Attached files
file | filename |
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EX-31.2 - PROLOR Biotech, Inc. | v193310_ex31-2.htm |
EX-32.2 - PROLOR Biotech, Inc. | v193310_ex32-2.htm |
EX-31.1 - PROLOR Biotech, Inc. | v193310_ex31-1.htm |
EX-32.1 - PROLOR Biotech, Inc. | v193310_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly period ended June 30, 2010
OR
¨ 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: 000-52691
PROLOR
BIOTECH, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
20-0854033
|
(State or other jurisdiction
of incorporation or organization)
|
(I.R.S. Employer Identification
No.)
|
3 Sapir Street, Weizmann
Science Park
|
|
Nes-Ziona, Israel
|
74140
|
(Address of principal executive
|
(Zip Code)
|
offices)
|
(866)
644-7811
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨ No¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large
accelerated filer
|
¨
|
Accelerated
Filer
|
¨
|
Non-accelerated
filer
|
¨ (Do
not check if a smaller reporting company)
|
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
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of August 5, 2010 there
were 53,209,685 shares of common stock,
par value $0.00001 per share (“Common Stock”), outstanding.
PROLOR
BIOTECH, INC.
INDEX
TO FORM 10-Q FILING
FOR
THE QUARTER ENDED JUNE 30, 2010
Table of
Contents
Page
|
|||
PART
I
|
|||
ITEM
1.
|
Financial
Statements
|
3
|
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
ITEM
4.
|
Controls
and Procedures
|
24
|
|
PART
II
|
|||
ITEM
1.
|
Legal
Proceedings
|
25
|
|
ITEM
1A
|
Risk
Factors
|
25
|
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
25
|
|
ITEM
3.
|
Defaults
Upon Senior Securities
|
25
|
|
ITEM
4.
|
(Removed
and Reserved)
|
25
|
|
ITEM
5.
|
Other
Information
|
25
|
|
ITEM
6.
|
Exhibits
|
25
|
|
SIGNATURES
|
26
|
||
CERTIFICATION
|
|
PART
I
|
–
FINANCIAL INFORMATION
|
ITEM
1.
|
Financial
Statements.
|
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
CONSOLIDATED
BALANCE SHEETS
June 30, 2010
|
December 31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 19,098,103 | $ | 3,521,866 | ||||
Short
term deposits
|
6,994,858 | - | ||||||
Accounts
receivable and prepaid expenses
|
186,001 | 85,280 | ||||||
Restricted
cash
|
92,002 | 91,730 | ||||||
Total
Current Assets
|
26,370,964 | 3,698,876 | ||||||
Long-term
Assets:
|
||||||||
Property
and Equipment, net
|
268,818 | 284,315 | ||||||
Severance
pay fund
|
143,214 | 124,324 | ||||||
Long
term deposit
|
1,858 | 1,906 | ||||||
Total
Long Term Assets
|
413,890 | 410,545 | ||||||
Total
Assets
|
$ | 26,784,854 | $ | 4,109,421 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Trade
payables
|
$ | 104,100 | $ | 131,924 | ||||
Related
party payables
|
50,752 | 203,583 | ||||||
Accrued
expenses and other liabilities
|
834,776 | 504,612 | ||||||
Total
Current Liabilities
|
989,628 | 840,119 | ||||||
Accrued
Severance Pay
|
176,786 | 140,237 | ||||||
Commitments
and Contingent Liabilities
|
||||||||
Shareholders'
Equity:
|
||||||||
Stock
capital -
|
||||||||
Preferred
stock of $ 0.00001 par value – 10,000,000
shares of preferred stock authorized 0
shares and 1,800,000 shares issued and outstanding as of June 30, 2010 and
December 31, 2009, respectively
|
- | 18 | ||||||
Common
Stock of $ 0.00001 par value – 300,000,000
shares of common stock authorized 52,997,976
and 35,569,028
shares issued and outstanding as of June 30, 2010 and December 31,
2009, respectively
|
530 | 355 | ||||||
Additional
paid-in capital
|
55,925,710 | 30,153,517 | ||||||
(Deficit)
accumulated during the development stage
|
(30,307,800 | ) | (27,024,825 | ) | ||||
Total
Shareholders' Equity
|
25,618,440 | 3,129,065 | ||||||
Total
Liabilities and Shareholders' Equity
|
$ | 26,784,854 | $ | 4,109,421 |
The
accompanying notes are an integral part of the consolidated financial
statements.
3
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Period from May
31, 2005
|
||||||||||||||||||||
For the three months ended
|
For the six months ended
|
(date of inception)
|
||||||||||||||||||
June 30,
|
June 30,
|
to June 30,
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
Revenues
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Operating
expenses:
|
||||||||||||||||||||
In-process
research and development write-off
|
- | - | - | (3,222,831 | ) | |||||||||||||||
Research
and development, net
|
(845,322 | ) | (304,701 | ) | (1,847,756 | ) | (2,890,403 | ) | (14,948,514 | ) | ||||||||||
General
and administrative
|
(642,636 | ) | (494,308 | ) | (1,128,129 | ) | (973,042 | ) | (12,347,655 | ) | ||||||||||
Total
operating expenses
|
(1,487,958 | ) | (799,009 | ) | (2,975,885 | ) | (3,863,445 | ) | (30,519,000 | ) | ||||||||||
Operating
(loss)
|
(1,487,958 | ) | (799,009 | ) | (2,975,885 | ) | (3,863,445 | ) | (30,519,000 | ) | ||||||||||
Financial
income
|
9,490 | 4,003 | 10,809 | 34,194 | 888,055 | |||||||||||||||
Financial
(expenses)
|
(250,149 | ) | (21,209 | ) | (317,899 | ) | (105,842 | ) | (676,855 | ) | ||||||||||
Net
(loss)
|
$ | (1,728,617 | ) | $ | (816,215 | ) | $ | (3,282,975 | ) | $ | (3,935,093 | ) | $ | (30,307,800 | ) | |||||
(Loss)
per share (basic & diluted)
|
$ | (0.05 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.11 | ) | $ | (1.11 | ) | |||||
Weighted
average number of shares outstanding
|
38,260,987 | 35,549,028 | 36,997,303 | 35,549,028 | 27,279,434 |
The
accompanying notes are an integral part of the consolidated financial
statements.
