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EX-31.2 - EXHIBIT 31.2 - HedgePath Pharmaceuticals, Inc.d328204dex312.htm
EX-23.1 - EXHIBIT 23.1 - HedgePath Pharmaceuticals, Inc.d328204dex231.htm
EX-32.2 - EXHIBIT 32.2 - HedgePath Pharmaceuticals, Inc.d328204dex322.htm
EX-32.1 - EXHIBIT 32.1 - HedgePath Pharmaceuticals, Inc.d328204dex321.htm
EX-31.1 - EXHIBIT 31.1 - HedgePath Pharmaceuticals, Inc.d328204dex311.htm
EX-13.1 - EXHIBIT 13.1 - HedgePath Pharmaceuticals, Inc.d328204dex131.htm

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number: 001-13467

 

 

COMMONWEALTH BIOTECHNOLOGIES, INC.

(Name of small business issuer in its charter)

 

Virginia   54-1641133

(State or other jurisdiction of

incorporation or organization)

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

718 Grove Road

Midlothian, Virginia 23114

(Address of principal executive offices) (Zip Code)

Issuer’s telephone number: (804) 464-1601

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Common Stock, without par value per share   OTC Markets Group Inc. – OTC Pink
(Title of Class)   (Name of Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Exchange Act: None

 

 

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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   (Do not check if a smaller reporting company)    x  Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the shares of common stock, without par value (“Common Stock”), of the registrant held by non-affiliates on December 30, 2011 was approximately $165,000 based on the closing sales price of the shares of $0.013 per share, as reported on the NASDAQ Capital Market on December 30, 2011, multiplied by the number of shares outstanding on that date (12,660,504).

As of April 12, 2012, there were 12,660,504 shares of Common Stock outstanding.

 

 

 


PART I

 

Item 1. Business.

Overview

Commonwealth Biotechnologies, Inc. (the “Company” or “CBI”) was a specialized life sciences outsourcing business that offered cutting-edge expertise and a complete array of Peptide-based discovery chemistry and biology products and services through Mimotopes Pty Limited (“Mimotopes”), a wholly-owned subsidiary of CBI. Through November 2, 2009, CBI also provided services through CBI Services and Fairfax Identity Laboratories (“FIL”), two divisions that were sold to Bostwick Laboratories, Inc. (“Bostwick”) effective November 2, 2009.

On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Currently, the Company has no operating units or subsidiaries.

In December 2011, the Bankruptcy court approved the sale (the “Building Sale”) at auction of land, office and laboratory space located at 601 Biotech Drive in Chesterfield County, Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.

In addition, the Company is actively seeking to execute a merger and acquisition (“M&A”) transaction with a private Company seeking access to the public financial markets.

Mimotopes is shown in the Consolidated Financial Statements as discontinued operations.

Going Concern

The accompanying financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in the normal course of business. If the Company is unable to improve operating results and meet its debt obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Net losses were $227,888 and $1,004,270 for the years ended December 31, 2011 and 2010, respectively. As of result of the Building Sale and the Sale of Mimotopes during 2011, the Company has no sources of revenue. Consequently, there can be no assurance by management that the Company’s financial outlook will improve or that an M&A partner will be obtained in a timely manner.

The Company generated positive cash flows of $1,222,056 in 2011, compared to a decrease in cash of $454,748 in 2010. Net working capital as of December 31, 2011 and December 31, 2010 was $836,081 and $1,350,549, respectively.

 

2


The Company had $1,321,968 and $99,912 in cash and cash equivalents at December 31, 2011 and 2010, respectively. This increase was primarily the result of the net proceeds received on the sale of Mimotopes and the Building Sale during 2011.

Cash provided by (used in) operating activities was $67,533 and $(173,807) in 2011 and 2010, respectively. This change was primarily the result of the sale of Mimotopes in the second quarter of 2011 and the Building Sale on December 29, 2011. As a result of these sales, the Company has no operating subsidiaries or an ongoing source of revenue. These decreases in operating cash flows were partially offset by the increase in accrued expenses relating primarily to accrued legal fees resulting from the Company’s bankruptcy filing in January 2011.

Cash provided by investing activities was $1,474,837 and $0 in 2011 and 2010, respectively. The primary investing activities in 2011 were proceeds from the Building Sale and the sale of Mimotopes.

Cash used by financing activities for 2011 and 2010 was $320,314 and $280,941, respectively. This change is primarily payments on the mortgage prior to the Building Sale.

On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.

In December 2011, the Bankruptcy court approved the sale (the “Building Sale”) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County , Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.

In addition, the Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets.

Mimotopes is shown in the Consolidated Statement of Operations as discontinued operations.

A continued lack of adequate cash resulting from the Company’s inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations.

