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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 

X

  QUARTERLY REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     

For the quarter period ended March 31, 2011

     

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 000-50156
   

MOLECULAR PHARMACOLOGY (USA) LIMITED

(Exact name of registrant as specified in its charter)
 

NEVADA

 

71-0900799

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

Drug Discovery Centre
284 Oxford Street, Leederville 6007 Perth, Western Australia

(Address of principal executive offices)
 

(Zip Code)

011-61-8-9443-3011

(Registrant's telephone number, including area code)
 

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 o
     
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 (S232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Not applicable - Issuer does not have a web site

Yes o No o
 
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non accelerated filer, or a small reporting company. See the definitions of "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

i


  Large Accelerated Filer o   Accelerated Filer 
  Non-Accelerated Filer o (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 o No x


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court
  Yes o 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.
 

111,553,740 common shares issued and outstanding as of April 21, 2011.

ii


 

MOLECULAR PHARMACOLOGY (USA) LIMITED

Form 10-Q

March 31, 2011

Table of Contents

PART I - FINANCIAL INFORMATION
 
Item 1. Interim Consolidated Financial Statements

1

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

Item 4. Controls and Procedures

28

     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings

30

Item 1A. Risk Factors

30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3. Defaults Upon Senior Securities

30

Item 4. (Removed and Reserved)

30

Item 5. Other Information

30

Item 6. Exhibits

31

     
SIGNATURES

31

iii


 

PART 1 - FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements.

The information in this report for the nine months ended March 31, 2011, is unaudited but includes all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) which Molecular Pharmacology (USA) Limited ("Molecular USA" or the "Company") considers necessary for a fair presentation of the financial position, results of operations, changes in stockholders' deficiency and cash flows for those periods.

The interim consolidated financial statements should be read in conjunction with Molecular USA's consolidated financial statements and the notes thereto contained in Molecular USA's Audited Financial Statements for the year ended June 30, 2010, in the Form 10K filed with the SEC on September 24, 2010.

Interim results are not necessarily indicative of results for the full fiscal year.

The unaudited interim consolidated financial statements start on the next page.

1


 

Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

 

2


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)

   

As at
31 March
2011

 

As at
30 June
2010
(Audited)

   

$

 

$

Assets        
         
Current        
Cash and cash equivalents  

10,594

 

7,975

Amounts receivable  

5,320

 

1,480

         
   

15,914

 

9,455

         
Equipment (Note 3)  

1,766

 

2,197

         
   

17,680

 

11,652

Liabilities        
         
Current        
Accounts payable and accrued liabilities (Note 4)  

6,899

 

20,811

         
Due to related parties (Note 5)  

1,887,680

 

1,477,711

         
   

1,894,579

 

1,498,522

         
Stockholders' deficiency        
Capital stock (Note 6)        
Authorized        
          300,000,000 common shares, par value $0.001        
Issued and outstanding        
          31 March 2011 - 111,553,740 common shares, par value $0.001        
          30 June 2010 - 111,553,740 common shares, par value $0.001  

111,554

 

111,554

Additional paid-in capital  

106,707

 

106,707

Cumulative translation adjustment  

(460,500)

 

(154,325)

Deficit, accumulated during the development stage  

(1,634,660)

 

(1,550,806)

       
   

(1,876,899)

 

(1,486,870)

         
   

17,680

 

11,652

Nature and Continuance of Operations (Note 1), Commitment (Note 8), Contingency (Note 11) and Subsequent Event (Note 13)

On behalf of the Board:

/s/ Jeffrey Edwards

___________________  Director
Jeffrey Edwards

The accompanying notes are an integral part of these interim consolidated financial statements

3


Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars)
(Unaudited)

For the
period from
the date of inception on
14 July 2004
to
31 March
2011

For the
three month
period
ended
31 March
2011

For the
three month
period
ended
31 March
2010

For the
nine month
period
ended
31 March
2011

For the
nine month
period
ended
31 March
2010

   

$

 

$

 

$

 

$

 

$

                     
Expenses                    
Advertising and promotion  

23,739

 

-

 

-

 

-

 

-

Amortization (Note 3)  

6,084

 

148

 

183

 

431

 

544

Analysis  

33,947

 

-

 

-

 

-

 

-

Consulting (Note 5)  

1,176,811

 

13,667

 

8,389

 

39,984

 

34,323

Office and miscellaneous (Note 5)  

190,751

 

5,805

 

3,781

 

19,596

 

18,356

Professional fees  

291,563

 

7,339

 

3,772

 

22,729

 

22,134

Public relations  

3,656

 

-

 

-

 

-

 

-

Rent (Note 5)  

27,759

 

-

 

-

 

-

 

-

Salaries and benefits  

44,464

 

-

 

-

 

-

 

-

Transfer agent and filing fees  

16,608

 

-

 

587

 

1,114

 

5,302

Travel  

104,249

 

-

 

-

 

-

 

-

                     
Net loss before other items  

(1,919,631)

 

(26,959)

 

(16,712)

 

(83,854)

 

(80,659)

                     
Other items                    
Export market development grants  

69,629

 

-

 

-

 

-

 

-

Interest income  

2,322

 

-

 

-

 

-

 

-

Research and development tax refund

213,020

 

-

 

-

 

-

 

-

                     
Net loss for the period  

(1,634,660)

 

(26,959)

 

(16,712)

 

(83,854)

 

(80,659)

                     
Basic and diluted loss per common share  

(0.001)

 

(0.001)

 

(0.001)

 

(0.001)

                     
Weighted average number of common shares used in per share calculations  

111,553,740

 

111,553,740

 

111,553,740

 

111,553,740

                     
Comprehensive loss                    
Net loss for the period  

(1,634,660)

 

(26,959)

 

(16,712)

 

(83,854)

 

(80,659)

Foreign currency translation adjustment  

(460,500)

 

(27,345)

 

(44,131)

 

(306,175)

 

(184,823)

                     
Total comprehensive loss for the period  

(2,095,160)

 

(54,304)

 

(60,843)

 

(390,029)

 

(265,482)

                     
Comprehensive loss per common share  

(0.001)

 

(0.001)

 

(0.003)

 

(0.002)

                     

The accompanying notes are an integral part of these interim consolidated financial statements.