4
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Period
from
May
31, 2005
|
||||||||||||
(date
of inception)
|
||||||||||||
For the six months ended June
30,
|
to
June 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Cash flows from operating
activities
|
||||||||||||
Net
(loss)
|
$ | (3,282,975 | ) | $ | (3,935,093 | ) | $ | (30,307,800 | ) | |||
Adjustments
to reconcile net (loss) to net cash (used in) operating
activities:
|
||||||||||||
Depreciation
|
40,775 | 38,165 | 239,717 | |||||||||
In-process
research and development write-off
|
- | - | 3,222,831 | |||||||||
Stock
based compensation
|
468,472 | 416,711 | 7,664,257 | |||||||||
Increase
in accrued severance pay, net
|
17,659 | (2,189 | ) | 33,572 | ||||||||
Decrease
(increase) in accounts receivable and prepaid expenses
|
(100,721 | ) | (679,411 | ) | (185,724 | ) | ||||||
Increase
in trade payables
|
(27,824 | ) | 156,415 | 93,996 | ||||||||
Increase
(decrease) in related parties
|
(152,831 | ) | (4,373 | ) | 50,752 | |||||||
Long
term deposit exchange rate
|
(22 | ) | - | (44 | ) | |||||||
Increase (decrease)
in accrued expenses and other liabilities
|
330,164 | 327,648 | 713,760 | |||||||||
Net
cash (used in) operating activities
|
(2,707,303 | ) | (3,682,127 | ) | (18,474,683 | ) | ||||||
Cash flows from investing
activities
|
||||||||||||
Purchase
of property and equipment
|
(25,278 | ) | (3,233 | ) | (494,179 | ) | ||||||
Payment
for the acquisition of ModigeneTech
Ltd.
|
- | - | (474,837 | ) | ||||||||
Long
term deposit
|
70 | 57 | (1,814 | ) | ||||||||
Short
term Deposit
|
(6,994,858 | ) | - | (6,994,858 | ) | |||||||
Restricted
deposit
|
(272 | ) | 2,719 | (92,002 | ) | |||||||
Net
cash (used in) investing activities
|
(7,020,338 | ) | (30,457 | ) | (8,057,690 | ) | ||||||
Cash flows from financing
activities
|
||||||||||||
Short
term bank credit
|
- | - | (2,841 | ) | ||||||||
Proceeds
from loans
|
- | - | (173,000 | ) | ||||||||
Principal
payment of loans
|
- | - | 173,000 | |||||||||
Proceeds
from issuance of shares, options and warrants
|
25,303,878 | - | 45,633,317 | |||||||||
Net
cash provided by financing activities
|
25,303,878 | - | 45,630,476 | |||||||||
Increase
(decrease) in cash and cash equivalents
|
15,576,237 | (3,712,584 | ) | 19,098,103 | ||||||||
Cash
and cash equivalents at the beginning of the period
|
3,521,866 | 7,465,232 | - | |||||||||
Cash
and cash equivalents at the end of the period
|
$ | 19,098,103 | $ | 3,752,648 | $ | 19,098,103 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
5
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Period
from
May
31, 2005
|
||||||||||||
For
the six months ended June 30
|
(date
of inception)
to
June 30
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Non
cash transactions:
|
||||||||||||
Employee
options exercised into shares
|
$ | - | $ | $ | 140 | |||||||
Issuance
of common stock in reverse acquisition
|
$ | - | $ | $ | 73 | |||||||
Conversion
of preferred stock to common stock
|
$ | 18 | $ | - | $ | 18 | ||||||
Additional
information:
|
||||||||||||
Cash
paid for income taxes
|
$ | - | $ | - | $ | - | ||||||
Cash
paid for interest expense
|
$ | 6 | $ | 46 | $ | 353,730 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
6
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
1:-
|
GENERAL
|
|
a.
|
PROLOR
Biotech, Inc. (“the Company”) was formed on August 22, 2003 under the laws
of the state of Nevada. The Company is engaged in the
development of therapeutic proteins with extended half-lives, through its
subsidiaries, Modigene Inc., a Delaware corporation, and ModigeneTech
Ltd., an Israeli-based subsidiary.
|
|
b.
|
The
Company is devoting substantially all of its efforts toward research and
development activities. The Company’s activities also include raising
capital, recruiting personnel and building infrastructure. In the course
of such activities, the Company has sustained operating losses and expects
such losses to continue for the foreseeable future. The Company has not
generated any revenues or sold any products and has not achieved
profitable operations or positive cash flow from operations. The Company’s
deficit accumulated during the development stage aggregated $30,307,800 as
of June 30, 2010. There is no assurance that profitable operations, if
ever achieved, could be sustained on a continuing basis. The Company
believes that its current cash resources will enable the continuance of
the Company’s activities for at least the next twelve months with no need
for additional financing.
|
|
c.
|
On
March 11, 2010 and March 17, 2010, the Company entered into two
substantially identical securities purchase agreements with certain
private investors (the “Investors”), pursuant to which the Investors
agreed to purchase an aggregate of 10,382,975 shares (the “Shares”) of
Common Stock at a purchase price of $2.35 per Share. On March 17, 2010,
the Company closed on the issuance of the Shares for aggregate
consideration of $24,145,241 ($24,399,991 net of $254,750 issuing
expenses).
|
The
Company issued the Shares in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 of Regulation D promulgated thereunder. Each
Investor represented to the Company that such person was an “accredited
investor” as defined in Rule 501(a) under the Securities Act and that such
Investor’s Shares were being acquired for investment purposes. The Shares
have not been registered under the Securities Act and are “restricted
securities” as that term is defined by Rule 144 under the Securities Act. The
Company has not undertaken to register the Shares, and no registration rights
have been granted to the Investors in respect of the Shares. Additionally, each
Investor entered into a lockup agreement in respect of the Shares, pursuant to
which such Investor may not sell or otherwise transfer such Shares for a period
of one year.
