuring, OncoVista agreed to forgive approximately $1.1 million in
receivables, advances, loans and related interest as of March 31, 2010, due from
AdnaGen. The debt restructuring and the related share issuance is
contingent on AdnaGen raising a minimum of €2.0 million ($2.7 million) that was
originally to be due no later than July 30, 2009 (extended to May 31,
2010). After the contingent restructuring, OncoVista owns
approximately 78% of AdnaGen.
In
January 2010, the Company issued contingently redeemable shares of AdnaGen to
certain holders of debt with a principal balance of $4,924,312 together
with accrued interest of $1,251,998 as of December 31, 2009, which is
recorded as contingently redeemable noncontrolling interest as of March 31,
2010.
Operating
Activities. For the three months ended March 31, 2010, net
cash used in operating activities was approximately $263,000 compared to
approximately $591,000 for the three months ended March 31, 2009. Cash used in
operating activities decreased $328,000, or 55%, primarily due to a decrease in
our net loss of approximately $1.3 million, or 81%, for the three months ended
March 31, 2010 to $303,000 as compared to approximately $1.6 million for the
three months ended March 31, 2009. In addition to a decrease in our
net loss, operating activities were impacted by a loss in the current year for
the derivative liability related to the bridge round of debt financing compared
to a gain in the prior year. Additionally, accrued expenses were
adjusted due to extinguishing $520,000 in liabilities related to minimum
royalty payments as a result of signing a letter agreement returning the
technology.
Investing
Activities. For the three months ended March 31, 2010, we used no cash in
investing activities compared to $600 for the three months March 31, 2009. Cash
used in investing activities decreased as a result of purchases of equipment in
the prior year.
19
Financing
Activities. Cash provided by financing activities was $95,000
for the three months ended March 31, 2010 as compared to cash provided by
financing activities of approximately $750,000 for the three months ended March
31, 2009. The decrease was primarily due to proceeds from the
completion of a bridge loan in January 2009, partially offset by loans from a
related party in the current quarter.
ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as
defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not
required to provide the information under this item.
ITEM
4 – CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of March 31, 2010, under the
supervision and with the participation of our Chief Executive Officer (“CEO”),
management has evaluated the effectiveness of the design and operation of the
our disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation,
the CEO concluded that, as of March 31, 2010, our disclosure controls and
procedures were ineffective at the reasonable assurance level in timely alerting
him to material information required to be included in our periodic SEC reports
as a result of the material weakness in internal control over financial
reporting discussed in Item 9A(T) of our Form 10-K for the year ended December
31, 2009. Management’s assessment of the effectiveness of internal control over
financial reporting is expressed at the level of reasonable assurance because a
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute, assurance that the control system’s objectives
will be met.
Changes
in Internal Control Over Financial Reporting
There were no significant changes in
our internal control over financial reporting that occurred during the three
months ended March 31, 2010 that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
ITEM
4T – CONTROLS AND PROCEDURES
We are a smaller reporting company as
defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not
required to provide the information under this item.
20
PART
II – OTHER INFORMATION
ITEM
1 – LEGAL PROCEEDINGS
None.
ITEM
1A – RISK FACTORS
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3 – DEFAULTS UPON SENIOR SECURITIES
There
have been no events which are required to be reported under this
item.
ITEM
4 – (REMOVED AND RESERVED)
ITEM
5 – OTHER INFORMATION
There
have been no events which are required to be reported under this
item.
21
ITEM
6 – EXHIBITS
Exhibits:
Exhibit No.
|
Description
|
|
10.1
|
Agreement
with Gilford Securities Incorporated, dated April 1,
2010
|
|
10.2 | Letter of Engagement with Motion Communications, Inc., effective May 1, 2010 | |
31.1
|
Certification
of Chief Executive Officer Pursuant to the Securities Exchange Act of
1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to the Securities Exchange Act of
1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
22
SIGNATURES
Pursuant to the requirements of Section
13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONCOVISTA
INNOVATIVE THERAPIES, INC.
|
|
/s/ Alexander L. Weis,
Ph.D.
|
|
Alexander
L. Weis, Ph.D.
|
|
Chief
Executive Officer, and Chief Financial Officer
|
|
(Principal
Executive Officer, Principal Financial
|
|
Officer
and Principal Accounting Officer)
|
|
Date: May
13, 2010
|
23