4


Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)

 

For the
period from
the date of inception on
14 July 2004
to
31 March
2011

For the
three month
period
ended
31 March
2011

For the
three month
period
ended
31 March
2010

For the
nine month
period
ended
31 March
2011

For the
nine month
period
ended
31 March
2010

   

$

 

$

 

$

 

$

 

$

                     
Cash flows used in operating activities                
Net loss for the period  

(1,634,660)

 

(26,959)

 

(16,712)

 

(83,854)

 

(80,659)

       Adjustments to reconcile loss to net cash used by
         operating activities

                   
      Amortization (Note 3)  

6,084

 

148

 

183

 

431

 

544

      Write-down of intangible assets  

1,278

 

-

 

-

 

-

 

-

Changes in operating assets and liabilities                    
      Increase in amounts receivable

(3,094)

 

(1,293)

 

(269)

 

(3,840)

 

(3,786)

      Decrease in accounts payable and accrued liabilities (Note 4)

(40,518)

 

(1,044)

 

(18,940)

 

(13,912)

 

(27,529)

                     
   

(1,670,910)

 

(29,148)

 

(35,738)

 

(101,175)

 

(111,430)

                     
Cash flows from investing activities                
Purchase of property, plant and equipment (Note 3)  

(7,850)

 

-

 

-

 

-

 

-

Purchase of intangible assets  

(1,278)

 

-

 

-

 

-

 

-

Cash acquired on the purchase of Molecular Pharmacology (USA) Limited (Note 1)  

37,163

 

-

 

-

 

-

 

-

                     
   

28,035

 

-

 

-

 

-

 

-

                     
Cash flows from financing activities                
Common shares issued for cash
(Note 6)
 

234,497

 

-

 

-

 

-

 

-

Increase in due to related parties
(Note 5)
 

1,879,472

 

62,459

 

78,556

 

409,969

 

293,092

                     
   

2,113,969

 

62,459

 

78,556

 

409,969

 

293,092

                     
Effect of exchange rate changes on cash  

(460,500)

 

(27,345)

 

(44,131)

 

(306,175)

 

(184,823)

                     
Increase (decrease) in cash and cash equivalents  

10,594

 

5,966

 

(1,313)

 

2,619

 

(3,161)

                     
Cash and cash equivalents, beginning of period  

-

 

4,628

 

5,695

 

7,975

 

7,543

                     
Cash and cash equivalents, end of period  

10,594

 

10,594

 

4,382

 

10,594

 

4,382

Supplemental Disclosures with Respect to Cash Flows (Note 9)

The accompanying notes are an integral part of these interim consolidated financial statements.

5


Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Statements of Changes in Stockholders' Deficiency
(Expressed in U.S. Dollars)
(Unaudited)
 

Number of
common shares
issued

Capital
stock

Additional
paid-in capital

Deficit,
accumulated
during the
development
stage

Cumulative
 translation
 adjustment

Stockholders'
deficiency

       

$

 

$

 

$

 

$

 

$

Balance at 14 July 2004 (inception)  

294

 

-

 

1

 

-

 

-

 

1

   Net loss for the period  

-

 

-

 

-

 

(128,488)

 

-

 

(128,488)

   Cumulative translation adjustment  

-

 

-

 

-

 

-

 

(6,536)

 

(6,536)

                         
Balance at 31 October 2004  

294

 

-

 

1

 

(128,488)

 

(6,536)

 

(135,023)

   Common shares issued for cash - January 2005  

87,999,706

 

88,000

 

146,496

 

-

 

-

 

234,496

   Net loss for the year  

-

 

-

 

-

 

(387,667)

 

-

 

(387,667)

   Cumulative translation adjustment  

-

 

-

 

-

 

-

 

(161)

 

(161)

Balance at 31 October 2005

88,000,000

88,000

146,497

(516,155)

(6,697)

(288,355)

   Acquisition of Molecular Pharmacology
     (USA) Limited - Recapitalization May 2006

43,553,740

43,554

(59,790)

-

-

(16,236)

   Cancellation of common shares - July 2006

(20,000,000)

(20,000)

20,000

-

-

-

   Net loss for the year

-

-

-

(508,260)

-

(508,260)

   Cumulative translation adjustment

-

-

-

-

(16,222)

(16,222)

Balance at 31 October 2006

111,553,740

111,554

106,707

(1,024,415)

(22,919)

(829,073)

   Net loss for the period

-

-

-

(377,131)

-

(377,131)

   Cumulative translation adjustment

-

-

-

-

(105,436)

(105,436)

Balance at 30 June 2007

111,553,740

111,554

106,707

(1,401,546)

(128,355)

(1,311,640)

   Net income for the year

-

-

-

62,296

-

62,296

  Cumulative translation
     adjustment

-

-

-

-

(166,483)

(166,483)

Balance at 30 June 2008

111,553,740

111,554

106,707

(1,339,250)

(294,838)

(1,415,827)

   Net loss for the year

-

-

-

(94,336)

-

(94,336)

   Cumulative translation
     adjustment

-

-

-

-

219,034

219,034

Balance at 30 June 2009

111,553,740

111,554

106,707

(1,433,586)

(75,804)

(1,291,129)

   Net loss for the year

-

-

-

(117,220)

-

(117,220)

   Cumulative translation
     adjustment

-

-

-

-

(78,521)

(78,521)

Balance at 30 June 2010

111,553,740

111,554

106,707

(1,550,806)

(154,325)

(1,486,870)

   Net loss for the period

-

-

-

(83,854)

-

(83,854)

   Cumulative translation
     adjustment

-

-

-

-

(306,175)

(306,175)

Balance at 31 March 2011

111,553,740

111,554

106,707

(1,634,660)

(460,500)

(1,876,899)

The accompanying notes are an integral part of these interim consolidated financial statements.

6


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

  1. Nature and Continuance of Operations

    Molecular Pharmacology (USA) Limited (the "Company") was incorporated in the state of Nevada on 1 May 2002 under the name Blue Hawk Ventures, Inc. The Company changed its name to Molecular Pharmacology (USA) Limited on 29 August 2005. At the same time, the Company completed a four for one forward split of its issued and outstanding share capital and altered its authorized share capital to 300,000,000 shares of common stock with a par value of $0.001 per share.

    The Company is a development stage enterprise, as defined in Accounting Standards Codification (the "Codification" or "ASC") 915-10, "Development Stage Entities". The Company is devoting all of its present efforts to securing and establishing a new business and its current planned principle operations have not commenced. Accordingly, no revenue has been derived during the organization period.

    Up until the fall of 2005, the Company was in the business of mineral exploration and development of a mineral property. The Company allowed the option on its mineral claim to lapse in the fall of 2005.