There can be no assurance that any funds required during the next twelve months or thereafter can be generated. Nor can there be any assurance that funds will be available from external sources, such as debt or equity financing or other potential sources, if they cannot be generated internally. Lastly, there can be no assurance that the Company will be able to secure a suitable M&A partner.

During the last year, the Company’s business has undergone substantial changes in relation to size, scale and scope of activities. The Company currently has no operating units or subsidiaries.

As of result of the Building Sale and Sale of Mimotopes during 2011, the Company has no sources of revenue and must fund administrative expenses from cash on hand.

As a result of the foregoing circumstances, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

The Company’s independent auditors have included a paragraph emphasizing “going concern” in their report on the 2011 financial statements. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

3


Change in Operating Structure

Melbourne-based Mimotopes was acquired by CBI in 2007. It provides world class research grade peptide synthesis and analysis. Mimotopes also has several proprietary technologies for the preparation of peptide and small molecule libraries for drug discovery and for epitope analysis in support of its clients’ vaccine development programs. Mimotopes also has a formal peptide alliance with Genzyme Pharmaceuticals, a world class provider of GMP pharmaceutical grade peptides and also enjoys a strong relationship with GL Biochem, a Shanghai-based peptide synthesis and reagent company.

On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.

In December 2011, the Bankruptcy court approved the sale (the “Building Sale”) at auction of land, office and laboratory space located at 601 Biotech Drive, Chesterfield County , Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.

Strategy Going Forward

The Company currently has no operating units or subsidiaries. The Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets. The Company plans to complete this process while under the protection of the Bankruptcy Court. Until a M&A transation is completed, administrative expenses will be funded from cash on hand.

Operations

The Company currently has no operating units or subsidiaries.

Intellectual Property

Prior to the asset sale to Bostwick, CBI was primarily focused on fee-for-service offerings. In addition, CBI developed various intellectual properties that had resulted in U.S. and international patents. Most of these were assigned to Bostwick as part of the asset sale. However, the Company retained one dormant patent application in the vaccine development area. More specifically, this dormant patent application relates to formulations, methods and kits for minimizing or preventing the reversion of attenuated microorganisms, such as viruses, to their respective wild types or other infectious forms, and for the design and evaluation of vaccines and vaccine formulations that minimize or eliminate such disadvantageous reversions. Management believes this technology could be attractive to potential M&A partners.

CBI takes appropriate steps to protect its intellectual property rights and those of its customers. The Company’s practice is to require its employees and consultants to execute non-disclosure and proprietary rights agreements upon commencement of employment or consulting arrangements with the Company. These agreements require that all proprietary information disclosed to the individual by CBI or its customers remain confidential.

Employees

The administrative staff in Richmond consists of two full-time employees (CEO and Senior Staff Accountant) and a consultant who serves, on a part-time basis, as Acting Principal Financial Officer.

 

4


U.S. Government Regulation

CBI complies with existing federal, state and local laws and regulations and does not anticipate that continuing compliance will have any material effect upon its capital expenditures, earnings or competitive position.

Investor Relations

The Company is committed to expanding its investor relations activity through appropriate forums, such as analyst conferences and forums.

 

Item 1A. Risk Factors.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

 

Item 1B. Unresolved Staff Comments.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

 

Item 2. Properties.

Facilities

The Company has no operating units or subsidiaries. The Company currently leases office space which serves as the Company’s administrative headquarters. The location of this leased space is as follows:

718 Grove Road

Midlothian, Virginia 23114

Month-to-month lease – Monthly Payments of $1,236

 

Item 3. Legal Proceedings.

On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code.

On February 10, 2012, the Company filed a claim against Fornova in Bankruptcy Court. The Company is disputing Fornova’s claim that it is owed $500,000 plus accrued interest relating to a convertible note that was originated in 2007. The Company is seeking to have the claim disallowed in its entirety or, in the alternative, reclassified as an equity investment. As of the date of this filing, the outcome of this claim cannot be estimated. Principal and accrued interest on this note are shown in the consolidated balance sheet at December 31, 2011 as debt plus accrued interest.

 

Item 4. (Removed and Reserved)

 

5


PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The information is as set forth on page 1 of the Company’s 2011 Annual Report to Shareholders under the caption “Stockholder Matters”, filed with the SEC as Exhibit 13.1 hereto.

Recent Sales of Unregistered Securities

All sales of securities of the Company during the period covered by this report have been previously reported on Form 8-K.

Equity Compensation Plan

The following table provides information about CBI’s equity compensation plans as of December 31, 2010:

 

Plan Category   

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

(a)

    

Weighted-average

exercise price of
outstanding
options, warrants
and rights

(b)

    

Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))

(c)

 

Equity compensation plans approved by security holders

     645,443       $ 1.16         644,597   

Equity compensation plans not approved by security holders

     0         0         0   

Total

     645,443       $ 1.16         644,597   

 

Item 6. Selected Financial Data.