7
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
1:-
|
GENERAL
(continued)
|
|
d.
|
On
May 20, 2010 all 1,000,000 issued and outstanding shares of Series B
Preferred Stock were converted into 2,167,780 shares of Common
Stock.
|
On May
21, 2010 all 800,000 issued and outstanding shares of Series A Preferred Stock
were converted into 4,000,000 shares of Common Stock. Following
conversion of the Series B Preferred Stock and the Series A Preferred Stock, no
shares of the Company’s preferred stock remained outstanding.
NOTE
2:-
|
SIGNIFICANT ACCOUNTING
POLICIES
|
a.
|
Basis
of presentation:
|
The
accompanying unaudited financial statements of the Company are presented in
accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) have been condensed or omitted
pursuant to such SEC rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been made. The results for these interim periods
are not necessarily indicative of the results for the entire year. The
accompanying financial statements should be read in conjunction with the
Company’s audited financial statements for the year ended December 31, 2009 and
the notes thereto included in the Company’s Annual Report on Form 10-K filed
with the SEC on March 26, 2010.
b.
|
Principles
of consolidation:
|
The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries Modigene
Inc. and ModigeneTech Ltd. Intercompany transactions and balances
have been eliminated upon consolidation.
c.
|
Loss
per share:
|
Basic and diluted losses per share are
presented in accordance with ASC No. 260 “Earnings per share”. Outstanding share
options and warrants, convertible preferred stock and restricted stock have been
excluded from the calculation of the diluted loss per share because all such
securities are antidilutive.
The number of shares of Common Stock
issuable upon exercise or conversion of the foregoing securities that have been
excluded from calculations for the three months ended June 30, 2010 and 2009 and
the period from May 31, 2005 (date of inception) to June 30, 2010 were
20,035,195 and 9,164,362 and 6,539,793, respectively. The number of
shares of Common Stock issuable excluded from calculations for the six months
ended June 30, 2010 and 2009 were 16,077,467 and 9,092,037,
respectively.
8
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
d.
|
Concentrations
of Credit Risk:
|
Financial instruments that potentially
subjected the Company to concentrations of credit risk consist principally of
cash and cash equivalents. Cash and cash equivalents are invested in major banks
in Israel and the United States. Such deposits in the United States are not
insured. Management believes that the financial institutions that hold the
Company’s investments are financially sound, and, accordingly, minimal credit
risk exists with respect to these investments. The Company has no off-balance
sheet concentration of credit risk, such as foreign exchange contracts or other
foreign hedging arrangements.
e.
|
Royalty-bearing
Grants:
|
Royalty-bearing grants from the
Government of Israel for participation in the development of approved projects
are recognized as a reduction of expenses as the related costs are incurred.
Funding is recognized at the time ModigeneTech is entitled to such grants, on
the basis of the costs incurred.
Research and development grants received
by ModigeneTech for the three months ended June 30, 2010 and 2009 and for the
period from May 31, 2005 (inception date) through June 30, 2010 amounted to
$688,504, $181,449 and $2,750,588, respectively. Research and development grants
received by ModigeneTech for the six months ended June 30, 2010 and 2009
amounted to $745,823 and $389,429, respectively
f.
|
Fair
value measurements:
|
As
defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”),
fair value is based on the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. ASC 820-10 establishes a fair value hierarchy that
prioritizes observable and unobservable inputs used to measure fair value into
three broad levels, which are described below:
Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Level 2:
Other inputs that are observable, directly or indirectly, such as quoted prices
for similar assets and liabilities or market corroborated inputs.
Level 3:
Unobservable inputs are used when little or no market data is available, which
requires the Company to develop its own assumptions about how market
participants would value the assets or liabilities. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
9
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
f.
|
Fair
value measurements (continued):
|
In
determining fair value, the Company utilizes valuation techniques in its
assessment that maximize the use of observable inputs and minimize the use of
unobservable inputs.
The
following table presents the Company’s financial assets and liabilities that are
carried at fair value, classified according to the three categories described
above:
Fair Value Measurements at
June 30, 2010
|
||||||||||||||||
Quoted
Prices in
ActiveIdentical
Assets
|
Significant Other Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Cash and cash
equivalents
|
$ | 19,098,103 | $ | 19,098,103 | $ | - | $ | - | ||||||||
Short
term deposits
|
6,994,858 | 6,994,858 | - | - | ||||||||||||
Restricted
cash
|
92,002 | 92,002 | - | - | ||||||||||||
Total assets at
fair value
|
$ | 24,184,963 | $ | 24,184,963 | $ | - | $ | - |
Fair Value Measurements at
December 31, 2009
|
||||||||||||||||
Quoted
Prices in ActiveMarkets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Cash and cash
equivalents
|
$ | 3,521,866 | $ | 3,521,866 | $ | - | $ | - | ||||||||
Restricted
cash
|
$ | 91,730 | 91,730 | - | - | |||||||||||
Total assets at
fair value
|
$ | 3,521,866 | $ | 3,521,866 | $ | - | $ | - |
NOTE
3:-
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Effective
January 1, 2010, the Company adopted the following Financial Accounting
Standards Board Accounting Standards Updates:
-
|
ASC
860 - Transfers and Servicing, and ASC 810, Consolidation that changes the
way entities account for securitizations and other transfers of financial
instruments. In addition to increased disclosure, these
amendments eliminate the concept of qualifying special purpose entities
and change the test for consolidation of variable interest
entities.