    On 13 October 2005, the Company entered into a distribution and supply agreement (the "Distribution Agreement") with Molecular Pharmacology Pty. Ltd. (formerly Molecular Pharmacology Limited) ("MPLA"). MPLA was incorporated under the laws of Australia and converted to a proprietary company on 29 October 2009. MPLA is a wholly owned subsidiary company of PharmaNet Group Limited ("PharmaNet"), an Australian company listed on the Australian Stock Exchange. Under the terms of the Distribution Agreement, the Company has the exclusive distribution rights to distribute, market, promote, detail, advertise and sell certain "Licensed Products", as defined in the agreement (Note 8).

    Since signing the Distribution Agreement with MPLA, the Company has engaged in organizational and start up activities, including developing a new business plan, recruiting new directors, scientific advisors and key scientists, making arrangements for laboratory facilities and office space and raising additional capital. The Company has generated no revenue from product sales. The Company does not have any pharmaceutical products currently available for sale, and none are expected to be commercially available for some time, if at all. The Licensed Products must first undergo pre-clinical and human clinical testing in the United States before they may be sold commercially.

    The Company completed a share purchase agreement on 8 May 2006 with PharmaNet. Under the terms of the agreement the Company acquired 100% of the issued and outstanding shares of MPLA (the "Purchase Agreement"). The Company, in exchange for 100% of the issued and outstanding shares of MPLA, issued PharmaNet an aggregate total of 88,000,000 common shares of the Company on the closing of the transaction. The issuance of 88,000,000 common shares of the Company constituted an acquisition of control of the Company by PharmaNet. The transaction has been accounted for as a recapitalization of the Company (Note 2).

    MPLA was incorporated on 14 July 2004 under the laws of Australia. The accompanying interim consolidated financial statements are the historical financial statements of MPLA.

 7


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

On 15 March 2007, the Board of Directors approved a change in the Company's financial year end from 31 October to 30 June. The decision to change the fiscal year end was intended to assist the financial community in its analysis of the business and in comparing the Company's financial results to others in the industry, and to synchronize the Company's fiscal reporting with MPLA.

The Company's interim consolidated financial statements as at 31 March 2011 and for the nine month period then ended have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a net loss of $83,854 for the nine month period ended 31 March 2011 (31 March 2010 - $80,659) and has working capital of $9,015 at 31 March 2011 (30 June 2010 - working capital deficit of $11,356).

Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company's capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 30 June 2011. However, if the Company is unable to raise additional capital in the near future, due to the Company's liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. These interim consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

At 31 March 2011, the Company has suffered losses from development stage activities to date. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  1. Significant Accounting Policies

    The following is a summary of significant accounting policies used in the preparation of these interim consolidated financial statements.

    The Accounting Standards Codification

    In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162". The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setters into a single source of authoritative accounting principles arranged by topic. The Codification supersedes all existing U.S. accounting standards; all other accounting literature not included in the Codification (other than Securities and Exchange Commission ("SEC") guidance for publicly-traded companies) is considered non-authoritative. The Codification was effective on a prospective basis for any annual reporting periods ending after 15 September 2009. The adoption of the Codification changed the Company's references to United Stated generally accepted accounting principle ("U.S. GAAP") accounting standards, but did not impact the Company's results of operations, financial position or liquidity.

8


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

Basis of presentation

These interim consolidated financial statements have been prepared in accordance with U.S. GAAP applicable for a development stage company for financial information and are expressed in U.S. dollars.

Principles of consolidation

These interim consolidated financial statements include the accounts of MPLA since its incorporation on 14 July 2004 and the Company since the reverse acquisition on 8 May 2006 (Note 1). All intercompany balances and transactions have been eliminated.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Foreign currency translation

The Company's functional and reporting currency is U.S. dollars. The interim consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, "Foreign Currency Matters". Assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to Other Comprehensive Income. The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Derivative financial instruments

The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Equipment

Equipment is recorded at cost and amortization is provided over their estimated economic lives at the rate of

15% declining balance.

Income taxes

Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, "Income Taxes", which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry forwards.

9


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

Comprehensive income (loss)

ASC 220, "Comprehensive Income", establishes standards for the reporting and display of comprehensive income (loss) and its components in the financial statements. As at 31 March 2011, the Company has items that represent a comprehensive loss and, therefore, has included a schedule of comprehensive loss in the interim consolidated financial statements.

Basic and diluted net loss per share

The Company computes net loss per share in accordance with ASC 260, "Earnings per Share". ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.

Stock-based compensation

Effective 1 January 2006, the Company adopted the provisions of ASC 718, "Compensation - Stock Compensation", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, the financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, "Equity-Based Payments to Non-Employees".

10


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

Changes in accounting policies

Effective 1 January 2011, the Company adopted Accounting Standards Update ("ASU") 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after 15 December 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after 15 December 2010. As ASU 2010-06 only requires enhanced disclosures, the adoption of this update did not have any material impacts on its interim consolidated financial statements.

Effective 1 January 2011, the Company adopted ASU No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements", which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events.  ASU No. 2010-09 is effective for fiscal quarters beginning after 15 December 2010.  The adoption of ASU No. 2010-09 did not have any material impacts on the Company's interim consolidated financial statements.

  1. Equipment

         

    Accumulated amortization

     

    Net Book Value

       

    Cost

     

    As at
    31 March
    2011

     

    As at
    30 June
    2010
    (Audited)

       

    $

     

    $

     

    $

     

    $

                     
    Office equipment  

    7,840

     

    6,074

     

    1,766

     

    2,197

    During the nine month period ended 31 March 2011, the total additions to equipment were $Nil (31 March 2010 - $Nil).
     

  2. Accounts Payable and Accrued Liabilities

    Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.
     

  3. Due to Related Parties and Related Party Transactions

As at 31 March 2011, the amount due to related parties includes $1,000 payable to a director of the Company (30 June 2010 - $1,000). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.

11


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

As at 31 March 2011, the amount due to related parties includes $50,058 payable to a company owned by a director of the Company or an officer of PharmaNet (30 June 2010 - $11,030). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.

As at 31 March 2011, the amount due to related parties includes $2,040 payable to a company owned by a director of the Company or an officer of PharmaNet (30 June 2010 - $679). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.

As at 31 March 2011, the amount due to related parties includes $1,834,582 payable to PharmaNet (30 June 2010 - $1,465,002). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.

During the nine month period ended 31 March 2011, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued consulting fees of $31,298 (31 March 2010 - $34,323, cumulative - $803,792) by the Company.

During the nine month period ended 31 March 2011, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued consulting fees of $8,686 (31 March 2010 - $Nil, cumulative - $8,686) by the Company.

