Attached files
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EX-32 - ONCOVISTA INNOVATIVE THERAPIES, INC | v193872_ex32.htm |
EX-31.2 - ONCOVISTA INNOVATIVE THERAPIES, INC | v193872_ex31-2.htm |
EX-31.1 - ONCOVISTA INNOVATIVE THERAPIES, INC | v193872_ex31-1.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 June 30, 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)
Indicate
by check mark whether the registrant: (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 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.
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 August 10, 2010.
ONCOVISTA
INNOVATIVE THERAPIES, INC.
FORM
10-Q
FOR
THE QUARTER ENDED JUNE 30, 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
|
21
|
ITEM
4 – CONTROLS AND PROCEDURES
|
21
|
PART
II – OTHER INFORMATION
|
22
|
ITEM
1 – LEGAL PROCEEDINGS
|
22
|
ITEM
1A – RISK FACTORS
|
22
|
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
22
|
ITEM
3 – DEFAULTS UPON SENIOR SECURITIES
|
22
|
ITEM
4 – (REMOVED AND RESERVED)
|
22
|
ITEM
5 – OTHER INFORMATION
|
22
|
ITEM
6 – EXHIBITS
|
23
|
PART
I – FINANCIAL INFORMATION
ITEM
1 – FINANCIAL STATEMENTS
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
(Unaudited)
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 84,424 | $ | 108,994 | ||||
Accounts
receivable
|
93,847 | 113,187 | ||||||
Inventory
|
22,964 | 26,962 | ||||||
Prepaid
and other current assets
|
4,911 | 25,329 | ||||||
Total
current assets
|
206,146 | 274,472 | ||||||
Equipment,
net
|
64,650 | 91,341 | ||||||
Deposits
and other assets
|
38,061 | 44,329 | ||||||
Total
assets
|
$ | 308,857 | $ | 410,142 | ||||
LIABILITIES,
CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST AND
DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,325,481 | $ | 1,279,278 | ||||
Accrued
expenses
|
1,367,532 | 1,995,800 | ||||||
Derivative
liability
|
250,666 | 46,704 | ||||||
Loans
payable, related party
|
400,388 | 259,556 | ||||||
Notes
payable (including $350,000 of related party notes
payable)
|
1,460,400 | 1,541,016 | ||||||
Contingently
restructured debt
|
– | 6,176,310 | ||||||
Accrued
interest payable (including related party interest of $69,220 and $33,466
at June 30, 2010 and December 31, 2009, respectively)
|
443,927 | 359,983 | ||||||
Total
current liabilities
|
5,248,394 | 11,658,647 | ||||||
Commitments
and contingencies
|
||||||||
Contingently
redeemable noncontrolling interest
|
5,293,251 | – | ||||||
Deficit:
|
||||||||
OncoVista
Innovative Therapies stockholders’ deficit:
|
||||||||
Common
stock, $.001 par value; 147,397,390 shares authorized, 21,149,675 shares
issued and outstanding at June 30, 2010 and December 31, 2009,
respectively
|
21,149 | 21,149 | ||||||
Additional
paid-in capital
|
19,244,408 | 18,560,394 | ||||||
Accumulated
deficit
|
(29,332,581 | ) | (28,357,947 | ) | ||||
Accumulated
other comprehensive loss
|
(117,810 | ) | (1,430,618 | ) | ||||
Total
OncoVista Innovative Therapies stockholders’ deficit
|
(10,184,834 | ) | (11,207,022 | ) | ||||
Noncontrolling
interest
|
(47,954 | ) | (41,483 | ) | ||||
Total
deficit
|
(10,232,788 | ) | (11,248,505 | ) | ||||
− | − | |||||||
Total
liabilities, contingently redeemable noncontrolling interest and
deficit
|
$ | 308,857 | $ | 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
|
Six
Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues:
|
||||||||||||||||
Diagnostic
kits (including related party revenue of $10,000 and $56,000 for the three
months ended June 30, 2010 and 2009, respectively, and $68,000for the six
months ended June 30, 2010 and 2009, respectively)
|
$ | 283,873 | $ | 271,140 | $ | 578,336 | $ | 429,546 | ||||||||
Licensing
|
23,306 | 8,506 | 64,541 | 17,782 | ||||||||||||
Research
and development revenue
|
15,946 | 211 | 15,946 | 10,342 | ||||||||||||
Total
revenues
|
323,125 | 279,857 | 658,823 | 457,670 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
306,796 | 677,130 | 576,790 | 1,350,376 | ||||||||||||
General
and administrative
|
560,386 | 1,088,340 | 1,046,234 | 2,229,759 | ||||||||||||
Total
operating expenses
|
867,182 | 1,765,470 | 1,623,024 | 3,580,135 | ||||||||||||
Loss
from operations
|
