Attached files

file filename
EX-32 - EXHIBIT 32 - ONCOVISTA INNOVATIVE THERAPIES, INCv409347_ex32.htm
EX-31.2 - EXHIBIT 31.2 - ONCOVISTA INNOVATIVE THERAPIES, INCv409347_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - ONCOVISTA INNOVATIVE THERAPIES, INCv409347_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - ONCOVISTA INNOVATIVE THERAPIES, INCFinancial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to __________

 

Commission file number: 000-28347

 

ONCOVISTA INNOVATIVE THERAPIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 33-0881303

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

 

14785 Omicron Drive

Suite 104

San Antonio, Texas 78245

(Address of principal executive offices)

 

(210) 677-6000

(Registrant's telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨        Accelerated filer ¨      Non-accelerated filer ¨          Smaller reporting company x

 

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

 

State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 22,012,896 shares of common stock with a par value of $.001 outstanding as of May 14, 2015

 

 
 

 

ONCOVISTA INNOVATIVE THERAPIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 2
   
ITEM 1 – FINANCIAL STATEMENTS 2
   
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
   
ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk 16
   
ITEM 4 – CONTROLS AND PROCEDURES 16
   
PART II – OTHER INFORMATION 18
   
ITEM 1 – LEGAL PROCEEDINGS 18
   
ITEM 1A – RISK FACTORS 18
   
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 18
   
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES 18
   
ITEM 4 – MINE SAFETY DISCLOSURES 18
   
ITEM 5 – OTHER INFORMATION 18
   
ITEM 6 – EXHIBITS 19

 

 
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

   March 31,   December 31, 
   2015   2014 
   (Unaudited)      
ASSETS          
Current assets:          

Cash

  $56,030   $12,514 
Total current assets   56,030    12,514 
           
Total assets  $56,030   $12,514 
           
LIABILITIES AND DEFICIT          
Current liabilities:          
Accounts payable (including related party accounts payable of $1,390,293 and $1,304,293, respectively)  $1,747,819   $1,671,909 
Accrued expenses (including related party accrued expenses of $785,000 and $760,000, respectively)   2,709,865    2,579,436 
Loan payable (including accrued interest of $12,995 and $8,329, respectively)   322,995    208,329 
Current portion of settlement payable   450,000    450,000 
Other liability – stock grant   66,000    66,000 
           
Total current liabilities   5,296,679    4,975,674 
           
Settlement payable – net of current portion   700,000    700,000 
Total  liabilities   5,996,679    5,675,674 
           
Deficit          
Common stock, $.001 par value; 147,397,390 shares authorized, 22, 012,896 shares issued and outstanding   22,012    22,012 
Additional paid-in capital   20,217,341    20,217,341 
Accumulated deficit   (26,180,002)   (25,902,513)
Total deficit   (5,940,649)   (5,663,160)
Total liabilities and deficit  $56,030   $12,514 

 

See accompanying notes to the condensed consolidated financial statements

 

2
 

 

ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 

(Unaudited)

 

   Three Months Ended
March 31,
 
   2015   2014 
Revenue  $   $ 
           
Operating expenses:          
Research and development   160,909    150,273 
General and administrative   111,915    95,070 
Total operating expenses   272,824    245,343 
           
Other income (expense):          
Interest expense   (4,665)   - 
Interest income   -    5 
Loss on derivative liability   -    (62,019)
Total other expense   (4,665)   (62,014)
           
Net loss  $(277,489)  $(307,357)
           
Net loss per share – basic and diluted  $(0.01)  $(0.01)
           
Weighted average number of shares outstanding during the period - basic and diluted   22,012,896`   21,627,868 

 

See accompanying notes to the condensed consolidated financial statements

 

3
 

 

ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

   Three Months Ended
March 31,
 
   2015   2014 
Cash flows from operating activities          
Net loss  $(277,489)  $(307,357)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   -    995 
Depreciation   -    477 
Loss on derivative liability   -    62,019 
Changes in operating assets and liabilities:          
Prepaid and other current assets   -    47,680 
Accounts payable   75,910    181,159 
Accrued expenses   130,429    - 
Accrued interest payable   4,666    - 
Net cash used in operating activities   (66,484)   (15,027)
Cash flows from investing activities   -    - 
Cash flows from financing activities          
Proceeds from loans payable   110,000    - 
Net cash provided by financing activities   110,000    - 
Increase (decrease) in cash and cash equivalents   43,516    (15,027)
Cash and cash equivalents at beginning of period   12,514    44,898 
Cash and cash equivalents at end of period  $56,030   $29,871 