|
10
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
3:-
|
RECENT
ACCOUNTING PRONOUNCEMENTS (continued)
|
-
|
ASU
No. 2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable
Revenue Arrangements. This standard modifies the revenue
recognition guidance for arrangements that involve the delivery of
multiple elements, such as product, software, services or support, to a
customer at different times as part of a single revenue generating
transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the
individual deliverables should be separated and how to allocate the
revenue in the arrangement among those separate deliverables. The standard
also expands the disclosure requirements for multiple deliverable revenue
arrangements.
|
-
|
ASU
No. 2009-14 - Software (Topic 985): Certain Revenue Arrangements That
Include Software Elements. This standard removes tangible products from
the scope of software revenue recognition guidance and also provides
guidance on determining whether software deliverables in an arrangement
that includes a tangible product, such as embedded software, are within
the scope of the software revenue
guidance.
|
-
|
ASU
2009-16, “Transfers and Servicing (Topic 860) – Accounting for
Transfers of Financial Assets”. ASU 2009-16 requires more information
about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks
related to transfer of financial assets. It eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional
disclosures.
|
The
adoption of these provisions did not have any impact on the Company’s
consolidated financial statements.
In April
2010, the FASB issued ASU No. 2010-18 regarding improving comparability by
eliminating diversity in practice regarding the treatment of modifications of
loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and
Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”).
The amendments clarify guidance about maintaining the integrity of a pool as the
unit of accounting for acquired loans with credit
deterioration. Loans accounted for individually under Subtopic 310-30
continue to be subject to the troubled debt restructuring accounting provisions
within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors.
The amendments in this Update are effective for modifications of loans accounted
for within pools under Subtopic 310-30 occurring in the first interim or annual
period ending on or after July 15, 2010. The amendments are to be applied
prospectively. Early adoption is permitted. The Company is currently evaluating
the impact of this ASU; however, the Company does not expect the adoption of
this ASU to have a material impact on its financial statements.
11
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
3:-
|
RECENT
ACCOUNTING PRONOUNCEMENTS (continued)
|
In
February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and
amendments to certain recognition and disclosure requirements. Under this ASU, a
public company that is a SEC filer, as defined, is not required to disclose the
date through which subsequent events have been evaluated. This ASU became
effective issuance. The adoption of this ASU did not have a material impact on
the Company's financial statements.
In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value measurements.
This ASU requires additional disclosures regarding significant transfers in and
out of Levels 1 and 2 of fair value measurements, including a description of the
reasons for the transfers. Further, this ASU requires additional
disclosures for the activity in Level 3 fair value measurements, requiring
presentation of information about purchases, sales, issuances, and settlements
in the reconciliation for fair value measurements. This ASU is effective for
fiscal years beginning after December 15, 2010 and for interim periods within
those fiscal years. The Company is currently evaluating the impact of this ASU;
however, the Company does not expect the adoption of this ASU to have a material
impact on its financial statements.
NOTE
4:-
|
EMPLOYEES’ STOCK
OPTION PLANS
|
The
Company issued stock options to purchase shares of Common Stock under the
Company’s 2005 Stock Incentive Plan (the “2005 Plan”) and the Company’s 2007
Equity Incentive Plan (the “2007 Plan”).
The
Company accounts for stock-based compensation using the fair value recognition
provisions of ASC No. 718 “Compensation – stock compensation.” The fair value of
each stock option is calculated based upon grant date fair value determined
using the Black-Scholes-Merton option-pricing model.
12
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
4:-
|
EMPLOYEES' STOCK
OPTION PLANS (continued)
|
The
following is a summary of the stock options granted under the 2005 and 2007
Plans:
For
the six months ended June 30, 2010
|
||||||||
Number
of Options
|
Weighted Average
Exercise Price
|
|||||||
Outstanding
at the beginning of the period
|
4,785,439 | $ | 1.11 | |||||
Exercised
|
(517,872 | ) | $ | 1.50 | ||||
Forfeited
|
(500 | ) | $ | 0.65 | ||||
Issued
under the 2007 plan
|
500,000 | $ | 2.40 | |||||
Issued
under the 2007 plan
|
50,000 | $ | 2.35 | |||||
Outstanding
at the end of the period
|
4,817,067 | $ | 1.21 | |||||
Options
exercisable
|
3,046,899 | $ | 1.18 |
For the six months ended June 30,
2009
|
||||||||
Number
of Options
|
Weighted Average
Exercise Price
|
|||||||
Outstanding
at the beginning of the period
|
4,432,292 | $ | 1.14 | |||||
Issued
under the 2005 plan
|
175,500 | $ | 0.65 | |||||
Issued
under the 2007 plan
|
200,000 | $ | 0.65 | |||||
Forfeited
|
(2,353 | ) | $ | 1.49 | ||||
Outstanding
at the end of the period
|
4,805,439 | $ | 1.10 | |||||
Options
exercisable
|
2,721,397 | $ | 1.19 |
13
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
4:-
|
EMPLOYEES' STOCK
OPTION PLANS (continued)
|
The
options outstanding as of June 30, 2010 have been separated into exercise
prices, as follows:
Remaining
Weighted
Average
|
|||||||||||||||
Exercise Price
|
Options Outstanding
|
Contractual Life
(years)
|
Options Exercisable
|
||||||||||||
$ | 0.650 | 375,000 | 8.6 | 182,083 | |||||||||||
$ | 0.879 | 996,062 | 5.78 | 996,062 | |||||||||||
$ | 0.900 | 1,950,000 | 7.67 | 975,000 | |||||||||||
$ | 0.930 | 25,000 | 7.68 | 16,667 | |||||||||||
$ | 1.318 | 251,017 | 3.64 | 251,017 | |||||||||||
$ | 1.500 | 121,169 | 7.82 | 77,251 | |||||||||||
$ | 2.000 | 425,000 | 6.86 | 425,000 | |||||||||||
$ | 2.350 | 50,000 | 9.52 | - | |||||||||||
$ | 2.400 | 500,000 | 9.54 | - | |||||||||||
$ | 2.500 | 123,819 | 2.94 | 123,819 | |||||||||||
4,817,067 | 3,046,899 |
Weighted
average fair values and average exercise prices of options at date of grant and
total aggregate intrinsic value of outstanding options are as
follows:
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Weighted
average fair value on date of grant
|
$ | 0.78 | $ | 0.71 | ||||
Total
aggregate intrinsic value
|
$ | 30,129,534 | $ | 6,196,831 |
Stock-based
compensation expense for the three months ended June 30, 2010 and 2009 and for
the period from May 31, 2005 (date of inception) to June 30, 2010 was $267,477,
$180,032 and $7,664,257, respectively.