(544,057 | ) | (1,485,613 | ) | (964,201 | ) | (3,122,465 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(99,693 | ) | (160,498 | ) | (205,585 | ) | (321,867 | ) | ||||||||
Extinguishment
of royalty liability
|
− | − | 520,000 | − | ||||||||||||
(Loss)
gain on derivative liability
|
(16,247 | ) | 170,625 | (203,962 | ) | 442,950 | ||||||||||
Other
|
(42,224 | ) | 65,117 | (151,833 | ) | 20,355 | ||||||||||
Total
other income (expense), net
|
(158,164 | ) | 75,244 | (41,380 | ) | 141,438 | ||||||||||
Net
loss
|
(702,221 | ) | (1,410,369 | ) | (1,005,581 | ) | (2,981,027 | ) | ||||||||
Net
loss attributable to noncontrolling interest
|
1,688 | 8,189 | 6,471 | 23,761 | ||||||||||||
Net
loss attributable to contingently redeemable noncontrolling
interest
|
6,382 | – | 24,476 | – | ||||||||||||
Net
loss attributable to OncoVista Innovative Therapies
|
$ | (694,151 | ) | $ | (1,402,180 | ) | $ | (974,634 | ) | $ | (2,957,266 | ) | ||||
Net
loss per share - basic and diluted
|
$ | (0.03 | ) | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.16 | ) | ||||
Weighted
average number of shares outstanding during the period - basic and
diluted
|
20,483,008 | 18,316,475 | 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 Income (Loss)
(Unaudited)
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss
|
$ | (702,221 | ) | $ | (1,410,369 | ) | $ | (1,005,581 | ) | $ | (2,981,027 | ) | ||||
Other
comprehensive income (loss):
|
||||||||||||||||
Foreign
currency translation gain (loss)
|
763,596 | (503,552 | ) | 1,312,808 | 7,517 | |||||||||||
Total
other comprehensive income
|
763,596 | (503,552 | ) | 1,312,808 | 7,517 | |||||||||||
Comprehensive
income (loss)
|
61,375 | (1,913,921 | ) | 307,227 | (2,973,510 | ) | ||||||||||
Comprehensive
loss attributable to noncontrolling interest
|
1,688 | 8,189 | 6,471 | 30,550 | ||||||||||||
Comprehensive
loss attributable to contingently redeemable noncontrolling
interest
|
6,382 | – | 24,476 | – | ||||||||||||
Comprehensive
income (loss) attributable to OncoVista Innovative
Therapies
|
$ | 69,445 | $ | (1,905,732 | ) | $ | 338,174 | $ | (2,942,960 | ) |
See
accompanying notes to the condensed consolidated financial
statements
- 4
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
Six
Months Ended
|
||||||||
June
30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (1,005,581 | ) | $ | (2,981,027 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
|
21,962 | 33,726 | ||||||
Amortization
of debt discount
|
41,882 | 211,956 | ||||||
Employee
stock-based compensation
|
614,603 | 1,132,556 | ||||||
Non-employee
stock-based consulting
|
36,413 | 70,426 | ||||||
Non-employee
stock-based consulting (warrants)
|
32,998 | 92,028 | ||||||
Loss
(gain) on derivative liability
|
203,962 | (442,950 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
2,915 | 100,975 | ||||||
Prepaid
and other assets
|
18,161 | 17,772 | ||||||
Accounts
payable
|
95,565 | 435,273 | ||||||
Accrued
expenses
|
(590,816 | ) | 518,061 | |||||
Accrued
interest payable
|
125,913 | 54,890 | ||||||
Net
cash used in operating activities
|
(402,023 | ) | (756,314 | ) | ||||
Cash
flows from investing activities
|
||||||||
Purchase
of equipment
|
(3,925 | ) | (650 | ) | ||||
Net
cash used in investing activities
|
(3,925 | ) | (650 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from loans and notes payable, related party
|
196,277 | 350,000 | ||||||
Proceeds
from notes payable
|
– | 400,000 | ||||||
Net
cash provided by financing activities
|
196,277 | 750,000 | ||||||
Net
decrease in cash and cash equivalents
|
(209,671 | ) | (6,964 | ) | ||||
Effect
of exchange rate changes on cash
|
185,101 | 19,271 | ||||||
Cash
and cash equivalents at beginning of period
|
108,994 | 91,482 | ||||||
Cash
and cash equivalents at end of period
|
$ | 84,424 | $ | 103,789 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 665 | $ | 48,270 | ||||
- 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 Chief Executive Officer (“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 $599,241. In June 2008, OncoVista purchased an additional 10% equity
interest in AdnaGen for $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 7.