During the nine month period ended 31 March 2011, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued office and miscellaneous expenses of $18,393 (31 March 2010 - $16,779, cumulative - $103,342) by the Company.

During the nine month period ended 31 March 2011, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued rental fees of $Nil (31 March 2010 - $Nil, cumulative - $12,987) by the Company.

Transactions comprising the amount due to PharmaNet are as follows:

   

For the
nine
month
period ended
31 March
2011

 

For the
year
ended
30 June
2010
(Audited)

   

$

 

$

         
Opening balance, beginning of period  

1,465,002

 

1,246,058

Funds transferred to the Company by PharmaNet  

60,350

 

144,667

Expenses paid by PharmaNet on behalf of the Company  

9,334

 

1,557

Foreign currency translation adjustment  

299,896

 

72,720

         
Balances as at 31 March 2011 and 30 June 2010  

1,834,582

 

1,465,002

The average amount due to PharmaNet for the nine month period ended 31 March 2011 was $1,650,581
(30 June 2010 - $1,540,053).

12


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

  1. Capital Stock

    Authorized

    The total authorized capital is 300,000,000 common shares with a par value of $0.001 per common share.

    Issued and outstanding

    The total issued and outstanding capital stock is 111,553,740 common shares with a par value of $0.001 per common share.
     

  2. Income Taxes

Income tax expense differs from the amount that would result from applying the federal income tax rate to earnings before income taxes. These differences result from the following items:

     

For the
nine month
period
ended
31 March
2011

 

For the
nine month
period
ended
31 March
2010

     

$

 

$

           
Loss before income taxes    

(83,854)

 

(80,659)

           
Federal income tax rates    

34.0%

 

34.0%

           
Income tax recovery based on the above rates    

(28,510)

 

(27,424)

           
Increase (decrease) due to:          
Difference between US and foreign tax rates    

2,400

 

2,226

Change in valuation allowance    

87,514

 

62,825

Foreign exchange and other    

(61,404)

 

(37,627)

           
Income tax expense    

-

 

-

13


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

The composition of the Company's deferred tax assets as at 31 March 2011 and 30 June 2010 are as follows:

   

As at
31 March
2011

 

As at
30 June
2010
(Audited)

   

$

 

$

         
Net income tax operating loss carryforward  

1,939,353

 

1,650,819

         
Deferred tax assets  

609,382

 

521,868

Less: Valuation allowance  

(609,382)

 

(521,868)

         
Net deferred tax asset  

-

 

-

The Company has non-capital loss carry-forwards of approximately $1,939,353 that may be available for tax purposes. The loss carry-forwards are all in respect to US and Australian operations and expire as follows:

2022

20,402

2023

46,992

2024

27,717

2025

14,187

2026

261,311

2027

111,155

2028

77,128

2029

57,881

2030

48,766

2031

23,858

No expiry

1,249,956

 
 

1,939,353

A full valuation allowance has been recorded against the potential deferred tax assets associated with all the loss carry-forwards as their utilization is not considered more likely than not at this time.

14


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

  1. Commitment

On 13 October 2005, the Company entered into the Distribution Agreement with MPLA (Note 1).

The basic terms of the Distribution Agreement are as follows:

  1. MPLA has granted exclusive distribution rights to the Company to distribute, market, promote, detail, advertise and sell certain "Licensed Products", as defined in the Distribution Agreement, with metallo-polypeptide analgesic as an active ingredient, in the United States (excluding its territories and possessions);
  2. The Company paid MPLA $1,000 upon the date of execution of the Distribution Agreement and is required to pay $100,000 six months from the date of execution of the Distribution Agreement or the date that any Licensed Product is available and ready for distribution and sale in commercial quantities in the United States under the terms of the Distribution Agreement (the "Commencement Date"), whichever occurs first;
  3. The Company is also required to pay MPLA a royalty of 5% as set out in the Distribution Agreement;
  4. MPLA will supply all Licensed Products to the Company under the Distribution Agreement;
  5. MPLA is responsible for obtaining all necessary regulatory approvals for the licensed product in the United States; and
  6. The Distribution Agreement is for a one year term from the Commencement Date and may be automatically extended by successive one-year periods, unless at least three months prior to the renewal date, as defined in the Distribution Agreement, either party advises the other party that it elects not to permit the extension of the term.

The $100,000 payment to MPLA according to the terms of the Distribution Agreement has not yet been made and the Company is currently renegotiating the terms of the Distribution Agreement (Note 11).

15


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011
  1. Supplemental Disclosures with Respect to Cash Flows
     

    For the
    period from
    the date of
    inception on
    14 July 2004
    to 31 March
    2011

    For the
    three
    month
    period
    ended
    31 March
    2011

    For the
    three
    month
    period
    ended
    31 March
    2010

    For the
    nine
    month
    period
    ended
    31 March
    2011

    For the
    nine
    month
    period
    ended
    31 March
    2010

       

    $

     

    $

     

    $

     

    $

     

    $

                         
    Cash paid during the year for interest  

    -

     

    -

     

    -

     

    -

     

    -

    Cash paid during the year for income taxes  

    -

     

    -

     

    -

     

    -

     

    -

    Common shares issued on acquisition of MPLA  

    16,236

     

    -

     

    -

     

    -

     

    -

    Amounts receivable acquired on recapitalization of the Company  

    2,226

     

    -

     

    -

     

    -

     

    -

    Accounts payable assumed on recapitalization of the Company  

    54,624

     

    -

     

    -

     

    -

     

    -

    Due to related party assumed on recapitalization of the Company  

    1,000

     

    -

     

    -

     

    -

     

    -

                         
  2. Segmented Information

    Details on a geographic basis as at 31 March 2011 are as follows:

    Australia

    U.S.A.

    Total

    $

    $

    $

    Assets

    448,767

    (431,087)

    17,680

    Loss for the period

    (59,996)

    (23,858)

    (83,854)

    Details on a geographic basis as at 30 June 2010 are as follows:

    Australia
    (Audited)

    U.S.A.
    (Audited)

    Total
    (Audited)

    $

    $

    $

    Assets

    405,152

    (393,500)

    11,652

    Loss for the year

    (68,454)

    (48,766)

    (117,220)

16


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

Details on a geographic basis as at 31 March 2010 are as follows:

Australia

U.S.A.

Total

$

$

$

Assets

400,536

(387,075)

13,461

Loss for the period

(55,646)

(25,013)

(80,659)

  1. Contingency

    The $100,000 payment to MPLA according to the terms of the Distribution Agreement has not yet been made and the Company is currently renegotiating the terms of the Distribution Agreement (Note 8).
     