Stock-based
compensation expense for the six
months ended June 30, 2010 and 2009 was 468,472 and 416,711,
respectively.
Stock-based
compensation expense for the period from May 31, 2005 (date of inception)
through June 30, 2010 includes $3,876,960 expensed in the acquisition of a
subsidiary and on behalf of deferred compensation on restricted
shares.
14
PROLOR
BIOTECH, INC. AND SUBSIDIARIES
(A
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
(Unaudited)
NOTE
5:-
|
STOCK
WARRANTS
|
For
the six months ended June 30, 2010
|
||||||||
Number
of warrants
|
Weighted Average
Exercise Price
|
|||||||
Outstanding
and exercisable at the beginning of the period
|
3,558,924 | $ | 2.18 | |||||
Exercised
|
(466,672 | ) | 1.96 | |||||
Outstanding
and exercisable at the end of the period
|
3,092,252 | $ | 2.21 |
Total
aggregate intrinsic value of warrants outstanding as of June 30, 2010 is
$14,457,532.
NOTE
6:-
|
SUBSEQUENT
EVENTS
|
As
defined in FASB ASC 855-10, “Subsequent Events”, subsequent events are events or
transactions that occur after the balance sheet date but before financial
statements are issued or available to be issued.
Subsequent
to June 30, 2010 and through August 5, 2010, 211,709 new common shares were
issued in connection with cashless exercises of 319,335 outstanding
warrants. There were no other subsequent events requiring
disclosure.
15
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Note
Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”),
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”), about our expectations, beliefs or intentions regarding our
product development efforts, business, financial condition, results of
operations, strategies or prospects. You can identify such forward-looking
statements by the words “expects,” “intends,” “plans,” “projects,” “believes,”
“estimates,” “likely,” “goal,” “assumes,” “targets” and similar expressions
and/or the use of future tense or conditional constructions (such as “will,”
“may,” “could,” “should” and the like) and by the fact that these statements do
not relate strictly to historical or current matters. Rather, forward-looking
statements relate to anticipated or expected events, activities, trends or
results as of the date they are made. Because forward-looking statements relate
to matters that have not yet occurred, these statements are inherently subject
to risks and uncertainties that could cause our actual results to differ
materially from any future results expressed or implied by the forward-looking
statements. Many factors could cause our actual operations or results to differ
materially from the operations and results anticipated in forward-looking
statements. These factors include, but are not limited to the factors contained
in “Item 1A — Risk Factors” of our Annual Report on Form 10-K as updated by our
subsequently filed Forms 10-Q or other documents we file with the
SEC. We do not undertake any obligation to update forward-looking
statements, except as required by applicable law. We intend that all
forward-looking statements be subject to the safe harbor provisions of PSLRA.
These forward-looking statements are only predictions and reflect our views as
of the date they are made with respect to future events and financial
performance.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
discussion and analysis of the Company’s financial condition and results of
operations are based on the Company’s financial statements, which the Company
has prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”). The preparation of these financial statements requires the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported revenues and expenses
during the reporting periods. On an ongoing basis, the Company evaluates such
estimates and judgments, including those described in greater detail below. The
Company bases its estimates on historical experience and on various other
factors that the Company believes are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Overview
We are a
development stage biopharmaceutical company utilizing patented technology to
develop longer-acting, proprietary versions of already-approved therapeutic
proteins that currently generate billions of dollars in annual global
sales. We have obtained certain exclusive worldwide rights from
Washington University in St. Louis, Missouri to use a short, naturally-occurring
amino acid sequence (peptide) that has the effect of slowing the removal from
the body of the therapeutic protein to which it is attached. This
Carboxyl Terminal Peptide (CTP) can be readily attached to a wide array of
existing therapeutic proteins, stabilizing the therapeutic protein in the
bloodstream and extending its life span without additional toxicity or loss of
desired biological activity. We are using the CTP technology to
develop new, proprietary versions of certain existing therapeutic proteins that
have longer life spans than therapeutic proteins without CTP. We
believe that our products will have greatly improved therapeutic profiles and
distinct market advantages.
16
We
believe our products in development will provide several key advantages over our
competitor’s existing products, including:
|
·
|
significant
reduction in the number of injections required to achieve the same or
superior therapeutic effect from the same
dosage;
|
|
·
|
extended
patent protection for proprietary new formulations of existing
therapies;
|
|
·
|
faster
commercialization with greater chance of success and lower costs than
those typically associated with a new therapeutic protein;
and
|
|
·
|
manufacturing
using industry-standard biotechnology-based protein production
processes.
|
Merck
& Co. has developed the first novel protein containing CTP, named ELONVA®, a
long-acting CTP-modified version of the fertility drug follicle stimulating
hormone (FSH). On January 28, 2010, Merck received marketing
authorization from the European Commission for ELONVA® with unified labeling
valid in all European Union Member States. Merck licensed the CTP
technology directly from Washington University (prior to the formation of our
subsidiary, Modigene Delaware) for application only to Follicle Stimulating
Hormone (FSH) and three other hormones, human Chorionic Gonadotropin (hCG),
Luteinizing Hormone (LH) and Thyroid-Stimulating Hormone (TSH).
