þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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26-2593535
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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Large accelerated filer
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o |
Non-accelerated filer
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o |
Accelerated filer | o |
Smaller reporting company
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þ |
(Do not check if a smaller reporting company) |
PAGE
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PART I. FINANCIAL INFORMATION
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|||||
Item 1.
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Unaudited Financial Statements
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3 | |||
Balance Sheets as of January 31, 2012 and as of April 30, 2011
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3 | ||||
Statements of Operations for the Three and Nine Months Ended January 31, 2012 and 2011
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4 | ||||
Statements of Cash Flows for the Nine Months Ended January 31, 2012 and 2011
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6 | ||||
Notes to Financial Statements
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7 | ||||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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25 | |||
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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37 | |||
Item 4.
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Controls and Procedures
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37 | |||
PART II. OTHER INFORMATION
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|||||
Item 1.
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Legal Proceedings
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38 | |||
Item 1A.
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Risk Factors
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38 | |||
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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40 | |||
Item 3.
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Defaults Upon Senior Securities
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40 | |||
Item 4.
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Mine Safety Disclosures
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40 | |||
Item 5.
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Other Information
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40 | |||
Item 6.
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Exhibits
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41 |
Period from May 26, 1967 (Inception) to January 31,
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Three months ended
January 31, |
Nine months ended
January 31, |
||||||||||||||||||
2012 |
2012
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2011
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2012
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2011
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||||||||||||||||
(Unaudited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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||||||||||||||||
Product revenue
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$ | 461,300 | $ | 4,673 | $ | 52,562 | $ | 91,565 | $ | 95,543 | ||||||||||
Cost of sales
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305,831 | 2,512 | 25,973 | 47,616 | 36,718 | |||||||||||||||
Net product revenue
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155,469 | 2,161 | 26,589 | 43,949 | 58,825 | |||||||||||||||
Government grant revenue
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224,345 | 146,101 | - | 224,345 | - | |||||||||||||||
Total net revenue
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379,814 | 148,262 | 26,589 | 268,294 | 58,825 | |||||||||||||||
Operating expenses
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||||||||||||||||||||
Selling, general, and administrative
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45,701,164 | 1,422,103 | 2,282,823 | 4,883,903 | 5,677,105 | |||||||||||||||
Research and development
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21,353,147 | 599,935 | 498,521 | 1,740,473 | 2,216,413 | |||||||||||||||
Loss on impairment of long-lived assets
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334,157 | - | - | - | - | |||||||||||||||
Total operating expenses
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67,388,468 | 2,022,038 | 2,781,344 | 6,624,376 | 7,893,518 | |||||||||||||||
Net operating loss
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67,008,654 | 1,873,776 | 2,754,755 | 6,356,082 | 7,834,693 | |||||||||||||||
Interest expense
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38,961,063 | 5,341,988 | 43,093 | 6,649,554 | 49,682 | |||||||||||||||
Loss on extinguishment of debt
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250,097 | - | - | - | - | |||||||||||||||
Other expense (income)
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(1,206,334 | ) | 82,850 | (253,661 | ) | 91,970 | (285,952 | ) | ||||||||||||
Net loss
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$ | 105,013,480 | $ | 7,298,614 | $ | 2,544,187 | $ | 13,097,606 | $ | 7,598,423 | ||||||||||
Net loss per share, basic
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$ | (0.26 | ) | $ | (0.11 | ) | $ | (0.53 | ) | $ | (0.33 | ) | ||||||||
Weighted average number of common shares outstanding, basic
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27,558,532 | 23,391,155 | 24,922,512 | 23,331,614 | ||||||||||||||||
Net loss per share, diluted
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$ | (0.39 | ) | $ | (0.11 | ) | $ | (0.65 | ) | $ | (0.33 | ) | ||||||||
Weighted average number of common shares outstanding, diluted
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29,731,481 | 23,391,155 | 26,630,311 | 23,331,614 |
Period from May 26, 1967 (Inception) to January 31, |
Nine months ended
January 31, |
|||||||||||
2012 |
2012
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2011
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||||||||||
(Unaudited)
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(Unaudited)
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(Unaudited)
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||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
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||||||||||||
Net Loss