 

See accompanying notes to the condensed consolidated financial statements

 

4
 

 

Note 1.BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS

 

OncoVista Innovative Therapies, Inc. (“OVIT”) is a biopharmaceutical company developing targeted anticancer therapies by utilizing tumor-associated biomarkers.  OVIT’s product pipeline is comprised of advanced (Phase II) and early (Phase I) clinical-stage compounds, late preclinical drug candidates and early preclinical leads. OVIT is not committed to any single treatment modality or class of compound, but believes that successful treatment of cancer requires a tailored approach based upon individual patient disease characteristics.

 

Through its former subsidiary, AdnaGen AG (“AdnaGen”), OVIT previously developed diagnostic kits for several cancer indications, and marketed diagnostic kits in Europe for the detection of circulating tumor cells (“CTCs”) in patients with cancer.

 

OVIT used the proceeds from the sale of its shares in AdnaGen to fund development activities for its drug candidate portfolio.  Additionally, OVIT is evaluating several opportunities to license or acquire other compounds or diagnostic technologies that it believes will provide for treatments that are highly targeted with low or no toxicity.

 

At March 31, 2015, OVIT had two full time employees. OncoVista, Inc. (“OncoVista”), OVIT’s operating subsidiary, had no full-time employees.

 

Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, and changes in deficit or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended March 31, 2015 are not necessarily indicative of results for the full fiscal year.

 

The unaudited interim consolidated financial statements should be read in conjunction with the required financial information included as part of OVIT’s Form 10-K for the year ended December 31, 2014.

 

5
 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of OVIT and OncoVista (collectively, the “Company”). All intercompany balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates include the valuation of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets.

 

Net Loss per Share

 

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted average number of common shares outstanding.  Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding including the effect of share equivalents.  Common stock equivalents consist of shares issuable upon the exercise of certain common stock purchase warrants and stock options.

 

As the Company had net losses from operations for the three month periods ended March 31, 2015 and 2014, respectively, all unvested restricted stock, stock options and warrants are considered to be anti-dilutive. At March 31, 2015 and 2014, the following shares have been excluded since their inclusion in the computation of diluted EPS would be anti-dilutive:

 

   2015   2014 
Stock options outstanding under various stock option plans   1,231,500    1,381,500 
Warrants   350,000    1,625,000 
Restricted shares   336,847    300,000 
Total   1,918,347    3,306,500 

 

Share-Based Compensation

 

All share-based payments to employees are recorded and expensed in the statements of operations under Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation.”   ASC 718 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options based on estimated fair values.  The Company has used the Black-Scholes option-pricing model to estimate grant date fair value for all option grants.

 

Share-based compensation expense is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the year, less expected forfeitures.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary in subsequent periods if actual forfeitures differ from those estimates.

 

6
 

 

Recent Accounting Pronouncements

 

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

 

In May 2014, FASB issued ASU No. 2014-09 “Revenue from Contracts from Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to the exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption not permitted. The Company is currently evaluating the new standard and assessing the potential impact on its operations and financial statements.

 

Note 3.GOING CONCERN AND MANAGEMENT’S PLANS

 

As reflected in the accompanying consolidated financial statements, the Company reported a net loss of approximately $277,000, and net cash used in operations of approximately $66,000 for the three months ended March 31, 2015, an accumulated deficit of approximately $26.2 million and total deficit of approximately $5.9 million at March 31, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on management’s ability to further implement its strategic plan, obtain additional capital, principally by obtaining additional debt and/or equity financing, and generate revenues from collaborative agreements or sale of pharmaceutical products. There can be no assurance that these plans will be sufficient or that additional financing will be available in amounts or terms acceptable to the Company, if at all.