The information is as set forth on page 2 Company’s 2011 Annual Report to Shareholders under the caption “Selected Financial Data”, filed with the SEC as Exhibit 13.1 hereto.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information is as set forth on pages 3 through 9 of the Company’s 2011 Annual Report to Shareholders under the caption “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” respectively, filed with the SEC as Exhibit 13.1 hereto.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

 

6


Item 8. Financial Statements and Supplementary Data.

The Company’s financial statements and the related notes thereto, together with the report of Witt Mares, PLC for 2011 and 2010 are set forth on pages 12 through 38 of the Company’s 2011 Annual Report to Shareholders, filed with the SEC as Exhibit 13.1 hereto.

 

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

CBI maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. CBI evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-14(c) and Rule 15a-14(c) under the Securities Exchange Act of 1934) under the supervision and with the participation of management, including the Company’s Principal Executive Officer and Principal Financial Officer, within 90 days prior to the filing date of this report. Based upon that evaluation, the Company’s Principal Executive and Financial Officers concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

Management’s Annual Report on Internal Control Over Financial Reporting

CBI’s 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 Securities and Exchange Act of 1934, as amended. CBI’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of CBI’s assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that CBI’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of CBI’s assets that could have a material effect on the financial statements.

CBI’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2011. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this assessment, CBI’s management identified deficiencies in the design or operation of its internal controls that resulted in a material weakness. The material weakness was due to insufficient resources in the accounting and finance department resulting in ineffective review and preparation of its annual report, including an inability to account properly for complex transactions.

The annual report does not include an attestation report of CBI’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 rules of the SEC that permit CBI to provide only management’s report in the annual report.

 

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Item 9B. Other Information.

The Company has previously reported all information required to be disclosed during the fourth quarter of 2011 in a report on Form 8-K.

 

8


PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

Executive Officers, Directors and Key Employees

The following individuals constitute our board of directors and executive management:

 

Name    Age      Position   

Appointment Year

(Separation Year)

Richard J. Freer, Ph.D.

     67       Chief Executive Officer and Director    1992

James D. Causey

     57       Director    2004

Bill Guo

     46       Director    2008

Paul D’Sylva, Ph.D.

     40       Director    2007

Samuel P. Sears, Jr.

     65       Director    2001

Eric Tao

     43       Director    2009

Maria Song, M.D., Ph.D.

     41       Director    2009

Bill Guo MSc, MBA. Mr. Guo is the Chairman and founder of VenturePharm Group, a leading full service pharmaceutical company in Asia, and led its flagship VenturePharm Laboratories (“HK.8225”) to become the first clinical research organization listed on the Hong Kong Stock Exchange. He has over 10 years global pharmaceutical industry experience from researcher to senior executive in North America at Johnson & Johnson, Novapharm and VenturePharm Canada. He has over 9 years of experience as an entrepreneur in China. Mr. Guo was a Ph.D. candidate in the Department of Pharmaceutics and was awarded an MSc degree in industrial pharmacy from the University of Toronto, Toronto, Canada, an MBA program certificate from Herriot Watt University, Toronto, Canada, and an Executive education certificate from Judge Business School, University of Cambridge, UK. Fortune magazine recognized him as one of the top emerging entrepreneurs in China. He was also recipient of various rewards: 2005 National Hero awarded by the State Council of China; one of the ten best management elites in China in 2004; one of the ten most influential individuals in business in China, 2005; distinguished entrepreneur awarded from overseas by government of China, 2005; sole winner of Youth Chinese Entrepreneur Award organized by Asia Business Week in 2003 and 2005 Entrepreneurs and innovation by BCC (British Chamber of Commerce). Mr. Guo’s term as a director runs through 2011, or until his successor is appointed. Mr. Guo has been chosen as a director because of his leadership skills and his experience in the global pharmaceutical industry.

Richard J. Freer, Ph.D. Since co-founding CBI in 1992, Dr. Freer has served as a director of CBI and, until 2008, as the Chairman of the Board of CBI. He assumed the role of Chief Operating Officer in 2002 and Chief Executive Officer in 2011. From 1975 until 1997, Dr. Freer was employed in the Department of Pharmacology and Toxicology at Virginia Commonwealth University (“VCU”), first as an Associate Professor and then a full Professor. In addition, from 1988 through 1995, Dr. Freer was first Director and then Chair of the Biomedical Engineering Program. From 1996 through 1997, Dr. Freer served as Professor in VCU’s Department of Biochemistry and Molecular Biophysics. Dr. Freer received a bachelor’s degree in Biology from Marist College and a doctorate degree in Pharmacology from Columbia University. Dr. Freer’s term as a director runs through 2012, or until his successor is appointed. Dr. Freer has been chosen as a director because he is one of the founders of our company and he has extensive knowledge of our operations and the industry in which we operate.