In April
2009, the Company negotiated a contingent debt restructuring with three of its
major creditors which resulted in exchanging approximately €4.3 million ($5.3
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 June 30, 2010. In addition, as part of the contingent
restructuring, OncoVista agreed to forgive approximately $1.0 million in
receivables, advances, loans and related interest as of June 30, 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. In July 2009, we
received an extension until December 31, 2009, subsequently extended to May
2010, In May 2010, we received an additional extension until December
2011. After the contingent restructuring, OncoVista now 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 June 30, 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.
- 6
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of OVIT, OncoVista and
AdnaGen (collectively, the “Company”). All intercompany balances have
been eliminated.
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 six months ended June 30, 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 June 30, 2010 and 2009, the Company derived a substantial
portion of its revenues from three customers accounting for 77% of the Company’s
revenue (38%, 30% and 9%), and three customers for 63% of the Company’s revenue
(30%, 20% and 13%), respectively. For the six months ended June 30, 2010 and
2009, the Company derived a substantial portion of its revenues from three
customers accounting for 61% of the Company’s revenue (43%, 9% and 9%), and four
customers for 68% of the Company’s revenue (21%, 19%, 15% and 13%),
respectively.
- 7
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Four
customers accounted for approximately 81% of the accounts receivable balance
(32%, 24%, 15% and 10%) at June 30, 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. For the three and six
months ended June 30, 2010, there were 666,667 shares that were unvested.
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.
At June
30, 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
|
3,881,712 | 3,681,712 | ||||||
Total
|
4,531,712 | 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 $1.0 million and net cash used in
operations of approximately $402,000 for the six months ended June 30, 2010, a
working capital deficit of approximately $5.0 million, an accumulated deficit of
approximately $29.3 million and a total deficit of approximately $10.2 million
at June 30, 2010. The Company is also in default on certain loans, notes, and
related accrued interest aggregating $139,605 at June 30, 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 $196,000 during the six months ended June 30, 2010 from related
parties. As described in Note 1, the Company also restructured approximately
$5.3 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.
- 8
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Note
4.
|
EQUIPMENT |
Equipment
balances at June 30, 2010 and December 31, 2009 are summarized
below:
2010
|
2009
|
|||||||
Equipment
|
$ | 454,863 | $ | 528,795 | ||||
Computer
and office equipment
|
96,270 | 108,747 | ||||||
Furniture
and fixtures
|
5,554 | 5,554 | ||||||
556,687 | 643,096 | |||||||
Less:
accumulated depreciation
|
(492,037 | ) | (551,755 | ) | ||||
Equipment,
net
|
$ | 64,650 | $ | 91,341 |
Note
5.
|
ACCRUED
EXPENSES
|
Accrued
expenses at June 30, 2010 and December 31, 2009 are summarized
below:
2010
|
2009
|
|||||||
Legal
and professional
|
$ | 454,301 | $ | 988,584 | ||||
Clinical
and other studies
|
279,197 | 279,197 | ||||||
Compensation
|
305,599 | 347,526 | ||||||
Other
|
328,436 | 380,493 | ||||||
Total
accrued expenses
|
$ | 1,367,532 | $ | 1,995,800 |
In March
2010, the Company terminated its license agreements and returned the
intellectual property related to technologies associated with tubulin
isotype-specific anti-mitotics and a proprietary database of tubulin
structures. As a result, the Company is no longer obligated to pay
$520,000 in liabilities for minimum royalties associated with these licenses.