 

7
 

 

Note 4. EQUIPMENT

 

Equipment balances at March 31, 2015 and December 31, 2014 are summarized below:

 

   2015   2014 
Equipment  $30,132   $30,132 
Computer and office equipment   9,326    9,326 
    39,458    39,458 
Less: accumulated depreciation   (39,458)   (39,458)
Equipment, net  $-   $- 

 

Note 5.ACCRUED EXPENSES

 

Accrued expenses at March 31, 2015 and December 31, 2014 are summarized below:

 

   2015   2014 
Legal and professional  $32,000   $58,025 
Clinical and other studies   138,427    138,427 
Compensation   1,460,292    1,341,338 
Minimum royalty   1,047,500    1,010,000 
Other   31,646    31,646 
Total accrued expenses  $2,709,865   $2,579,436 

 

Note 6.DEBT

 

During the three months ended March 31, 2015, the Company borrowed $110,000 on various dates in exchange for unsecured notes from a related party. The notes have an interest rate of 8%, and are due in one year from the date of issuance. If the Company has not paid the notes in full by respective due dates, the interest rate increases to 10% per annum. Accrued interest at March 31, 2015 is $12,995.

 

During the year ended December 31, 2014, the Company borrowed $200,000 in exchange for unsecured notes totaling $200,000. The notes have an interest rate of 8%, and are due on April 15, 2015. As the Company has not paid the notes in full and the holders have not converted the notes by April 15, 2015, the interest has now rate increased to 10% per annum. The debt holders may convert the principal and any interest into shares of common stock at a price of $0.75 per share, or 80% of the per share price of the Company’s next equity offering.

 

The Company has evaluated the conversion and contingent conversion features of the notes and determined that there is no bifurcation of the embedded conversion option required, and that there was no beneficial conversion feature on the date of the borrowing or as of March 31, 2015.

 

Subsequent to the period ended March 31, 2015, the Company received additional bridge loans in the amount of $30,000 from a related party. The loan was made prior to April 15, 2015 and on the same terms as the 2015 bridge loans. Subsequent to April 15, 2015, no principal and interest were converted into shares of common stock.

 

Note 7.FAIR VALUE INFORMATION

 

The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

 

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

 

8
 

 

There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents as of March 31, 2015 and December 31, 2014, respectively. The fair values of accounts payable, notes payable and stock grant liability approximate the carrying amounts due to the short term nature of these instruments. The fair value of related party accounts payable and accrued expenses are not practicable to estimate due to the related party nature of the underlying transactions.

 

Note 8. LEASES, COMMITMENTS AND CONTINGENCIES

 

Lease Obligations

 

In January 2011, the Company entered a three-year lease with an affiliate of the CEO for laboratory space which expired in December 2013. During 2014 and the three months ended March 31, 2015, the Company utilized the space even though no terms have been negotiated and no payments have been made. The Company, however, continued to record rent expense on a month to month basis. Total rent expense amounted to approximately $36,000 for each of the three month periods ended March 31, 2015 and 2014. These amounts are included in accrued expenses.

 

Legal Matters

 

On August 11, 2011, an action was filed against the Company in the United States District Court for the Southern District of New York, entitled New Millennium PR Communications, Inc., against OncoVista Innovative Therapies, Inc., seeking damages for the alleged breach of a public relations agreement. On January 31, 2013, a settlement was reached whereby the Company agreed to pay New Millennium $7,000, in two payments of $3,500 each, and issue 25,000 warrants at an exercise price of $0.25 per share.

 

On August 26, 2011, an action was filed against the Company in the Supreme Court of the State of New York, New York County, entitled CAMOFI Master LDC and CAMHZN LDC against OncoVista Innovative Therapies, Inc. and OncoVista, Inc. The action seeks damages for the alleged breach of a Subscription Agreement, a Warrant Agreement and an Anti-Dilution Agreement and seeks an order directing the issuance of (i) an aggregate of 1,980,712,767 shares of the Company’s common stock, and (ii) warrants to purchase an aggregate of 702,857,767 shares of the Company’s common stock at an exercise price of $0.001. On October 20, 2011, the Company filed an answer to the complaint. On November 1, 2011, the plaintiffs made an extensive document request to the Company for all documents related to the matter. The Company’s counsel has started taking depositions and has requested access to CAMOFI Master LDC and CAMHZN Master LDC principals for further depositions. On June 29, 2012 CAMOFI Master LDC and CAMHZN Master LDC filed for summary judgment. On August 9, 2012 the parties filed a stipulation with the court extending the return date of motion for summary judgment until September 10, 2012. The court has not yet ruled on the motion to dismiss. Oral arguments for the motion were conducted before the court on January 17, 2013. The judge asked the parties to reconvene and to try to seek a settlement. While the judge indicated her belief that the Company was in breach of the anti-dilution agreement, she also indicated that it may not be equitable to direct the issuance of hundreds of millions of additional shares, and reserved her decision on the issue at that time. On March 5, 2015, the parties were able to reach a framework for settlement. The final documents of the settlement are in preparation. Management estimated, based on the framework reached in March of 2015, that the Company will pay approximately $1.2 million in settlement costs. This amount has been recorded as a settlement payable and is due over a period of three years. If the Company does not meet the terms of the settlement framework, the framework would require the Company to make additional payments of approximately $3.8 million.