James D. Causey. Since 2004, Mr. Causey has served as Vice President of Trader Publishing Company, a nationwide network of classified publications. From 2003 until 2004, Mr. Causey served as a consultant in the publishing industry. From 1999 to 2003, Mr. Causey served as the chief executive officer of Sabot Publishing, a Richmond, Virginia based publisher of leading special interest publications. Mr. Causey received a master’s degree in business from the University of Maryland. Mr. Causey’s term as a director runs through 2010, or until his successor is appointed. Mr. Causey has been chosen as a director because of his leadership skills and his executive officer experience at other companies.

Paul D’ Sylva, Ph.D. Dr. D’Sylva assumed the position of Chief Executive Officer of CBI in January 2007 and served in that position until 2009. Dr. D’Sylva served previously as the co-founder and Managing Director of PharmAust Limited. From 2001 to 2005, Dr. D’Sylva served as Director of Research and Development at Murdoch University.

 

9


Dr. D’Sylva has a strong track record in raising investment capital for early stage business ventures and has led the development of a number of successful research joint-venture institutes, companies and funds. During his tenure at Murdoch University, he founded and directed the AU$12.5m Investment Fund – Murdoch Westscheme Enterprise Partnership, founded and directed the commercial consulting company MurdochLink Pty Ltd, and was involved in the establishment and governance of a number of key research centers and institutes. He sits on the advisory board of the Centre for Computational Comparative Genomics, a joint-venture research institute in Bioinformatics based at Murdoch University and retains a non-executive role at Murdoch University as an Adjunct Professor of Business. He received a Ph.D. from the University of Arizona in public finance and econometrics. Dr. D’Sylva’s term as a director runs through 2010, or until his successor is appointed. Dr. D’sylva has been chosen as a director because of his experience in our industry and his knowledge of the Australian market.

Samuel P. Sears, Jr. Since March 1999, Mr. Sears has been in private practice as an attorney and has been providing business consulting services. From December 1998 through February 1999, Mr. Sears served as Vice Chairman of American Prescription Providers, Inc., a specialty pharmacy network offering prescriptions and nutriceuticals to patients with chronic diseases. From 1995 through May 1998, Mr. Sears was Chief Executive Officer and Chairman to Star Scientific, Inc., a tobacco company focusing on demonstrating the commercial viability of potentially less harmful tobacco products. Mr. Sears is a graduate of Harvard College and Boston College Law School. Mr. Sears is currently managing partner of the law firm of Cetrullo and Capone, PC, Boston, MA. Mr. Sears’ term as a director runs through 2011, or until his successor is appointed. Mr. Sears has been chosen a director because we believe he can draw on his years of legal experience to provide the Company with beneficial guidance.

Eric V Tao. On January 23, 2009, CBI appointed Mr. Eric Tao, Director and Chief Investment Officer of AGI Capital Group, Inc., to CBI’s Board of Directors. Mr. Tao graduated from Pomona College in 1989 and the University of California Hastings College of Law in 1995. In addition to his position with AGI Capital Group, Inc., Mr. Tao also serves as a member of the Board of Directors of Avant Housing, Hukilau, LLC, the Hawaii Chamber of Commerce of Northern California and the San Francisco YB Community Benefit District. Mr. Tao’s term as a director runs through 2012, or until his successor is appointed. Mr. Tao has been chosen as a director because of his experience in guiding other small companies as a director.

Maria Song, M.D., Ph.D. On March 27, 2009, CBI appointed Dr. Maria Song, Chairman of VPS Global, to CBI’s Board of Directors. Dr. Song previously served as the General Manager of a Sino-Hong Kong joint venture pharmaceutical company. Dr. Song has over fifteen years of experience in drug development and has conducted a number of multi-center clinical trials, local registration trials, and Phase IV studies for a variety of international clients. Dr. Song is also an expert on regulatory submissions to the Chinese State Food and Drug Administration (“SFDA”) and often advises the SFDA on policy matters. Dr. Song received her M.D. and Ph.D. from the University of Peking Union Medical College. Dr. Song also received a Master of Economics degree from the Central University of Finance and Economics. Dr. Song’s term as a director runs through 2012, or until her successor is appointed. Dr. Song has been chosen as a director because we believe her years of experience in the drug development industry will be beneficial to our company.

Audit Committee

The members of the Audit Committee as of December 31, 2011 were Samuel P. Sears, Jr., James D. Causey, and Eric V. Tao. Dr. McAfee resigned from CBI’s Board of Directors (and, consequently, the Audit Committee) on January 21, 2009. Mr. Tao replaced Dr. McAfee on the Audit Committee. Each member of the Audit Committee is independent under the rules of the SEC and the NASDAQ Capital Market. The Board of Directors has determined that all members of the Audit Committee are independent and “audit committee financial experts” as such term is defined in Item 401(h)(2) of Regulation S-K promulgated under the Exchange Act.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the Securities and Exchange Commission reports of ownership and changes in beneficial ownership of the Company’s common stock. Directors, executive officers and greater than ten percent shareholders are required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of these reports furnished to the Company or written representations that no other reports were required, we believe that all reports were timely made.