Our
internal product development program is currently focused on extending the life
span of the following biopharmaceuticals, which together address an established
market estimated to exceed $15 billion:
|
·
|
Human
Growth Hormone (hGH)
|
|
·
|
Interferon
β
|
|
·
|
Factor
VIIa, Factor IX
|
|
·
|
Erythropoietin
(EPO)
|
|
·
|
Anti-Obesity
Peptide
|
|
·
|
Glucagon-Like
Peptide-1 (GLP-1)
|
Worldwide sales of hGH are
estimated at $3.0 billion, those of EPO are estimated at $10.0 billion, those of
interferon β are estimated at $5.3 billion, and those of Factor VIIa and
Factor IX are estimated at $1.5 billion in the aggregate. We believe
that the CTP technology will be broadly applicable to these as well as other
best-selling therapeutic proteins in the market and will be attractive to
potential partners because it will allow them to extend proprietary rights for
therapeutic proteins with near-term patent expirations.
Critical
Accounting Policies
The
historical financial statements of the Company included with this Quarterly
Report have been prepared in accordance with GAAP. The significant accounting
policies followed in the preparation of the financial statements, on a
consistent basis, are described below.
Use of Estimates: The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
materially from those estimates.
17
Financial Statements in United
States Dollars: The functional currency
of the Company is the U.S. dollar, as the U.S. dollar is the primary currency of
the economic environment in which the Company expects to continue to operate in
the foreseeable future. The majority of our R&D subsidiary’s operations are
currently conducted in Israel, and most of the Israeli expenses are paid in new
Israeli Shekels; however, most expenses are denominated and determined in U.S.
dollars. Financing and investing activities, including loans and equity
transactions, are denominated in U.S. dollars. The majority of our assets,
however, are held in the U.S.
Accordingly,
the functional and reporting currency of the Company is the U.S. dollar.
Monetary accounts maintained in currencies other than the dollar are remeasured
in U.S. dollars. All transaction gains and losses from the remeasurement of
monetary balance sheet items are reflected in the statements of operations as
financial income or expense, as appropriate.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company’s
wholly-owned subsidiary, Modigene Delaware, and its wholly-owned subsidiary,
ModigeneTech. Intercompany transactions and balances have been eliminated upon
consolidation.
Research and Development Costs and
Participation: Research and development (“R&D”) costs are expensed as
they are incurred and consist of salaries, benefits and other personnel-related
costs, fees paid to consultants, clinical trials and related clinical
manufacturing costs, license and milestone fees, and facilities and overhead
costs. R&D expenses consist of independent R&D costs and costs
associated with collaborative R&D and in-licensing arrangements.
Participation from government for development of approved projects are
recognized as a reduction of expenses as the related costs are
incurred.
Concentrations of Credit
Risk: Financial instruments that potentially subjected the Company to
concentrations of credit risk consist principally of cash and cash
equivalents.
Cash and
cash equivalents are invested in major banks in Israel and the United States.
Such deposits in the United States are not insured. Management believes that the
financial institutions that hold the Company’s investments are financially
sound, and, accordingly, minimal credit risk exists with respect to these
investments.
The
Company has no off-balance sheet concentration of credit risk, such as foreign
exchange contracts or other foreign hedging arrangements.
Royalty-bearing Grants:
Royalty-bearing grants from the Government of Israel for participation in the
development of approved projects are recognized as a reduction of expenses as
the related costs are incurred. Funding is recognized at the time ModigeneTech
is entitled to such grants, on the basis of the costs incurred.
Research
and development grants received by ModigeneTech for the three months ended June
30, 2010 and 2009 and for the period from May 31, 2005 (inception date) through
June 30, 2010 amounted to $688,504, $181,449 and $2,750,588, respectively.
Research and development grants received by ModigeneTech for the six months
ended June 30, 2010 and 2009 amounted to $745,823 and $389,429,
respectively.
Loss per Share: Basic and
diluted losses per share are presented in accordance with ASC 260-10 “Earnings per share”.
Outstanding share options, warrants and restricted shares have been excluded
from the calculation of the diluted loss per share because all such securities
are antidilutive. The total weighted average number of Common Stock
related to outstanding options warrants and restricted shares excluded from the
calculations of diluted loss per share were 20,035,195, 9,164,362 and 6,539,793
for the three months ended June 30, 2010 and 2009 and for the period from May
31, 2005 (inception date) through June 30, 2010, respectively. The total
weighted average number of Common Stock related to outstanding options warrants
and restricted shares excluded from the calculations of diluted loss per share
were 16,077,467 and 9,092,037 for the six months ended
June 30, 2010 and 2009, respectively.
18
Results
of Operation
Three
and Six Months Ended June 30, 2010 Compared to the Three and Six Months ended
June 30, 2009
Revenue
The
Company has not generated any revenue from operations since its inception. To
date, the Company has funded its operations primarily through grants from the
Israeli Office of the Chief Scientist (the “OCS”) and the sale of equity
securities. If the Company’s development efforts result in clinical success,
regulatory approval and successful commercialization of the Company’s products,
then the Company could generate revenue from sales of its products.
Research
and Development Expense
The
Company expects its research and development expenses to increase as it
continues to develop its product candidates. Research and development expense
consists of:
|
·
|
internal
costs associated with research and development
activities;
|
|
·
|
payments
made to third party contract research organizations, contract
manufacturers, investigative sites, and
consultants;
|
|
·
|
manufacturing
development costs;
|
|
·
|
personnel-related
expenses, including salaries, benefits, travel, and related costs for the
personnel involved in the research and
development;
|
|
·
|
activities
relating to the advancement of product candidates through preclinical
studies and clinical trials; and
|
|
·
|
facilities
and other expenses, which include expenses for rent and maintenance of
facilities, as well as laboratory and other
supplies.
|
The
Company expects its research and development expenditures to increase
significantly in the near future in connection with the ongoing production of
its protein drug candidates. The Company intends to continue to hire new
employees, in research and development, in order to meet its operation
plans.
The
Company has multiple research and development projects ongoing at any one time.