 

On February 16, 2012, the Company filed an action in the 225 Judicial District Court of the State of Texas, Bexar County, entitled OncoVista Innovative Therapies, Inc. against J. Michael Edwards. The action seeks damages relating to the executive employment agreement of J. Michael Edwards, our former Chief Financial Officer. Specifically we are seeking to have the Stock Option Agreement granted to Mr. Edwards on January 6, 2009 be declared void ab initio. The Company is also seeking damages and attorney fees. On March 30, 2012, the Company received a copy of a counterclaim that may be filed in the same court and is seeking approximately $197,000, plus certain health and life insurance benefits, in alleged compensation due. On December 12, 2012 Mr. Edwards filed a third party petition in the court against third party defendant Alexander L. Weis, our Chairman, CEO & President. Depositions are ongoing and the Company believes the counterclaimant’s allegations are without merit and intends to vigorously defend these claims.

 

9
 

 

Note 9.RELATED PARTY TRANSACTIONS

 

Alexander L. Weis, Ph.D., Chairman of the Company’s Board of Directors and its Chief Executive Officer, President, Chief Financial Officer and Secretary, and a significant shareholder, is a beneficial owner of Lipitek International, Inc. and Lipitek Research, LLC. The Company leases its laboratory space from Lipitek, Inc. During 2014 and three months ended March 31, 2015, the Company utilized the space even though no terms have been negotiated and no payments have been made. The Company, however, continued to record rent expense on a month to month basis. Management believes that rent is based on reasonable and customary rates as if the space were rented to a third party.

 

On November 17, 2005, the Company entered into a purchase agreement with Lipitek and Dr. Weis, under which Lipitek granted the Company an option to purchase all membership interests in Lipitek Research, LLC (Lipitek Research) for a purchase price of $5.0 million, which is payable quarterly based upon revenues of Lipitek Research up to $50,000 per quarter. Through March 31, 2015, the Company had paid a total of $550,000 toward this agreement and has accrued $1,100,000, representing one quarterly payment for 2009 and all of the 2010, 2011, 2012, 2013, 2014 and one quarter of 2015 amounts, which are included in accounts payable in the consolidated balance sheets as of March 31, 2015 and December 31, 2014 and as a component of research and development expense for the three months ended March 31, 2015 and 2014. The Company has not made any payments toward the agreement in 2014 and 2015.

 

Prior to the full payment of the purchase price, the Company has the option, upon 30 days written notice, to abandon the purchase of Lipitek Research and would forfeit the amounts already paid.  All intellectual property developments by Lipitek Research through the term of the agreement or 2012, whichever is later, shall remain the Company’s property, irrespective of whether the option is exercised.  In addition, the Company will receive 80% of the research and development revenue earned by Lipitek while the agreement is in place. In 2015 and 2014, the Company did not recognize any revenue from its share of Lipitek revenue.

 

For the potential acquisition of Lipitek, the Company determined that, under SEC Regulation S-X, Rule 11-01(d) (“11-01”), and ASC 805 Lipitek would be classified as a development stage company and thus was not considered a business. As a result, purchase accounting rules did not apply.  The Company also cannot determine with any certainty at this time, if it will exercise the option to purchase Lipitek in the future.

 

In addition, the Company has a license agreement with Lipitek which requires the Company to pay minimum royalties. The Company has accrued $25,000 and $100,000, which is included in accrued expenses in the consolidated balance sheet of as of March 31, 2015 and December 31, 2014, respectively.