 

10


Code of Conduct

CBI has adopted a Code of Conduct, which is applicable to all directors, officers and associates of the Company, including the principal executive officer and the principal financial and accounting officer.

 

Item 11. Executive Compensation.

The following table sets forth the compensation paid to or earned by (i) the Chief Executive Officer, and (ii) CBI’s two other most highly compensated executive officers (collectively, the “Named Executive Officers”) during each of CBI’s last two fiscal years:

 

Name and principal

position(1)

   Year      Salary
($)(2)
     Bonus
($)
     Stock
Awards
($)(1)
     Option
Awards
($)(1)
     All other
Compensation
($)
     Total ($)  

Richard J. Freer, Ph.D.

     2011       $ 153,976         —           —           —           —         $ 153,976   

COO

     2010       $ 104,915         —         $ 19,600         —           —         $ 124,515   

 

(1) 

Amounts reflect the dollar value on grant date for the fiscal years ended December 31, 2011 and 2010, in accordance with ASC Topic 718.

(2) 

For 2011, salary is comprised of $29,531 in gross W-2 wages and $124,445 in accrued wages earned but not paid during 2011.

Director Compensation

The following table shows all cash compensation paid to CBI’s directors in 2011. Directors did not receive any compensation other than as stated in the chart below.

 

Name

   Fees Earned or Paid in Cash      Options Awards      Total  

Maria Song, Ph.D.

   $ 8,500         —         $ 8,500   

Eric Tao

   $ 8,500         —         $ 8,500   

James D. Causey

   $ 8,500         —         $ 8,500   

Samuel P. Sears, Jr.

   $ 8,500         —         $ 8,500   

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information concerning the value of outstanding equity awards held by the Named Executive Officers as of December 31, 2011.

 

Name

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   Option Exercise
Price ($)
     Option
Expiration Date
     Number of
Shares or Units
of Stock

That Have Not
Vested (#)
     Market Value of
Shares or Units
of Stock That
Have Not

Vested ($)
 

Richard J. Freer, Ph.D.

     7,069          $ 3.75         12/31/2011         —           —     
     26,500          $ 3.85         11/09/2012         
     7,885          $ 4.80         01/03/2018         
     10,000          $ 3.30         11/13/2013         
     10,000          $ 6.00         01/01/2017         
     20,000          $ 4.35         01/01/2017         

 

11


Employment Agreements

RICHARD J. FREER, PH.D.

As of January 1, 2008, CBI entered into an amended employment agreement with Dr. Freer pursuant to which Dr. Freer will serve as Chairman of the Board and Chief Operating Officer. This agreement expired on December 31, 2011. The employment agreement provides Dr. Freer with:

 

   

a base salary of at least $202,500, with any amount above such minimum level to be determined by the Compensation Committee and ratfied by the Board of Directors;

 

   

a grant, on January 1, 2008 and annually on January 1 for each subsequent year of his contract, of 35,000 restricted shares of common stock;

 

   

an annual bonus to be based upon financial performance criteria determined by the Board of Directors. Assuming full satisfaction of such financial performance criteria, the maximum cash bonus payable shall not be less than $25,000 per year;

 

   

a number of annual incentive stock option and restricted stock grants to be based upon financial performance criteria determined by the Board of Directors. Assuming full satisfaction of such financial performance criteria, Dr. Freer is eligible to receive incentive stock options to purchase an aggregate of 10,000 Shares of common stock and 5,000 Shares of restricted common stock on a yearly basis. Such options and restricted Shares shall vest in three equal yearly installments beginning on the date that is one year following the date of grant;

 

   

a grant of 50,000 Shares of restricted common stock on June 27, 2005 and a grant of 50,000 Shares of restricted common stock on January 1, 2006, with such Shares vesting in quarterly installments of 10,000 Shares beginning on January 1, 2010; and

 

   

participation in any and all employee benefit plans.

Under the employment agreement, upon Dr. Freer’s death, CBI shall pay Dr. Freer’s beneficiary an amount equal to (i) one month’s salary, and (ii) a cash, option and restricted stock bonus with respect to that portion of our company’s fiscal year completed prior to Dr. Freer’s death. In addition, upon Dr. Freer’s death, all unvested, restricted Shares of CBI’s stock held by Dr. Freer shall immediately vest.

If CBI terminates Dr. Freer’s employment for any reason or if Dr. Freer terminates his employment with or without “Good Reason,” as such terms are defined in the employment agreement, Dr. Freer is entitled to (a) a lump cash sum equal to the aggregate amount of one year’s salary and (b) medical, dental and life insurance benefits for the same 12 month period.