Accordingly, in March 2010, the Company reversed the accrued liability which has
been 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 affect the liability classification of the
associated warrants. In consideration for the modifications, 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 of $67,172 at the
amendment date. At June 30, 2010 and December 31, 2009, the estimated fair value
of the derivative liability was $250,666 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:
June
30, 2010
|
||
Expected
term
|
4-5
years
|
|
Volatility
|
86.5%-100.4%
|
|
Risk-free
interest rate
|
0.25%-0.43%
|
|
Dividend
yield
|
0%
|
- 9
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
Fair
value measurements
Assets
and liabilities measured at fair value as of June 30, 2010, are as
follows:
Value
at
June
30, 2010
|
Quoted
prices
in
active
markets
(Level
1)
|
Significant
other
observable
inputs
(Level
2)
|
Significant
unobservable
inputs
(Level
3)
|
|||||||||||||
Derivative
liability
|
$ | 250,666 | $ | – | $ | 250,666 | $ | – |
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.
|
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 June 30, 2010 and December 31, 2009, respectively. The fair
values of accounts receivable, accounts payable and third-party debt approximate
their 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
|
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 at June 30, 2010 (see 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 July 2010, the
Company received an extension until December 31, 2010, and increased the number
of warrants to be issued by 50%, extending the exercise period to December 31,
2014.
In March
2010, the Company also obtained consent from the holders of the Bridge Note
financing to formalize agreements for loans and 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.
- 10
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
Company had the following outstanding loans and notes payable at June 30, 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
|
400,388 | 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
|
610,400 | 716,650 | ||||||
Total
loans and notes payable
|
1,860,788 | 6,724,884 | ||||||
Less:
current portion
|
(1,860,788 | ) | (6,724,884 | ) | ||||
Total
long-term debt
|
$ | – | $ | – |
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
June 30, 2010, the Company has paid $300,000 toward this agreement and has
accrued $400,000 representing one-half of the amounts for 2008, and all of the
2009 and 2010 amounts, which are included in accounts payable in the
consolidated balance sheets as of June 30, 2010 and December 31, 2009. During
2010 and 2009, the Company did not make any payments toward the agreement which
expense is included as a component of research and development
expenses.
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.
- 11
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
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.
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 $10,000 (€8,000) and $68,000
(€51,000) in revenue from the sale of diagnostic kits to Biomarkers in the six
months ended June 30, 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 June
30, 2010, shares of common stock reserved for future issuance are as
follows:
Stock
options outstanding
|
650,000 | |||
Warrants
outstanding
|
3,881,712 | |||
Stock
options available for grant
|
2,916,800 | |||
7,448,512 |
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 June 30, 2010, there was approximately
$583,333 of unrecognized compensation cost related to unvested restricted
stock. For the three months ended June 30, 2010 and 2009, the Company
recognized compensation expense of $291,667 for vested restricted stock grants.
For the six months ended June 30, 2010 and 2009, the Company recognized
compensation expense of $583,333 for vested restricted stock
grants.
- 12
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
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
six months ended June 30, 2009. No options were granted during the six months
ended June 30, 2010.
The
stock-based compensation expense recorded by the Company with respect to awards
under the Company’s stock plans is as follows:
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Research
and development
|
$ | – | $ | 149,608 | $ | – | $ | 265,988 | ||||||||
General
and administrative
|
15,636 | 160,354 | 31,270 | 283,235 | ||||||||||||
Total
employee stock-based compensation
|
$ | 15,636 | $ | 309,962 | $ | 31,270 | $ | 549,223 |
In
addition to options granted to employees, the Company historically granted
options to consultants and for the six months ended June 30, 2010 and 2009,
recognized $36,413 and $70,426, respectively, as consulting
expense. Such amounts are included in general and administrative
expense in the consolidated statements of operations in each of the six months
ended June 30, 2010 and 2009. As of June 30, 2010, there was a total of
approximately$77,000 in unrecognized compensation expense and no unrecognized
consulting expense.