 

Note 10.EQUITY (DEFICIT)

 

Common Stock

 

The Company is authorized to issue up to 147,397,390 shares of common stock. At March 31, 2015, shares of common stock reserved for future issuance are as follows:

 

Stock options outstanding   1,231,500 
Warrants outstanding   350,000 
Stock options available for grant   2,309,250 
Restricted shares   336,847 
    4,227,597 

 

10
 

 

Stock Option Plans

 

All option grants are expensed in the appropriate period based upon each award’s vesting terms, in each case with an offsetting credit to additional paid in capital. Under the authoritative guidance for share based compensation, in the event of termination, the Company will cease to recognize compensation expense. There is no deferred compensation recorded upon initial grant date, instead, the fair value of the share-based payment is recognized ratably over the stated vesting period. No stock options were granted during the three months ended March 31, 2015 and 2014.

 

The stock-based compensation expense recorded by the Company for the three months ended March 31, 2015 and 2014, with respect to awards under the Company’s stock plans are as follows:

 

   2015   2014 
Research and development  $-   $995 
Total employee stock-based compensation  $-   $995 

 

The following is a summary of the Company’s stock option activity:

 

   Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
 
                
Outstanding at January 1, 2015   1,381,500   $0.91         
Granted                
Exercised                
Forfeited   (150,000)   0.10         
Outstanding at March 31, 2015   1,231,500   $1.01   4.06 years  $

99,450

 
Options Exercisable at March 31, 2015   1,231,500   $1.01   4.06 years  $

99,450

 

 

Warrants

 

The following is a summary of the Company’s warrant activity:

 

   Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2015   350,000   $0.37           
Granted   -                
Forfeited   -                
Outstanding at March 31, 2015   350,000   $0.37    0.51   $13,875 
Exercisable at March 31, 2015   350,000   $0.37    0.51   $13,875 

 

11
 

 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act).  Forward-looking statements are, by their very nature, uncertain and risky.  These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the SEC.

 

Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them.  Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.  You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.

 

Overview

 

We are a biopharmaceutical company developing targeted anticancer therapies by utilizing tumor-associated biomarkers. Our therapeutic strategy is based on targeting the patient’s tumor(s) with treatments that will deliver drugs selectively based upon specific biochemical characteristics of the cancer cells comprising the tumor. Through a combination of licensing agreements, as well as mergers and acquisitions, we have acquired the rights to several technologies with the potential to more effectively treat cancers and significantly improve quality-of-life for patients. We believe that the development of targeted approaches to the administration of anticancer agents should lead to improved outcomes and reduced toxicity.

 

We previously developed diagnostic kits through our former majority-owned German operating subsidiary, AdnaGen, for several cancer indications, and marketed diagnostic kits in Europe for the detection of CTCs in patients with cancer. On October 28, 2010, we entered into a Stock Purchase Agreement with Alere Holdings, whereby we, and the other AdnaGen shareholders, agreed to sell our respective shares of AdnaGen, and all AdnaGen related business assets, to Alere Holdings for: (i) a $10 million up-front payment; (ii) $10 million in potential milestone payments contingent upon the achievement of various balance sheet objectives within 24 months; and (iii) up to $63 million in potential milestone payments contingent upon the achievement of various clinical, regulatory and sales objectives within next 36 months. We are entitled to receive our pro rata portion of approximately 78.01% of the up-front and potential milestone payments.  In November 2010, we received $6.0 million, net of expenses and certain fees, as our share of the $10 million up-front payment. No milestone payments were received in 2015 or 2014.

 

12
 

 

Development Programs

 

Our most advanced product candidate is Cordycepin (OVI-123) which is in Phase I/II clinical trials for refractory leukemia patients who express the enzyme terminal deoxynucleotidyl transferase (TdT). We have received orphan drug designation from the FDA for Cordycepin which affords us seven years of market exclusivity once the drug is approved for marketing. We initiated a Phase I/II trial based on the “original” ADA-sensitive compound in the second quarter of 2008. The trial was initiated at two U.S. centers, The Dana Farber Cancer Institute in Boston, Massachusetts and the Cancer Therapy Research Center at the University of Texas Health Sciences Center at San Antonio, Texas, and is designed to enroll up to 24 patients in the first stage and up to 20 patients in the second stage. In October 2009, after enrolling five patients in this clinical trial, we placed the clinical trial on administrative hold due to our limited capital resources. We have engaged a clinical research organization (“CRO”) in France to do additional pre-clinical in-vitro evaluations of Cordycepin and the ADA inhibitor Pentostatin with the intent of gaining a better understanding of the inhibition effects of Pentostatin on Cordycepin. We are in the process of reinitiating the Phase I/II clinical trial to determine the maximum tolerated dose, and expect to start enrolling patients in 2015 if additional financing is available.