To the extent a “Change-of-Control,” as such term is defined in the employment agreement, occurs during the term of the agreement, Dr. Freer, at his sole option, may deem such event to be a termination of employment without Cause. As a result, Dr. Freer would be entitled to receive (a) a lump cash sum equal to the aggregate amount of two years’ salary and (b) medical, dental and life insurance benefits for the same 24 month period. In addition, all unvested options and Shares of restricted stock held by Dr. Freer will immediately vest.

To the extent Dr. Freer becomes “Disabled,” as such term is defined in the employment agreement, during the term of the agreement, CBI shall continue pay him his full salary and benefits until he shall become eligible for disability income under our disability plan. While receiving disability income payments, CBI shall pay Dr. Freer the difference between such payments and his salary (without bonus).

The agreement contains a non-competition provision, which prohibits Dr. Freer from competing with CBI or soliciting its employees under certain circumstances. A court may, however, determine that this non-competition provision is unenforceable or only partially enforceable.

 

12


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

This table below contains certain information about the beneficial owners known to CBI as of April 12, 2012 of more than 5% of the Company’s outstanding shares of common stock.

 

Name and Address of

Beneficial Owner

   Shares of
Common Stock
Beneficially Owned
     Percent of Class  

VenturePharm Laboratories, Ltd (1)

No 3 Jinzhuang Sijiqing

Haidian District 100089

China

     2,613,426         21.61

Richard J. Freer, Ph.D.

718 Grove Road Midlothian, VA 23114

     2,353,233         18.58

 

(1) 

As of August 19, 2008, VPL acquired the outstanding stock from PharmAust Chemistry LTD, an Australian Limited company. Total shares transferred were 2,150,000. On July, 7, 2008, the Company completed a sale of stock subject to the $1 million put right with VPL. Under the terms of the put agreement, the Company sold 463,426 shares of common stock to VPL at a price of $2.15 per share. In consideration of the sale of shares, the Company received $500,000 in cash and 2,229,664 of VPL’s ordinary shares.

This table demonstrates the alignment of the interests of CBI’s directors and executive officers with the interests of CBI’s shareholders by showing how much of CBI’s outstanding common stock is beneficially owned by CBI’s directors, each of the Named Executive Officers and all directors and Named Executive Officers as a group as of April 12, 2012. Except as otherwise noted, the beneficial owners listed have sole voting and investment power with respect to the shares shown.

 

Name and Address of

Beneficial Owner

   Amount and Nature of
Beneficial Ownership
     Percentage
of Class (%)(1)
 

Paul D’Sylva, Ph.D.(2)

     225,000         1.78   

Richard J. Freer, Ph.D.(3)

     2,110,974         17.08   

Samuel P. Sears, Jr.(4)

     366,362         3.17   

James D. Causey(5)

     355,333         3.00   

Bill Guo(6)

     2,613,426         20.64   

Maria Song, Ph.D. (8)

     —           *   

Eric V. Tao(7)

     21,000         *   

All directors and executive officers as a group (10 persons)(11)

     3,581,373         36.15

 

* Less than 1%.
(1) 

Applicable percentages are based on 12,660,504 shares outstanding on April 12, 2012. Also includes shares of common stock subject to options and warrants that may be exercised within 60 days of March 31, 2011. Such shares are deemed to be outstanding for the purposes of computing the percentage ownership of the individual holding such shares, but are not deemed outstanding for purposes of computing the percentage of any other person shown in the table. This table is based upon information supplied by officers, directors, and principal shareholders and Schedule 13Gs filed with the SEC. Unless indicated in the footnotes to this table and subject to community property laws where applicable, CBI believes that each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

(2) 

Dr. D’Sylva’s address is 718 Grove Road, Midlothian, Virginia 23114.

(3) 

Dr. Freer’s address is 718 Grove Road, Midlothian, Virginia 23114. The number of shares deemed to be beneficially held by Dr. Freer includes currently exercisable options to purchase an aggregate of 51,454 shares of common stock.

 

13


(4) 

Mr. Sears’ address is 718 Grove Road, Midlothian, Virginia 23114. The number of shares deemed to be beneficially held by Mr. Sears includes currently exercisable options to purchase an aggregate of 35,029 shares of common stock.

(5) 

Mr. Causey’s address is 718 Grove Road, Midlothian, Virginia 23114. The number of shares deemed to be beneficially held by Mr. Causey includes currently exercisable options to purchase an aggregate of 24,000 shares of common stock.

(6)

Mr. Guo’s address is 718 Grove Road, Midlothian, Virginia 23114. The number of shares deemed to be beneficially owned by Mr. Guo includes 2,613,426 shares held by VPL over which Mr. Guo exercises voting power.