The
Company has followed 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
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 June 30, 2010
|
650,000 | $ | 1.57 |
5.89
years
|
$ | 79,800 | |||||||
Options
Exercisable at June 30, 2010
|
572,500 | $ | 1.56 |
5.69
years
|
$ | 79,800 |
- 13
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
The
following summarizes the activity of the Company’s stock options that have not
vested for the six months ended June 30, 2010:
Shares
|
Weighted
Average
Fair
Value
|
|||||||
Nonvested
at January 1, 2010
|
140,000 | $ | 1.92 | |||||
Granted
|
– | – | ||||||
Vested
|
(62,500 | ) | 2.28 | |||||
Cancelled
or forfeited
|
– | – | ||||||
Outstanding
at June 30, 2010
|
77,500 | 1.63 |
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
|
200,000 | 0.40 | ||||||
Exercised
|
− | − | ||||||
Forfeited
|
− | − | ||||||
Outstanding
at June 30, 2010
|
3,881,712 | 1.96 | ||||||
Exercisable
at June 30, 2010
|
3,756,712 | 2.03 |
In May
2010, the Company agreed to issue 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 will be issued and vest on the first day of the fourth month at an
exercise price of equal to the ten day average closing price through the last
trading day of the third month. The Company valued these warrants at
$70,800 based on the Black-Scholes option pricing model and recorded $33,000 as
expense for the warrants. As of June 30, 2010, there was a
total of approximately$38,000 in unrecognized consulting expense.
The
Black-Scholes assumptions used for warrants granted in the six months ended June
30, 2010 are as follows:
Risk-free
interest rate
|
0.25%
|
|
Expected
dividend yield
|
0%
|
|
Expected
volatility
|
100.4%
|
|
Expected
life of option
|
5
years
|
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.
- 14
-
ONCOVISTA
INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (Unaudited)
A summary
of the Company’s operations for the three and six months ended June 30, 2010 and
2009 is provided below:
Three
Months Ended June 30, 2010
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 323,125 | $ | 323,125 | ||||||
Operating
expenses
|
539,390 | 327,792 | 867,182 | |||||||||
Loss
from operations
|
(539,390 | ) | (4,667 | ) | (544,057 | ) | ||||||
Other
income (expense)
|
(126,151 | ) | (32,013 | ) | (158,164 | ) | ||||||
Net
loss
|
$ | (665,541 | ) | $ | (36,680 | ) | $ | (702,221 | ) | |||
Three
Months Ended June 30, 2009
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 279,857 | $ | 279,857 | ||||||
Operating
expenses
|
1,341,512 | 423,958 | 1,765,470 | |||||||||
Loss
from operations
|
(1,341,512 | ) | (144,101 | ) | (1,485,613 | ) | ||||||
Other
income (expense)
|
123,575 | (48,331 | ) | 75,244 | ||||||||
Net
loss
|
$ | (1,217,937 | ) | $ | (192,432 | ) | $ | (1,410,369 | ) | |||
Six
Months Ended June 30, 2010
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 658,823 | $ | 658,823 | ||||||
Operating
expenses
|
959,694 | 663,330 | 1,623,024 | |||||||||
Loss
from operations
|
(959,694 | ) | (4,507 | ) | (964,201 | ) | ||||||
Other
income (expense)
|
94,781 | (136,161 | ) | (41,380 | ) | |||||||
Net
loss
|
$ | (864,913 | ) | $ | (140,668 | ) | $ | (1,005,581 | ) | |||
Total
assets
|
$ | 39,862 | $ | 268,995 | $ | 308,857 |
Six
Months Ended June 30, 2009
|
||||||||||||
OncoVista
|
AdnaGen
|
Total
|
||||||||||
Revenues
|
$ | − | $ | 457,670 | $ | 457,670 | ||||||
Operating
expenses
|
2,698,418 | 881,717 | 3,580,135 | |||||||||
Loss
from operations
|
(2,698,418 | ) | (424,047 | ) | (3,122,465 | ) | ||||||
Other
income (expense)
|
233,933 | (92,495 | ) | 141,438 | ||||||||
Net
loss
|
$ | (2,464,485 | ) | $ | (516,542 | ) | $ | (2,981,027 | ) | |||
Total
assets
|
$ | 59,747 | $ | 346,089 | $ | 405,836 |
Note
11.
|
SUBSEQUENT
EVENTS
|
In July
2010, the Company obtained consent from the holders of the Bridge Note financing
to extend the maturity date from July 15, 2010 until the earlier of December 31,
2010 or such time that the Company obtains a “Qualified
Financing.” In addition, the Company increased the number of warrants
to be issued by 50%, and extended the exercise period to December 31,
2014.