The Company utilizes its internal resources, employees and infrastructure across
multiple projects and tracks time spent by employees on specific projects. The
Company believes that significant investment in product development is a
competitive necessity and plans to continue these investments in order to
realize the potential of its product candidates. For the three months
ended June 30, 2010 and 2009 and for the period from May 31, 2005 (inception
date) through June 30, 2010, the Company incurred net research and development
expense in the aggregate of $845,322, $304,701 and $14,948,514, respectively.
For the six months ended June 30, 2010 and 2009, the Company incurred net
research and development expense in the aggregate of $1,847,756, and $2,890,403,
respectively. The decrease for the six month period resulted primarily from
reduction in development expenses associated with the manufacturing of non-GMP
and GMP of hGH-CTP. The increase for the three month period resulted primarily
from development expenses associated with other pipeline candidates. The
successful development of the Company’s product candidates is subject to
numerous risks, uncertainties, and other factors. Beyond the next twelve months,
the Company cannot reasonably estimate or know the nature, timing and costs of
the efforts that will be necessary to complete the remainder of the development
of, or the period, if any, in which material net cash inflows may commence from
the Company’s product candidates or any of the Company’s other development
efforts. This is due to the numerous risks and uncertainties associated with the
duration and cost of clinical trials which vary significantly over the life of a
project as a result of differences arising during clinical development,
including:
19
|
·
|
completion
of such preclinical and clinical
trials;
|
|
receipt
of necessary regulatory approvals;
|
|
·
|
the
number of clinical sites included in the
trials;
|
|
·
|
the
length of time required to enroll suitable
patients;
|
|
·
|
the
number of patients that ultimately participate in the
trials;
|
|
·
|
adverse
medical events or side effects in treated
patients;
|
|
·
|
lack
of comparability with complementary
technologies;
|
|
·
|
obtaining
capital necessary to fund operations, including the research and
development efforts; and
|
|
·
|
the
results of clinical trials.
|
The
Company’s expenditures are subject to additional uncertainties, including the
terms and timing of regulatory approvals, and the expense of filing,
prosecuting, defending and enforcing any patent claims or other intellectual
property rights. The Company may obtain unexpected results from its clinical
trials. The Company may elect to discontinue, delay or modify clinical trials of
some product candidates or focus on others. A change in the outcome of any of
the foregoing variables with respect to the development of a product candidate
could mean a significant change in the costs and timing associated with the
development of that product candidate. For example, if the United States Food
and Drug Administration (“FDA”) or other regulatory authorities were to require
the Company to conduct clinical trials beyond those which it currently
anticipates will be required for the completion of the clinical development of a
product candidate, or if the Company experiences significant delays in
enrollment in any of its clinical trials, the Company could be required to
expend significant additional financial resources and time on the completion of
clinical development. Drug development may take several years and millions of
dollars in development costs. If the Company does not obtain or maintain
regulatory approval for its products, its financial condition and results of
operations will be substantially harmed.
General
and Administrative Expense
General
and administrative expense consists primarily of salaries and other related
costs, including stock-based compensation expenses for persons serving in the
Company’s executive and administration functions. Other general and
administrative expense includes facility-related costs not otherwise included in
research and development expense, and professional fees for legal and accounting
services. The Company expects that its general and administrative expenses will
increase as it adds additional personnel. For the three months ended
June 30, 2010 and 2009 and for the period from May 31, 2005 (inception date)
through June 30, 2010, the Company incurred general and administrative expense
in the aggregate of $642,636, $494,308 and $12,347,655, respectively. For the
three months ended June 30, 2010 and 2009, the Company incurred general and
administrative expense in the aggregate of $1,128,129, and $973,042,
respectively.
20
Financial
expense and income consists of the following:
|
·
|
interest
earned on the Company’s cash and cash
equivalents;
|
|
·
|
interest
expense on short term bank credit;
and
|
|
·
|
expense
or income resulting from fluctuations of the New Israeli Shekel and Euro,
which a portion of the Company’s assets and liabilities are denominated
in, against the United States
Dollar.
|
For the
three months ended June 30, 2010 and 2009 and for the period from May 31, 2005
(inception date) through June 30, 2010, the Company incurred net financial
(expense) income in the aggregate of ($240,659), ($17,206) and $211,200,
respectively. For the six months ended June 30, 2010 and 2009, the Company
incurred net financial (expense) in the aggregate of ($307,090) and ($71,648),
respectively. The financial expense resulted primarily from currency
fluctuations on deposits in New Israeli Shekels and the Euro.
Stock-based
Compensation
The
Company’s stock-based compensation expense is recorded according to ASC 718-10,
“Compensation - Stock Compensation”, which requires the measurement and
recognition of compensation expense for all stock-based payment awards made to
employees and directors, including employee stock options under the Company’s
stock plans, based on estimated fair values.
ASC
718-10 requires companies to estimate the fair value of equity-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s consolidated
statement of operations. The Company estimates the fair value of stock options
granted using the Black-Scholes-Merton option-pricing model.
The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model. For the three months ended June 30,
2010 and June 30, 2009 and for the period from May 31, 2005 (inception date)
through June 30, 2010, the Company incurred stock-based compensation expenses in
the aggregate of $267,477, $180,032 and $7,664,257, respectively. For the six
months ended June 30, 2010 and June 30, 2009, the Company incurred stock-based
compensation expenses in the aggregate of $468,472 and $416,711,
respectively.
The
Company applies ASC 505 "Equity" with respect to options and warrants issued to
non-employees (other than non-employee directors). ASC 505 requires the use of
an option valuation model to measure the fair value of the options at the grant
date.
Cash
Flows
For the
six months ended June 30, 2010 and 2009 net cash (used in) provided by
operations was approximately ($2,707,303) and ($3,682,127), respectively. The
decrease resulted primarily from reduction of research and development
expenses.