(7) 

Mr. Tao’s address is 718 Grove Road, Midlothian, Virginia 23114.

(8) 

Ms. Song’s address is 718 Grove Road, Midlothian, Virginia 23114.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Director Independence

CBI believes that it meets the independence standards adopted by the Securities and Exchange Commission and the OTC Market Group, Inc. (OTC Pink).

Related Transactions

On August 19, 2008, VPL acquired all of the Company’s common stock held by PharmAust Chemistry Ltd. Concurrently therewith, the Company and VPL entered into a put agreement, exercised on July 7, 2008, pursuant to which the Company sold 463,426 shares of common stock to VPL at a price of $2.15 per share.

 

Item 14. Principal Accountant Fees and Services.

Fees Paid To Independent Registered Public Accounting Firm

Audit Fees

For fiscal 2011, CBI paid Witt Mares, PLC fees of $37,000, for the annual audit of our financial statements and fees of $21,678 for the quarterly review of financial statements included in our Forms 10-Q.

For fiscal 2010, CBI paid Witt Mares, PLC fees of $65,000, for the annual audit of our financial statements and fees of $15,000 for the quarterly review of financial statements included in our Forms 10-Q.

Audit Related Fees

For fiscal 2011, CBI did not pay any fees to Witt Mares, PLC for audit-related services.

For fiscal 2010, CBI did not pay any fees to Witt Mares, PLC for audit-related services.

Tax Fees

For fiscal 2011, CBI paid Witt Mares, PLC $4,000 for tax services.

For fiscal 2010, CBI paid Witt Mares, PLC $4,000 for tax services.

 

14


PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

See “Exhibit Index.”

 

15


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Commonwealth Biotechnologies, Inc.
By:   /s/    RICHARD J. FREER, PH.D        
  Richard J. Freer, PH.D
  Chief Executive Officer
  (Principal Executive Officer)
Date:   April 13, 2012
By:   /s/    VINCENT B. MCNELLEY        
  Vincent B. McNelley
  Acting Principal Financial Officer
  (Principal Financial Officer)
Date:   April 13, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature    Title(s)   Date

/s/    RICHARD J. FREER, PH.D        

Richard J. Freer, Ph.D.

  

Chief Executive Officer and Director

(Principal Executive Officer)

  April 13, 2012

/s/    BILL GUO        

Bill Guo

  

Director

 

April 13, 2012

/s/    JAMES. P. CAUSEY        

James P. Causey

  

Director

 

April 13, 2012

/s/    SAMUEL P. SEARS, JR.        

Samuel P. Sears, Jr.

  

Director

 

April 13, 2012

/s/    MARIA SONG, M.D., PH.D.        

Maria Song, M.D., Ph.D.

  

Director

 

April 13, 2012

/s/    PAUL D’SYLVA, PH.D        

Paul D’Sylva, Ph.D.

  

Director

 

April 13, 2012

/s/    ERIC TAO        

Eric Tao

  

Director

 

April 13, 2012

 

16


Executive Compensation Plans and Arrangements

The following is a list of all executive compensation plans and arrangements filed as exhibits to this annual report on Form 10-K or incorporated herein by reference:

 

1. First Amended and Restated Employment Agreement between the Company and Richard J. Freer, Ph.D. (4)

 

2. Second Amendment to First Amended and Restated Employment Agreement for Richard J. Freer, Ph.D. (5)

 

3. 1997 Stock Incentive Plan, as amended (7)

 

4. 2000 Stock Incentive Plan (8)

 

5. 2002 Stock Incentive Plan, as amended (9)

 

6. 2007 Stock Incentive Plan (10)

 

7. 2009 Stock Incentive Plan

 

 

(1) Incorporated by reference to the Company’s Form 10-KSB, dated March 31, 2009, File No. 001-13467.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K dated February 28, 2007, File No. 001-13467.
(3) Incorporated by reference to the Company’s Current Report on Form 8-K dated January 5, 2007, File No. 001-13467.
(4) Incorporated by reference to the Company’s Form 10-KSB, dated April 9, 2008 (as amended on April 30, 2008), File No. 001-13467.
(5) Incorporated by reference to the Company’s Current Report on Form 8-K dated June 28, 2005, File No. 001-13467.
(6) Incorporated by reference to the Company’s Form 10-KSB, dated March 31, 2006, File No. 001-13467.
(7) Incorporated by reference to the Company’s Form 10-KSB, dated March 31, 2003, File No. 001-13467.
(8) Incorporated by reference to the Company’s Registration Statement on Form SB-2, Registration No. 333-31731.
(9) Incorporated by reference to the Company’s Registration Statement on Form S-8, Registration No. 333-51074.
(10) Incorporated by reference to the Company’s Registration Statement on Form S-8, Registration No. 333-102368.
(1) Incorporated by reference to the Company’s other definitive Proxy Statement dated April 12, 2007, File No. 001-13467