 

We have completed Good Laboratory Practice (“GLP”) animal drug safety studies in two species for our lead drug candidate from the L-nucleoside conjugate program (OVI-117). We have accumulated in vitro and in vivo data indicating that several of the L-nucleoside conjugates are effective against various types of cancer. To date, OVI-117 has undergone two proof-of-concept studies of human cancers in animal models, as both a single agent and as a multi-agent combination therapy with oxaliplatin. The Investigational New Drug application (IND) was submitted to the FDA on June 2, 2012 and approved by the FDA on July 5, 2012. We engaged a contract manufacturer and a clinical batch of OVI-117 is available for use in our proposed Phase 1 trial. The clinical protocol has been written and a principal investigator engaged. We believe that OVI-117 should be ready to enter Phase I clinical trials in 2015 if additional financing is available.

 

Research and development expenditures for the above projects totaled approximately $161,000 and $150,000 for the three months ended March 31, 2015 and 2014, respectively. We expect we will incur additional expenses of between $2.0 million to $3.0 million to complete the current phases of development for the projects described above.

   

Other Research and Development Plans

 

In addition to conducting Phase I and Phase II clinical trials, we plan to conduct pre-clinical research to accomplish the following:

 

·further deepen and broaden our understanding of the mechanism of action (MoA) of our products in cancer;
·develop alternative delivery systems and determine the optimal dosage for different patient groups;
·demonstrate proof of concept in animal models of human cancers; and
·develop successor products to our current products.

 

Other Strategic Plans

 

In addition to developing our existing anti-cancer drug portfolio, we plan to obtain rights to additional drug candidates or diagnostic technologies through licensing, partnerships, and mergers/acquisitions. Our efforts in this area will be guided by business considerations (cost of the opportunity, fit with existing portfolio, etc.) as well as input from our clinical advisory board regarding likelihood of successful clinical development and marketing approval. Our goal is to create a well-balanced product portfolio including lead molecules in different stages of development and addressing different medical needs.

 

Critical Accounting Policies

 

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are disclosed throughout this section where such policies affect our reported and expected financial results. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

 

13
 

 

OncoVista Innovative Therapies, Inc.

 

Revenue Recognition. While we have not recognized revenues from continuing operations, we anticipate that future revenues will be generated from product sales.  We expect to recognize revenue from product sales in accordance with SEC, Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” that requires we recognize revenue when each of the following four criteria is met: 1) a contract or sales arrangement exists; 2) products have been shipped or services have been rendered; 3) the price of the products or services is fixed or determinable; and 4) collectability is reasonably assured. We anticipate that our customers will have no right of return for products sold. Revenues will be considered to be earned upon shipment.

 

Share-Based Compensation. We follow Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants.  The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As such, as we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future.

 

Results of Operations

 

Three Months Ended March 31, 201 and 2015

 

Research and development. Research and development expenses increased by approximately $11,000, or 7%, to approximately $161,000 for the three months ended March 31, 2015, as compared to approximately $150,000 for the three months ended March 31, 2014. The increase was due to slightly higher costs in various research and development expenses.

 

General and administrative. General and administrative expenses increased by approximately $17,000, or 18%, to approximately $112,000 for the three months ended March 31, 2015, as compared to approximately $95,000 for the three months ended March 31, 2014. The increase was due primarily to an increase in legal fees.

 

Other Expense. Other expense decreased $57,000, or 92% to expense of approximately $5,000 for the three months ended March 31, 2015, as compared to expense of approximately $62,000 for the three months ended March 31, 2014. The decrease was primarily due to a loss on derivative liability of approximately $62,000 that was recognized in 2014, partially offset by an increase in an interest expense related to the bridge loans in 2015.

  

Going Concern and Recent Events

 

Our consolidated financial statements for the three months ended March 31, 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We reported a net loss of approximately $277,000, and net cash used in continuing operations of approximately $66,000 for the three months ended March 31, 2015, an accumulated deficit of approximately $26.2 million and total deficit of approximately $5.9 million as of March 31, 2015. The Report of the Independent Registered Public Accounting Firm on the Company’s financial statements as of and for the year ended December 31, 2014 includes a “going concern” explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.