- 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 (“CEO”), 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 CEO to support
continuing operations. See Note 3 to the condensed consolidated
financial statements.
- 16
-
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
2011.
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 2011.
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 June 30, 2010 and 2009
Revenue. Revenues were
approximately $323,000 for the three months ended June 30, 2010, an increase of
$43,000, or 15%, compared to approximately $280,000 for the three months ended
June 30, 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
|
$ | 283,873 | $ | 271,140 | ||||
Licensing
|
23,306 | 8,506 | ||||||
Research
and development
|
15,946 | 211 | ||||||
Total
revenues
|
$ | 323,125 | $ | 279,857 |
The increase in revenue in the three
months ended June 30, 2010 is primarily attributable to an increase in revenue
from licensing and research and development. Additionally, during the
three months ended June 30, 2010 and 2009, we recorded a return credit of $7,000
(€5,000) and revenue of $56,000 (€42,000), respectively, from the sale of
diagnostic kits to Biomarkers.
Research and
development. Research and development expenses decreased by
approximately $370,000, or 55%, to approximately $307,000 for the three months
ended June 30, 2010, as compared to approximately $677,000 for the three months
ended June 30, 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.
- 17
-
General and
administrative. General and administrative expenses decreased
by approximately $528,000, or 49%, to approximately $560,000 for the three
months ended June 30, 2010 compared to approximately $1.1 million for the three
months ended June 30, 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, as well
as stock-based compensation expense recorded by the Company.
Other Income (Expense). Other
income (expense) increased approximately $233,000, or 311%, to expense of
approximately $158,000 for the three months ended June 30, 2010 compared to
income of approximately $75,000 for the three months ended June 30,
2009. In 2010, the decrease is due primarily as a result of a foreign
currency translation loss of approximately $42,000, as well as a loss on the
derivative liability of $16,000 in 2010 compared to a foreign currency
translation gain of approximately $65,000, and a gain on the derivative
liability of $171,000 in 2009. These amounts were partially offset by
a decrease in interest expense as a result of the contingent debt
restructure.
Net Income (Loss). As a
result of the foregoing, our net loss decreased by approximately $708,000, or
50%, to approximately $702,000 for the three months ended June 30, 2010 compared
to a net loss of approximately $1.4 million for the three months ended June 30,
2009.
Six
Months Ended June 30, 2010 and 2009
Revenue. Revenues were
approximately $659,000 for the six months ended June 30, 2010, an increase of
$201,000, or 44% as compared to approximately $458,000 for the six months ended
June 30, 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
|
$ | 578,336 | $ | 429,546 | ||||
Licensing
|
64,541 | 17,782 | ||||||
Research
and development, grant and other revenues
|
15,946 | 10,342 | ||||||
Total
revenues
|
$ | 658,823 | $ | 457,670 |
The increase in revenue in the six
months ended June 30, 2010 is primarily attributable to an increase in sales
from diagnostic kits. During the six months ended June 30, 2010 and
2009, we recorded $10,000 (€8,000) and $68,000 (€51,000), respectively, in
revenue from the sale of diagnostic kits to Biomarkers.
Research and
development. Research and development expenses decreased by
approximately $774,000, or 57%, to approximately $577,000 for the six months
ended June 30, 2010, as compared to approximately $1.4 million for the six
months ended June 30, 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 $1.2 million, or 53%, to approximately $1.0 million for the six
months ended June 30, 2010, compared to approximately $2.2 million for the six
months ended June 30, 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, as well
as lower stock-based compensation expense recorded by the Company.