 

17


EXHIBIT INDEX

 

Exhibit

Number

  Description Of Exhibits
 3(i).1   Articles of Incorporation of Commonwealth Biotechnologies, Inc. (1)
 3(i).2   Articles of Amendment of Articles of Incorporation of Commonwealth Biotechnologies, Inc. (2)
3(ii).1   Third Amended and Restated Bylaws of Commonwealth Biotechnologies, Inc. (3)
3(ii).2   Amendment to Third Amended and Restated Bylaws of Commonwealth Biotechnologies, Inc. (4)
     4.1   Form of Common Stock Certificate (1)
     4.2   Form of Class A Warrant (5)
     4.3   Form of Class B Warrant (5)
     4.4   Form of Secured Convertible Promissory Note (5)
   10.1   Subscription Agreement (5)
   10.2   Security Agreement (5)
   10.3   Stock Purchase Agreement by and among Commonwealth Biotechnologies, Inc., Pharmaust Limited and Pharmaust Chemistry Ltd. dated November 24, 2006 (6)
   10.4   Voting and Lock-Up Agreement dated as of February 9, 2007 (7)
   10.5   Registration Rights Agreement, dated as of February 9, 2007 (7)
   10.6   Employment Agreement between the Company and Paul D’Sylva, Ph.D. (8)
   10.7   First Amended and Restated Employment Agreement for Richard J. Freer, Ph.D. (8)
   10.8   First Amendment to First Amended and Restated Employment Agreement between the Company and Richard J. Freer, Ph.D. (9)
   10.9   Second Amendment to First Amended and Restated Employment Agreement for Richard J. Freer, Ph.D. (10)
   10.10   Officer’s Severance Agreement for James H. Brennan (13)
   13.1   2011 Annual Report (20)
   21.1   Subsidiaries of Commonwealth Biotechnologies, Inc. (14)
   23.1   Consent of Witt Mares, PLC (20)
   31.1   Certification of Richard J. Freer, Ph.D. (20)
   31.2   Certification of Vincent B. McNelley(20)
   32.1   Section 906 Certification of Richard J. Freer, Ph.D. (20)

 

18


32.2    Section 906 Certification of Vincent B. McNelley (20)
99.1    1997 Stock Incentive Plan, as amended (15)
99.2    2000 Stock Incentive Plan (16)
99.3    2002 Stock Incentive Plan, as amended (17)
99.4    2007 Stock Incentive Plan (18)

 

(1) Incorporated by reference to the Company’s Registration Statement on Form SB-2, Registration No. 333-31731.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K, dated October 31, 2007, File No. 001-13467.
(3) Incorporated by reference to the Company’s Current Report on Form 8-K, dated March 29, 2007, File No. 001-13467.
(4) Incorporated by reference to the Company’s Current Report on Form 8-K, dated March 28, 2008, File No. 001-13467.
(5) Incorporated by reference to the Company’s Current Report on Form 8-K, dated January 8, 2008, File No. 001-13467.
(6) Incorporated by reference to the Company’s Current Report on Form 8-K, dated November 29, 2007, File No. 001-13467.
(7) Incorporated by reference to the Company’s Current Report on Form 8-K, dated February 15, 2007, File No. 001-13467.
(8) Incorporated by reference to the Company’s Current Report on Form 8-K, dated February 28, 2007, File No. 001-13467.
(9) Incorporated by reference to the Company’s Current Report on Form 8-K, dated August 15, 2005, File No. 001-13467.
(10) Incorporated by reference to the Company’s Current Report on Form 8-K, dated March 31, 2006, File No. 001-13467.
(11) Incorporated by reference to the Company’s Current Report on Form 8-K, dated January 5, 2007, File No. 001-13467.
(12) Incorporated by reference to the Company’s Form 10-KSB, dated March 31, 2006, File No. 001-13467.
(13) Incorporated by reference to the Company’s Form 10-KSB, dated March 31, 2003, File No. 001-13467.
(14) Incorporated by reference to the Company’s Registration Statement on Form SB-2, Registration No. 333-148942.
(15) Incorporated by reference to the Company’s Registration Statement on Form SB-2, Registration No. 333-31731.
(16) Incorporated by reference to the Company’s Registration Statement on Form S-8, Registration No. 333-51074.
(17) Incorporated by reference to the Company’s Registration Statement on Form S-8, Registration No. 333-102368.
(18) Incorporated by reference to the Company’s other definitive Proxy Statement dated April 12, 2007, File No. 001-13467.
(19) Incorporated by reference to the Company’s Form 10-KSB, dated April 9, 2008 (as amended on April 30, 2008),

File No. 001-13467.

(20) Filed herewith.

 

19