  2. Financial Instruments

    The carrying value of financial assets and liabilities as at 31 March 2011 and 30 June 2010 are as follows:

    As at
    31 March
    2011

    As at
    30 June
    2010
    (Audited)

    $

    $

    Financial Assets
    Held-for-trading, measured at fair value

    Cash and cash equivalents

    10,594

    7,975

    Loans and receivables, measured at amortized cost

    Amounts receivable

    5,320

    1,480

    Financial Liabilities
    Other liabilities, measured at amortized cost

    Accounts payable and accrued liabilities

    6,899

    20,811

    Due to related parties

    1,887,680

    1,477,711

    Cash and cash equivalents would be Level 1 fair value.

    Credit Risk

    Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and amounts receivable. The Company deposits cash and cash equivalents with high credit quality financial institutions as determined by rating agencies and amounts receivable consist of Goods and Services Tax receivable of $5,320.

17


Molecular Pharmacology (USA) Limited
(A Development Stage Company)

Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2011

Currency Risk

The Company's subsidiary is located in Australia. As a result, a significant portion of the Company's assets, liabilities and expenses were denominated in the Australian dollar and were therefore subject to fluctuation in exchange rates.

The Company's objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash flows by holding most of its cash and cash equivalents in Australian dollars. The Company monitors and forecasts the values of net foreign currency cash flow and balance sheet exposures and from time to time could authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically hedge a portion of foreign currency fluctuations.

If the Australian dollar had weakened (strengthened) against the US dollar, with all other variables held constant, by 100 basis points (1%) at period end, the impact on net loss would have been $18,105 higher ($18,105 lower). Other comprehensive loss would have remained unchanged.

The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Interest Rate Risk

The Company has cash balances and no interest-bearing debt.  It is management's opinion that the Company is not exposed to significant interest risk arising from these financial instruments. 

Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The Company is reliant upon PharmaNet as its sole source of cash. The Company has received financing from PharmaNet in the past; however, there is no assurance that it will be able to do so in the future.

  1. Subsequent Event

There are no subsequent events for the period from the date of the nine month period ended 31 March 2011 to the date the interim consolidated financial statements were available to be issued on 12 April 2011.

18


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF MOLECULAR USA FOR THE THIRD QUARTER PERIOD ENDED MARCH 31, 2011 AND SHOULD BE READ IN CONJUNCTION WITH MOLECULAR USA'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO CONTAINED ELSEWHERE IN THE FORM 10-Q.

Our interim consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview

We were incorporated in the state of Nevada on May 1, 2002. Up until the fall of 2005, Molecular USA was in the business of mineral exploration and development of a mineral property.

On October 13, 2005, Molecular USA entered into a distribution and supply agreement with Molecular Pharmacology Pty. Ltd. (formerly Molecular Pharmacology Limited)("MPLA"). MPLA is incorporated under the laws of Australia and at the time was a wholly owned subsidiary company of PharmaNet Group Limited, an Australian company listed on the Australian Stock Exchange. Under the terms of the distribution and supply agreement, Molecular USA received the exclusive distribution rights to distribute, market, promote, detail, advertise and sell certain "Licensed Products", as defined in the agreement, with metallo-polypeptide analgesic as an active ingredient, in the United States (excluding its territories and possessions).

On May 9, 2006, Molecular USA announced that it has acquired 100% of the issued and outstanding share capital of MPLA. The transaction was originally announced by Molecular USA in a press release dated November 29, 2005 and was subsequently approved by a majority of the stockholders of the Company at a stockholders meeting held on April 21, 2006. As a result of the transaction, PharmaNet Group Limited ("PharmaNet"), the former parent company of MPLA, now controls approximately 79% of Molecular USA's issued and outstanding share capital. The transaction between the parties closed in escrow with an effective closing date of May 8, 2006. The business of MPLA is now the business of Molecular USA.

Our Current Business

Molecular USA through its wholly owned subsidiary MPLA is in the business of developing and commercializing a new analgesic and anti-inflammatory molecule known as Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable for the treatment of common every-day pain. As an analgesic and anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action and its topical or rub-on application.

The majority of over-the-counter anti-pain and anti-inflammatory products sold for the treatment of acute localized pain are based on non-steroidal anti-inflammatory drugs or NSAIDs. The majority of such products are slow acting and provide only mild pain relief.

The NSAID group has come under additional pressure and increasing medical alarm, as many drugs in this class have been found to set-back the recovery of certain conditions and treatments for which they were marketed. Moreover, NSAIDs are associated with severe gastro-intestinal side-effects. This has left a niche in an industry under-served by new products and ingredients.

MPLA's business strategy is to exploit the fast and locally acting, low side effects, and recovery-enhancing properties of its new drug group and to market this as a new ingredient, enabling pharmaceutical companies to develop and market effective and safer products suited to a broad range of common everyday pain.

19


Licensed Products

Molecular USA has exclusive distribution rights to distribute, market, promote, advertise and sell certain "Licensed Products", with metallo-polypeptide analgesic and anti-inflammatory activity as an active ingredient, in the United States (excluding its territories and possessions) from its wholly owned subsidiary company MPLA.

The Licensed Products include all products in all dosage forms, formulations, line extensions and package configurations using or otherwise incorporating any aspect or production method of metallo-polypeptide analgesic and anti-inflammatory activity as an active ingredient marketed by MPLA or its affiliates under the trade name Tripeptofen or any other trade names or trademarks used by MPLA relating to the product and any improvements to such formulations or dosages as may hereafter be distributed by MPLA or its affiliates in the territory during the term of the distribution and supply agreement between Molecular USA and MPLA for the topical application for human use only, and specifically excludes:

  • dermatological or cosmetic use, or tissue repair or tissue regeneration effect;
  • any use or application of the Licensed Product in non-human groups or species; and
  • Thermalife cream, presently owned by PharmaNet, the parent company of MPLA.

All Licensed Products must first obtain regulatory clearance in the United States before they may be marketed and sold by Molecular USA in that territory. Regulatory approval, commencement of the Master Drug File (MDF) and market approval are the focus of an ongoing program expected to continue over the next 18 to 24 months.

MPLA has an exclusive license from Cambridge Scientific Pty Ltd of Australia. This license is restricted to a "field of use" defined in the license documentation. Cambridge Scientific Pty Ltd. may grant other licenses to third parties outside the "field of use" the subject of the licenses granted to MPLA.