 

Our ability to continue as a going concern depends on the success of management’s plans to achieve the following:

 

·Continue to aggressively seek investment capital;
·Develop our product pipeline;
·Advance scientific progress in our research and development; and
·Continue to monitor and implement cost control initiatives to conserve cash.

 

14
 

 

Liquidity and Capital Resources

 

At March 31, 2015, we had cash and cash equivalents of approximately $56,000 compared to approximately $13,000 at December 31, 2014. In order to preserve principal and maintain liquidity, our funds are primarily invested in checking and interest bearing saving accounts with the primary objective of capital preservation. Based on our current projections, we believe that our available resources and cash flow are sufficient to meet our anticipated operating cash needs for the next two to three months. Our ability to continue as a going concern is dependent on our ability to further implement our strategic plan, continue to obtain additional debt and/or equity financing, and generate additional revenues from collaborative agreements.

 

To date, we have financed our operations principally through proceeds of offerings of securities exempt from the registration requirements of the Securities Act. We can provide no assurance that additional funding will be available on terms acceptable to us, or at all. Accordingly, we may not be able to secure the funding which is required to expand research and development programs beyond their current levels or at levels that may be required in the future. If we cannot secure adequate financing, we may be required to delay, scale back or eliminate one or more of our research and development programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves. Our future capital requirements will depend upon many factors, including:

 

·Continued scientific progress in our research and development programs;
·Costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions;
·Competing technological and market developments; and
·Our ability to establish additional collaborative relationships.

 

Accordingly, we may be required to issue equity or debt securities or enter into other financial arrangements, including relationships with corporate and other partners, in order to raise additional capital. Depending upon market conditions, we may not be successful in raising sufficient additional capital for our short or long-term requirements. In such event, our business, prospects, financial condition, and results of operations would be materially adversely affected.

 

Operating Activities. For the three months ended March 31, 2015, net cash used in operations increased $51,000, or 342% to approximately $66,000 compared to approximately $15,000 for the three months ended March 31, 2014. The increase was primarily due to an increase in legal fees paid.

 

Investing Activities. There was no cash provided by or used in investing activities for the three month periods ended March 31, 2015 and 2014.

 

Financing Activities. For the three months ended March 31, 2015, net cash provided by financing activities increased by $110,000 compared to nil for the three months ended March 31, 2014. The increase is attributed to bridge loan of $110,000 raised during the period.

 

Recent Accounting Pronouncements

 

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

 

In May 2014, FASB issued ASU No. 2014-09 “Revenue from Contracts from Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to the exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption not permitted. The Company is currently evaluating the new standard and assessing the potential impact on its operations and financial statements.

 

15
 

 

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2015, the end of the period covered by this report, we conducted, under the supervision and with the participation of our management, including our Chief Executive Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. Based on the foregoing, our Chief Executive Officer concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2015.

 

Management’s Quarterly Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control system is a process designed by, or under the supervision of, our principal executive and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (U.S. GAAP).

 

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorization of our management and 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 our consolidated financial statements.

 

Because of our 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 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2015. In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COS0) in Internal Control Integrated Framework. As a result of its assessment, management identified a material weakness in our internal control over financial reporting. Based on the weakness described below, management concluded that our internal control over financial reporting was not effective as of March 31, 2015.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that, there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of our assessment, management identified the following material weaknesses in internal control over financial reporting as of March 31, 2015:

 

·While there were internal controls and procedures in place that relate to financial reporting and the prevention and detection of material misstatements, these controls did not meet the required documentation and effectiveness requirements under the Sarbanes-Oxley Act (SOX) and therefore, management could not certify that these controls were correctly implemented. As a result, it was managements opinion that the lack of documentation warranted a material weakness in the financial reporting process.

 

16
 

 

·Our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CFO, as appropriate to allow timely decisions. Inadequate controls include the lack of procedures used for identifying, determining, and calculating required disclosures and other supplementary information requirements.

 

·There is lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by a consultant. This weakness is due to our lack of working capital to hire additional staff during the period covered by this report. We intend to hire additional accounting personnel to assist with financial reporting as soon as our finances will allow.