For the
six months ended June 30, 2010 and 2009 net cash (used in) investing activities
was approximately ($7,020,338) and ($30,457), respectively. The difference in
the 2010 period resulted primarily from cash investments in short term bank
deposits. The deposits are held mostly in US$..
21
For the
six months ended June 30, 2010 and 2009 net cash provided by financing
activities was approximately $25,303,878 and $0, respectively. The increase in
2010 resulted from our issuance of 10,382,975 Common Stock for aggregate
consideration of $24,145,241 ($24,399,991 net of $254,750 issuing expenses) in a
private placement that was consummated in March 2010, as well as from option and
warrant exercises.
Liquidity
and Capital Resources
The
Company expects to incur losses from operations for the foreseeable future. The
Company expects to incur increasing research and development expenses, including
expenses related to the hiring of personnel and additional clinical trials. The
Company expects that general and administrative expenses will also increase as
the Company expands its finance and administrative staff, adds infrastructure,
and incurs additional costs related to being a public company in the United
States, including the costs of directors’ and officers’ insurance, investor
relations programs, and increased professional fees. Our future capital
requirements will depend on a number of factors, including the continued
progress of our research and development of product candidates, the timing and
outcome of clinical trials and regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining, defending, and enforcing patent
claims and other intellectual property rights, the status of competitive
products, the availability of financing, and our success in developing markets
for our product candidates.
We
believe that our existing cash and cash equivalents and short-term investments
will be sufficient to enable us to fund our operating expenses and capital
expenditure requirements at least for the next twelve months. We have based this
estimate on assumptions that may prove to be wrong or subject to change, and we
may be required to use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated with the
development and commercialization of our product candidates,
we are unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical trials. Our
future capital requirements will depend on many factors, including the progress
and results of our clinical trials, the duration and cost of discovery and
preclinical development, and laboratory testing and clinical trials for our
product candidates, the timing and outcome of regulatory review of our product
candidates, the number and development requirements of other product candidates
that we pursue, and the costs of commercialization activities, including product
marketing, sales, and distribution. We do not anticipate that we will generate
product revenues for at least the next several years. In the absence of
additional funding, we expect continuing operating losses to result in increases
in our cash used in operations over the next several years. To the extent that
our capital resources are insufficient to meet our future capital requirements,
we will need to finance our future cash needs through public or private equity
offerings, debt financings, or corporate collaboration and licensing
arrangements
In May
2010, in connection with the Company's listing of its common stock on the Tel
Aviv Stock Exchange, all shares of the Company’s Series A preferred stock and
Series B preferred stock were converted in accordance with their respective
terms into an aggregate of 6,167,780 shares of common stock. We currently do not
have any issued and outstanding preferred shares. We do not currently have any
commitments for future external funding. We may need to raise additional funds
more quickly if one or more of our assumptions proves to be incorrect or if we
choose to expand our product development efforts more rapidly than we presently
anticipate, and we may decide to raise additional funds even before we need them
if the conditions for raising capital are favorable. We may seek to sell
additional equity or debt securities or obtain a bank credit facility. The sale
of additional equity or debt securities may result in dilution to our
stockholders. The incurrence of indebtedness would result in increased fixed
obligations and could also result in covenants that would restrict our
operations. Additional equity or debt financing, grants, or corporate
collaboration and licensing arrangements may not be available on acceptable
terms, if at all. If adequate funds are not available, we may be required to
delay, reduce the scope of or eliminate our research and development programs,
reduce our planned commercialization efforts or obtain funds through
arrangements with collaborators or others that may require us to relinquish
rights to certain product candidates that we might otherwise seek to develop or
commercialize independently.
22
Effects
of Inflation and Currency Fluctuations
Inflation
generally affects the Company by increasing its cost of labor and clinical trial
costs. The Company does not believe that inflation had a material effect on its
results of operations for the three months ended June 30, 2010 or
2009.
Currency
fluctuations could affect the Company by increasing or decreasing costs mainly
for goods and services acquired in Israel. The Company does not believe currency
fluctuations had a material effect on its results of operations for the three
month periods ended June 30, 2010 or 2009.
The
Company had no off-balance sheet arrangements as of June 30,
2010.
23
ITEM
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Not
required for smaller reporting companies as defined in rule 12b-2 of the
Exchange Act.
ITEM
4.
|
Controls
and Procedures
|
Evaluation of Disclosure
Controls and Procedures
We
maintain a system of disclosure controls and procedures (as defined in Exchange
Act Rule 13a-15(e)) that is designed to provide reasonable assurance that
information we are required to disclose in the reports we file or submit under
the Exchange Act is accumulated and communicated to management in a timely
manner. Our Chief Executive Officer and Chief Financial Officer
evaluated this system of disclosure controls and procedures as of the end of the
period covered by this quarterly report and have concluded that the system is
operating effectively to ensure appropriate disclosure.
Changes in Internal Control
over Financial Reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 of the
Exchange Act that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
24
PART
II
|
OTHER
INFORMATION
|
ITEM
1.
|
Legal
Proceedings.
|
Not
Applicable.
ITEM
1A
|
Risk
Factors
|
There
have been no material changes in our risk factors since the filing of our Annual
Report on Form 10-K for the year ended December 31, 2009.
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
None.
ITEM
3.
|
Defaults
Upon Senior Securities.
|
None.
ITEM
4.
|
(Removed
and Reserved).
|
ITEM
5.
|
Other
Information.
|
None.
ITEM
6.
|
Exhibits.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K
(Filed herewith).
|
31.2
|
Certification
of Principal Financial Officer pursuant to Item 601(b)(31) of Regulation
S-K (Filed herewith).
|
32.1
|
Certification
of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K
(Filed herewith).
|
32.2
|
Certification
of Principal Financial Officer pursuant to Item 601(b)(32) of Regulation
S-K (Filed
herewith).
|
25
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PROLOR
BIOTECH, INC.
|
|
August
13, 2010
|
/s/ Abraham Havron
|
Date
|
Abraham
Havron
|
Chief
Executive Officer
|
26