Other Income (Expense). Other
income (expense) decreased approximately $182,000, or 129%, to approximately
$41,000 for the six months ended June 30, 2010 from income of approximately
$141,000 for the six months ended June 30, 2009. In 2010, the
decrease is due primarily to a loss on the derivative liability of $204,000 in
2010 related to the bridge round of debt financing, compared to a gain of
$443,000 in 2009. Additionally, the decrease is attributable to a
foreign currency translation loss of approximately $152,000 in 2010 compared to
a foreign currency translation gain of approximately $20,000 in
2009. These decreases were partially offset by income from
extinguishing $520,000 in liabilities in 2010 related to minimum royalty
payments as a result of signing a letter agreement and returning technology
related to tubulin isotype-specific anti-mitotics.
- 18
-
Net Income (Loss). As a
result of the foregoing, our net loss decreased by approximately $2.0 million,
or 66%, to approximately $1.0 million for the six months ended June 30, 2010
from a net loss of approximately $3.0 million for the six months ended June 30,
2009.
Going
Concern
Our
consolidated financial statements for the six months ended June 30, 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 $1.0 million and net
cash used in operations of approximately $402,000 for the six months ended June
30, 2010, a working capital deficit of approximately $5.0 million, an
accumulated deficit of approximately $29.3 million and a total deficit of
approximately $10.2 million at June 30, 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 June
30, 2010, we had cash and cash equivalents of approximately $84,000 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 $405,000 from our CEO or companies
affiliated with our CEO to support continuing operations, including $5,000
received subsequent to June 30, 2010. 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. In July 2010, we obtained consent from the holders of the Bridge Note
financing to extend the maturity date from July 15, 2010 until the earlier of
December 31, 2010 or such time that we obtain a “Qualified
Financing.” In addition, we increased the number of warrants to be
issued by 50%, and extended the exercise period to December 31, 2014. We have
also loaned or advanced to AdnaGen approximately €670,000 ($925,000) during the
previous 24 months to support their operations.
- 19
-
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.
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 it attains revenue levels adequate to support its continued
operations and, based on current projections, we expect that they will require
at least €150,000 to €200,000 ($175,000 to $250,000) 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, we negotiated a contingent debt restructuring with three of our major
creditors which resulted in exchanging approximately €4.3 million ($5.3 million)
at June 30, 2010, 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
June 30, 2010. In addition, as part of the contingent restructuring, OncoVista
agreed to forgive approximately $1.0 million in receivables, advances, loans and
related interest as of June 30, 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. In July 2009, we received an extension until December 31, 2009,
subsequently extended to May 2010, In May 2010, we received an
additional extension until December 2011. After the contingent restructuring,
OncoVista now owns approximately 78% of AdnaGen.
In
January 2010, we 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 June 30,
2010.
Operating
Activities. For the six months ended June 30, 2010, net cash
used in operating activities was approximately $402,000 compared to
approximately $756,000 for the six months ended June 30, 2009. Cash used in
operating activities decreased $354,000, or 47%, primarily due to a decrease in
our net loss of approximately $2.0 million, or 66%, for the six months ended
June 30, 2010 to $1.0 million as compared to approximately $3.0 million for the
six months ended June 30, 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.
- 20
-
Investing
Activities. For the six months ended June 30, 2010, we used $4,000 in
investing activities compared to $600 for the six months June 30, 2009. Cash
used in investing activities increased as a result of purchases of
equipment.
Financing
Activities. Cash provided by financing activities was $196,000
for the six months ended June 30, 2010 as compared to approximately $750,000 for
the six months ended June 30, 2009. The decrease was primarily due to
proceeds from the completion of a bridge loan in January 2009, partially offset
by loans from our CEO and companies affiliated with our CEO during the
period.
Critical
Accounting Policies
See
Critical Accounting Policies included as part of our Form 10-K for the year
ended December 31, 2009, filed with the Commission on March 31,
2010.
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 June 30, 2010, under the
supervision and with the participation of our 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
June 30, 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 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 six
months ended June 30, 2010 that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
- 21
-
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.
- 22
-
ITEM
6 – EXHIBITS
Exhibits:
Exhibit No. | Description | ||||
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
|
- 23
-
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: August
16, 2010
-
24 -