Patents & Trademarks

Molecular USA and its subsidiary MPLA, regard their intellectual property rights, such as copyrights, trademarks, trade secrets, practices and tools, as important to the success of their company. To protect their intellectual property rights, Molecular USA relies on a combination of patent, trademark and copyright law, trade secret protection, confidentiality agreements and other contractual arrangements with their employees, affiliates, clients, strategic partners, acquisition targets and others. Effective patent, trademark, copyright and trade secret protection may not be available in every country in which the combined company intends to offer its products. The steps taken by Molecular USA and MPLA to protect their intellectual property rights may not be adequate. Third parties may infringe or misappropriate the combined company's intellectual property rights or the combined company may not be able to detect unauthorized use and take appropriate steps to enforce its rights. In addition, other parties may assert infringement claims against the combined company. Such claims, regardless of merit, could result in the expenditure of significant financial and managerial resources. Further, an increasing number of patents are being issued to third parties regarding these processes. Future patents may limit the combined company's ability to use processes covered by such patents or expose the combined company to claims of patent infringement or otherwise require the combined company to seek to obtain related licenses. Such licenses may not be available on acceptable terms. The failure to obtain such licenses on acceptable terms could have a negative effect on the combined company's business.

To protect their intellectual property rights, MPLA relies on a combination of license and patent applications held by Cambridge Scientific Pty Ltd which includes "Analgesic and Anti-Inflammatory Composition" comprising USA patent application in completion plus PCT Provisional Specification having the same name designated as Serial No. 11/059580, Cytokine Mediation Composition PCT/AU2007/000554, Tissue Disruption Treatment And Composition For Use Thereof United States Of America Patent Application No. 11/218382 and International Patent Application No. PCT/AU2006/001288 and COX 2 Inhibitor Application Number WO/2006902207.

20


Marketing

Molecular USA plans to market its Licensed Products, when approved, through existing pharmaceutical distributors and by collaborative dealings with major companies active in the United States and Europe.

In addition, Molecular USA plans to explore opportunities for direct sales, out-licensing and the integration of the company's proprietary anti-inflammatory and analgesic components in products already distributed through various international markets.

Molecular USA expects that these activities may even help fund the development costs of the Licensed Products in the United States.

Manufacturing & Supply

Molecular USA and MPLA have no manufacturing facilities. MPLA is required to supply Molecular USA with all Licensed Products under the distribution and supply agreement entered into by the parties in October 2005. It is likely MPLA will enter into arrangements with various certified formulation and manufacturers (GMP) of the Licensed Products for clinical trial and sales purposes. These formulations and the manufacturing facilities must comply with regulations and current good laboratory practices or CGLPs, and current good manufacturing practices or GMPs, enforced by the Food and Drug Administration ("FDA").

Molecular USA has not entered into any supply agreements.

Competition

Molecular USA and MPLA compete in the segment of the pharmaceutical market that treats pain and inflammation, which is highly competitive. We face significant competition from most pharmaceutical companies as well as biotechnology companies that are also researching and selling products designed to treat pain and inflammation. Many of our competitors have significantly greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are active in neurological research, some in direct competition with us. These companies, as well as academic institutions, governmental agencies and other public and private organizations conducting research, also compete with Molecular USA and MPLA in recruiting and retaining highly qualified scientific personnel and consultants and may establish collaborative arrangements with competitors of Molecular USA.

Molecular USA's competition will be determined in part by the potential indications for which the MPLA's products are developed and ultimately approved by regulatory authorities.

Molecular USA knows of other companies and institutions dedicated to the development of anti-pain and anti-inflammatory pharmaceuticals similar to those being developed by MPLA and licensed to Molecular USA. Many of Molecular USA's competitors, existing or potential, have substantially greater financial and technical resources and therefore may be in a better position to develop, manufacture and market pharmaceutical products. Many of these competitors are also more experienced with regard to preclinical testing, human clinical trials and obtaining regulatory approvals. The current or future existence of competitive products may also adversely affect the marketability of Molecular USA's products.

21


Governmental Regulation

FDA Regulation. Pharmaceutical products are subject to extensive pre- and post-marketing regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record-keeping, advertising and promotion of the products under the Federal Food, Drug and Cosmetic Act and the Public Health Services Act, and by comparable agencies in most foreign countries. The process required by the FDA before a new drug may be marketed in the U.S. generally involves the following: completion of pre-clinical laboratory and animal testing; submission of an investigational new drug application, or IND, which must become effective before clinical trials may begin; performance of adequate and well controlled human clinical trials to establish the safety and efficacy of the proposed drug's intended use; and approval by the FDA of a New Drug Application, or NDA.

The activities required before a pharmaceutical agent may be marketed in the United States begin with pre-clinical testing. Pre-clinical tests include laboratory evaluation of potential products and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies and other information must be submitted to the FDA as part of an IND application, which must be reviewed and approved by the FDA before proposed clinical testing can begin. Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND application. Further, each clinical study must be conducted under the auspices of an independent institutional review board. The institutional review board will consider, among other things, ethical factors and the safety of human subjects.

Typically, human clinical trials are conducted in three phases that may overlap. In Phase 1, clinical trials are conducted with a small number of subjects to determine the early safety profile and pharmacology of the new therapy. In Phase 2, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase 3, large scale, multicenter, comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others.

The results of the pre-clinical and clinical testing, together with chemistry and manufacturing information, are submitted to the FDA in the form of an NDA for a pharmaceutical product in order to obtain approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approvals, request additional information or further research, or deny the application if it determines that the application does not satisfy its regulatory approval criteria. Patient-specific therapies may be subject to additional risk with respect to the regulatory review process. FDA approval for a pharmaceutical product may not be granted on a timely basis, if at all, or if granted may not cover all the clinical indications for which approval is sought or may contain significant limitations in the form of warnings, precautions or contraindications with respect to conditions of use.

Satisfaction of FDA premarket approval requirements for new drugs typically takes several years, and the actual time required may vary substantially based upon the type, complexity and novelty of the product or targeted disease. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials or with prior versions of products does not assure success in later stage clinical trials. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval.

Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition,

22


the FDA may require post-marketing studies, referred to as Phase 4 studies, to monitor the effect of an approved product, and may limit further marketing of the product based on the results of these post-market studies. The FDA has broad post-market regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, or withdraw approvals.

Facilities used to manufacture drugs are subject to periodic inspection by the FDA, Drug Enforcement Agency and other authorities where applicable, and must comply with the FDA's Current Good Manufacturing regulations. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product or voluntary recall of a product. Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote pharmaceuticals, which include, among other things, standards and regulations relating to direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA has very broad enforcement authority under the Federal Food, Drug and Cosmetic Act, and failure to abide by these regulations can result in penalties including the issuance of a warning letter directing the entity to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.