 

Changes in Internal Control over Financial Reporting

 

There were no significant changes in our internal control over financial reporting that occurred during the three months ended March 31, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

17
 

 

PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

On August 11, 2011, an action was filed against the Company in the United States District Court for the Southern District of New York, entitled New Millennium PR Communications, Inc., against OncoVista Innovative Therapies, Inc., seeking damages for the alleged breach of a public relations agreement. On January 31, 2013, a settlement was reached whereby the Company agreed to pay New Millennium $7,000, in two payments of $3,500 each, and issue 25,000 warrants at an exercise price of $0.25 per share.

 

On August 26, 2011, an action was filed against the Company in the Supreme Court of the State of New York, New York County, entitled CAMOFI Master LDC and CAMHZN LDC against OncoVista Innovative Therapies, Inc. and OncoVista, Inc. The action seeks damages for the alleged breach of a Subscription Agreement, a Warrant Agreement and an Anti-Dilution Agreement and seeks an order directing the issuance of (i) an aggregate of 1,980,712,767 shares of the Company’s common stock, and (ii) warrants to purchase an aggregate of 702,857,767 shares of the Company’s common stock at an exercise price of $0.001. On October 20, 2011, the Company filed an answer to the complaint. On November 1, 2011, the plaintiffs made an extensive document request to the Company for all documents related to the matter. The Company’s counsel has started taking depositions and has requested access to CAMOFI Master LDC and CAMHZN Master LDC principals for further depositions. On June 29, 2012 CAMOFI Master LDC and CAMHZN Master LDC filed for summary judgment. On August 9, 2012 the parties filed a stipulation with the court extending the return date of motion for summary judgment until September 10, 2012. The court has not yet ruled on the motion to dismiss. Oral arguments for the motion were conducted before the court on January 17, 2013. The judge asked the parties to reconvene and to try to seek a settlement. While the judge indicated her belief that the Company was in breach of the anti-dilution agreement, she also indicated that it may not be equitable to direct the issuance of hundreds of millions of additional shares, and reserved her decision on the issue at that time. On March 5, 2015, the parties were able to reach a framework for settlement. The final documents of the settlement are in preparation. Management estimated, based on the framework reached in March of 2015, that the Company will pay approximately $1.2 million in settlement costs. This amount has been recorded as a settlement payable and is due over a period of three years. If the Company does not meet the terms of the settlement framework, the framework would require the Company to make additional payments of approximately $3.8 million.

 

On February 16, 2012, the Company filed an action in the 225 Judicial District Court of the State of Texas, Bexar County, entitled OncoVista Innovative Therapies, Inc. against J. Michael Edwards. The action seeks damages relating to the executive employment agreement of J. Michael Edwards, our former Chief Financial Officer. Specifically we are seeking to have the Stock Option Agreement granted to Mr. Edwards on January 6, 2009 be declared void ab initio. The Company is also seeking damages and attorney fees. On March 30, 2012, the Company received a copy of a counterclaim that may be filed in the same court and is seeking approximately $197,000, plus certain health and life insurance benefits, in alleged compensation due. On December 12, 2012 Mr. Edwards filed a third party petition in the court against third party defendant Alexander L. Weis, our Chairman, CEO & President. Depositions are ongoing and the Company believes the counterclaimant’s allegations are without merit and intends to vigorously defend these claims.

 

ITEM 1A – RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no events which are required to be reported under this item.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

There have been no events which are required to be reported under this item.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 – OTHER INFORMATION

 

Not applicable.

 

18
 

 

ITEM 6 – EXHIBITS

 

Exhibits:

 

Exhibit No.   Description
     31.1  

Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

     31.2  

Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

     32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

EX-101.INS   XBRL Instance Document
     
EX-101.SCH   XBRL Taxonomy Extension Schema
     
EX-101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
EX-101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
EX-101.LAB   XBRL Taxonomy Extension Label Linkbase
     
EX-101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

 

19
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ONCOVISTA INNOVATIVE THERAPIES, INC.

 

/s/ Alexander L. Weis, Ph.D.   
Alexander L. Weis, Ph.D.  
Chief  Executive Officer, and Chief Financial Officer  
(Principal Executive Officer, Principal Financial  
Officer and Principal Accounting Officer)  
   
Date:  May 15, 2015  

 

20