Research facilities are subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with the research in question. In each of these areas, as above, the government has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect upon us.

Other Government Regulations. In addition to laws and regulations enforced by the FDA, research of Molecular USA's products in the United States are subject to regulation under National Institutes of Health guidelines, as well as under the Controlled Substances Act, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state or local laws and regulations, as research and development of its products involves the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds.

In addition to regulations in the United States, Molecular USA's products are subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of its Licensed Products. Whether or not Molecular USA obtains FDA approval for a product, Molecular USA or its subsidiaries must obtain approval of a product by the comparable regulatory authorities of foreign countries before it can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, or the SOA. SOA imposes a wide variety of new requirements on both U.S. and non-U.S. companies, that file or are required to file periodic reports with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. Many of these new requirements will affect Molecular USA and its board of directors. For instance, under SOA Molecular USA is required to:

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  • form an audit committees in compliance with SOA;
  • have Molecular USA's chief executive officer and chief financial officer certify its financial statements;
  • ensure Molecular USA's directors and senior officers forfeit all bonuses or other incentive-based compensation and profits received from the sale of Molecular USA's securities in the twelve month period following initial publication of any of Molecular USA's financial statements that later require restatement;
  • disclose any off-balance sheet transactions as required by SOA;
  • prohibit all personal loans to directors and officers;
  • insure directors, officers and 10% holders file their Forms 4's within two days of a transaction;
  • adopt a code of ethics and file a Form 8-K whenever there is a change or waiver of this code; and
  • insure Molecular USA's auditor is independent as defined by SOA.

SOA has required us to review our current procedures and policies to determine whether they comply with the SOA and the new regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the SOA and will take whatever actions are necessary to ensure that we are in compliance.

Environmental Compliance

The nature of Molecular USA's and MPLA's business does not require special environmental or local government approval. Molecular USA and MPLA are compliant with all environmental laws. The cost of such compliance is minimal for the company.

Employees

Molecular USA currently has no employees and instead relies on outside contractors.

Immediate Business Plans

The Company, through its subsidiary MPLA, plans to continue to pursue the various levels of the international regulatory approval processes. Applications and product opportunities for Tripeptofen are believed to be broad and cover a range of commercial fields, each with distinct pre-market requirements. The international drug development team, global resources and local know-how will allow MPLA to seek the most time and cost effective regulatory pathways for each product and market sector.

On commercial development, MPLA will focus on consolidating the regulatory pathway work in order to prioritize the path to market. Jeff Edwards will work to set-out the strategies designed to maximize the multi-jurisdictional capabilities of MPLA's development teams.

Results of Operation

For the quarter ended March 31, 2011.

Revenues

REVENUE - Molecular USA has not generated any revenues for the quarter ended March 31, 2011, or since inception.

COMMON STOCK - Molecular USA has not issued any shares during the most recent quarter. As of the date April 21, 2011, Molecular USA has 111,553,740 common shares issued and outstanding.

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Expenses

SUMMARY - Total expenses were $83,854 for the nine month period ended March 31, 2011. Expenses had increased during this past nine month period as compared to the nine month period ended March 31, 2010 - $80,659. A total of $1,919,631 in expenses has been incurred by Molecular USA since inception on July 14, 2004 through to March 31, 2011. The increase in costs over this nine month period has occurred as the result of Molecular USA's wholly owned subsidiary increasing its office expenses and consulting fees. The costs can be subdivided into the following categories.

  1. Office Expenses and Rent: $19,596 in office expenses (for administrative costs) were incurred for the nine month period ended March 31, 2011, as compared to $18,356 for the nine month period ended March 31, 2010, while a total of $218,510 was incurred in the period from inception on July 14, 2004 to March 31, 2011. All contributed expenses are reported as contributed costs with a corresponding credit to additional paid-in capital.
  2. Consulting and Analysis Costs: Molecular USA relies on consultants and other third parties to conduct the majority of its research. For the nine month period ended March 31, 2011, $39,984 in consulting and analysis expenses were incurred as compared to $34,323 during the nine month period ended March 31, 2010. We have incurred a total of $1,210,758 in consulting and analyst fees since our inception on July 14, 2004 to March 31, 2011.
  3. Advertising and Promotion Fees: Molecular USA has spent no money in this area this year. During the nine month period ended March 31, 2011, we spent $Nil on advertising and public relations and $Nil for nine month period ended March 31, 2010. A total of $23,739 has been incurred in this area during the period from inception on July 14, 2004 to March 31, 2011.
  4. Professional Fees: Molecular USA incurred $22,729 in professional fees for the nine month period ended on March 31, 2011, as compared to $22,134 for the nine month period ended March 31, 2010. From inception to March 31, 2011, we have incurred a total of $291,563 professional fees mainly spent on legal and accounting matters.
  5. Travel Costs: Molecular USA incurred $Nil in travel costs for the nine month period ended March 31, 2011, as compared to $Nil for the nine month period ended March 31, 2010 and $104,249 has been incurred in the period from inception on July 14, 2004 to March 31, 2011.
  6. Salaries and Benefit Costs: Molecular USA and its subsidiary rely primarily on outside consultants and not salaried employees. As a result, Molecular USA incurred $Nil in salaries and benefits for the nine month period ended March 31, 2011 and $Nil in salaries and benefits during the nine month period ended March 31, 2010. For the period July 14, 2004 (inception) through March 31, 2011, Molecular USA has spent a total of $44,464 on salaries and benefits.

Molecular USA continues to carefully control its expenses and overall costs as it moves forward with the development of its new business plan. Molecular USA does not have any employees and engages personnel through outside consulting contracts or agreements or other such arrangements

Income Tax Provision: We have losses carried forward for income tax purpose to March 31, 2011. There are no current or deferred tax expenses for the nine month period ended March 31, 2011, due to our loss position. We have fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized as appropriate.

Liquidity and Capital Resources

During the nine month period ended March 31, 2011, Molecular USA satisfied its working capital needs by borrowing

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cash from its parent company PharmaNet. As March 31, 2011, the Company had cash and cash equivalents on hand in the amount of $10,594 ($7,975 - June 30, 2010) and current payable and accrued liabilities of $6,899 ($20,811 - June 30, 2010). As March 31, 2011, Molecular USA currently owes its parent company PharmaNet, $1,834,582, an additional $53,098 to other related parties, and $6,899 to non-related parties. Given the proposed business activities of Molecular USA and its subsidiary, management does not expect that the current level of cash on hand will be sufficient to fund its operation for the next twelve month period.

To achieve our goals and objectives for the next 12 months, we plan to raise additional capital through private placements of our equity securities, proceeds received from the exercise of outstanding options, future financing from our majority shareholder PharmaNet.

We plan to use any additional funds that we might be successful in raising for development, as well as for strategic acquisition of existing businesses that complement our market niche, and general working capital purposes.

If we are unsuccessful in obtaining new capital, our ability to seek and consummate strategic acquisitions to build our company internationally and to expand of our business development and marketing programs could be adversely affected.

Off-Balance Sheet Arrangement

As of March 31, 2011, Molecular USA did not have any off-balance sheet arrangements.

Research and Development

Since the acquisition of MPLA, Molecular USA has maintained MPLA's research and development program to:

  • Refine and prove-up its proprietary active ingredients and to commence the processes that will lead to the issue of a Master Drug File registration of its products;
  • Define the mode of action and potential of Tripeptofen in both in vitro, animal and human studies;
  • Gain Australian regulatory and marketing approval;
  • Gain European regulatory approval; and
  • Commence application for American regulatory approval.

MPLA is in the business of developing and commercializing a new analgesic and anti-inflammatory molecule known as Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable for the treatment of common every-day pain. As an analgesic and anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action and its topical or rub-on application.

During the period Molecular USA, continued to support MPLA and Cambridge Scientific Pty Ltd in the process of expanding the intellectual property portfolio. Further details on the scope of these activities is presented in the section.

Patents & Trademarks.

The first conditions targeted by MPLA will be the musculoskeletal injuries. The use of a B-SIM in these markets represents a new approach to one of the world's largest over the counter drug markets and includes indications such as joint inflammation, musculoskeletal pain, overuse and strain injuries, burns and even surgical and cosmetic procedures. MPLA's proprietary, industrially scalable peptide-ligand bond exchange (PLBE) B-SIM manufacturing process involves the disassociation of proteins, rather than the far more costly process of assembling B-SIMs one sequence at a time. The patent was lodged in the name of Cambridge Scientific Pty Ltd;

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however, Molecular USA holds the worldwide exclusive license to manufacture, commercialize, market and distribute topical anti-inflammatory and analgesic products based on the proprietary MPL-TL compound.

Molecular USA is still working on the projections regarding the necessary expenditure and time frame involved in pursuing this research and development program. Any such program will also be subject to Molecular USA raising the necessary funds to advance such a program.

Capital Expenditure Commitments

Capital expenditures for the nine month period ended March 31, 2011, amounted to $Nil. Molecular USA does not anticipate any significant purchase or sale of equipment over the next 12 months.

Recent Accounting Pronouncements

Effective January 1, 2011, the Company adopted Accounting Standards Update ("ASU") 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. As ASU 2010-06 only requires enhanced disclosures, the adoption of this update did not have any material impacts on its interim consolidated financial statements.

Effective January 1, 2011, the Company adopted ASU No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements", which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events.  ASU No. 2010-09 is effective for fiscal quarters beginning after December 15, 2010.  The adoption of ASU No. 2010-09 did not have any material impacts on the Company's interim consolidated financial statements.

The Accounting Standards Codification

In July 2009, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles". SFAS No. 168 will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EIFT) and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after 15 September 2009. The adoption of SFAS No. 168 did not have a material impact on the Company's interim consolidated financial statements.

Critical Accounting Policies and Estimates

Our quarterly interim consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies.

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We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our interim consolidated financial statements is critical to an understanding of our financials.

Stock-based compensation

Effective January 1, 2006, the Company adopted the provisions of ASC 718, "Compensation - Stock Compensation", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, the financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, "Equity-Based Payments to Non-Employees".


Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

Due to the short-term nature of our interest bearing assets, which consist primarily of cash and cash equivalents and no restricted cash, we believe that our exposure to interest rate market risk will not significantly affect our operations.

Foreign Currency Risk

Our head office and lab operations are based in Australia. Accordingly, we have been subject to exposure from adverse movements in foreign currency exchange rates. To date, the effect of changes in foreign currency exchange rates on revenue and operating expenses has not been material as we have had no revenue and limited operations. Operating expenses incurred by our foreign subsidiaries were denominated in local currencies. We have not used financial instruments to hedge these operating expenses.


Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal control over financial reporting

Management's annual report on internal control over financial reporting

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Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting should include those policies and procedures that:

  • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
  • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and
  • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of our internal control over financial reporting as of March 31, 2011. Management's assessment took into consideration the size and complexity of the company and was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting-Guidance for Smaller Public Companies. In performing the assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2011.

Attestation report of the registered public accounting firm

This quarterly report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this quarterly report.

Changes in internal control over financial reporting

There were no changes in our internal controls that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls.

Changes in Internal Controls

Based on the evaluation as of March 31, 2011, Jeffrey Edwards, our President, Chief Executive Officer, and Chief Financial Officer has concluded that there were no significant changes in our internal controls over financial reporting or in any other areas that could significantly affect our internal controls subsequent to the date of his most recent evaluation, including corrective actions with regard to significant deficiencies and material weaknesses.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
 

Item 1A. Risk Factors.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sale of Unregistered Securities

Not Applicable.

Use of Proceeds from Unregistered Securities

Not Applicable.

Item 3. Defaults Upon Senior Securities.

Not Applicable.


Item 4. (Removed and Reserved).

Not Applicable.
 

Item 5. Other Information.

No items to disclose.

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Item 6. Exhibits.

Exhibit
Number

Exhibit Title
3.1 Articles of Incorporation as Amended (incorporated by reference to exhibit 3.1 to our Form 10-SB Registration Statement filed on January 23, 2003).
3.2 Article of Amendment dated August 29, 2005
3.3 Bylaws as Amended (incorporated by reference to exhibit 3.2 to our Form 10-SB Registration Statement filed on January 23, 2003).
31.1 Certificate of CEO as Required by Rule 13a-14(a)/15d-14
31.2 Certificate of CFO as Required by Rule 13a-14(a)/15d-14
32.1 Certificate of CEO and CFO as Required by Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code

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.

April 21, 2011.

  MOLECULAR PHARMACOLOGY (USA) LIMITED
  BY:   
/s/ Jeffrey Edwards 
    Jeffrey Edwards, President, Chief Executive Officer, Chief Financial Officer and a Member of the Board of Directors 
   
   

 

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