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$ | (105,013,480 | ) | $ | (13,097,606 | ) | $ | (7,598,423 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities
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||||||||||||
Depreciation and amortization
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2,030,265 | 166,134 | 255,057 | |||||||||
Amortization of deferred compensation
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336,750 | - | - | |||||||||
Interest on debt instruments
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38,554,616 | 6,635,979 | 49,681 | |||||||||
Loss (gain) on debt settlement and extinguishment
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163,097 | - | - | |||||||||
Loss on impairment, disposal and write down of long-lived assets
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763,415 | 95,760 | - | |||||||||
Issuance and vesting of compensatory stock options and warrants
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8,278,580 | 53,292 | 111,802 | |||||||||
Issuance of common stock below market value
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695,248 | - | - | |||||||||
Issuance of common stock as compensation
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661,191 | 106,190 | 56,318 | |||||||||
Issuance of common stock for services rendered
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1,265,279 | - | - | |||||||||
Issuance of note payable for services rendered
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120,000 | - | - | |||||||||
Contributions of capital through services rendered by stockholders
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216,851 | - | - | |||||||||
Changes in operating assets and liabilities
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||||||||||||
Accounts receivable, prepaid expenses and other assets
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(1,060,414 | ) | (341,637 | ) | 95,139 | |||||||
Inventory
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197,410 | (40,616 | ) | 85,978 | ||||||||
Accounts payable and accrued liabilities
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1,911,548 | (434,954 | ) | 291,920 | ||||||||
Net cash used in operating activities
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(50,879,644 | ) | (6,857,458 | ) | (6,652,528 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES
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||||||||||||
Purchase of property and equipment
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(1,755,462 | ) | (11,371 | ) | (187,509 | ) | ||||||
Capitalization of patent costs and license rights
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(1,710,168 | ) | (195,829 | ) | (183,118 | ) | ||||||
Net cash used in investing activities
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(3,465,630 | ) | (207,200 | ) | (370,627 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||||||
Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses and payments
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44,363,845 | 8,619,181 | 4,901,400 | |||||||||
Repurchase of outstanding warrants
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(2,836,520 | ) | - | - | ||||||||
Proceeds from stockholder notes payable
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977,692 | - | - | |||||||||
Proceeds from issuance of notes payable, net of issuance costs
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7,518,521 | 837,692 | 2,088,701 | |||||||||
Proceeds from convertible notes, net of issuance costs
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13,321,447 | 4,514,162 | - | |||||||||
Proceeds from convertible preferred stock
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3,500,000 | 3,500,000 | - | |||||||||
Payments on notes - short-term
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(1,218,209 | ) | (76,819 | ) | (77,312 | ) | ||||||
Payments on notes - long-term
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(8,000,000 | ) | (8,000,000 | ) | - | |||||||
Net cash provided by financing activities
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57,626,776 | 9,394,216 | 6,912,789 | |||||||||
Net change in cash and cash equivalents
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3,281,502 | 2,329,558 | (110,366 | ) | ||||||||
Cash and cash equivalents, beginning of period
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- | 951,944 | 632,706 | |||||||||
Cash and cash equivalents, end of period
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$ | 3,281,502 | $ | 3,281,502 | $ | 522,340 | ||||||
Cash paid for:
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||||||||||||
Interest
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$ | 264,180 | $ | 13,574 | $ | 2,262 | ||||||
Income taxes
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$ | 27,528 | $ | - | $ | - |
(1)
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The Company issued 161,438 shares of restricted common stock for the payment of interest accrued on convertible notes. The shares were issued at a conversion price of $2.255 for the payment of $364,042 interest payable on convertible notes with a gross carrying value of $4,900,000.
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(2)
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The Company issued 14,342 shares of its common stock as payment for $20,808 of convertible preferred stock dividends.
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(3)
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The Company issued 446,496 shares of its common stock to redeem 583 shares of convertible preferred stock with a gross carrying value of $583,000.
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(1)
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The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707 at a conversion price of $3.705 per share. The notes included a discount totaling $5,206 that was recognized as interest expense upon conversion.
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·
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Redemptions
:
The Company expects to redeem the Preferred Stock by issuing shares of the Company’s common stock, par value $0.0001 (the “Common Stock”). The difference between the fair value of the Preferred Stock and the fair value of the Common Stock on the date the Common Stock issued is charged or credited to interest expense.
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·
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Conversions
:
Investors in the Preferred Stock can voluntarily convert their preferred shares to Common Stock at a conversion price defined in the preferred stock certificate of designations. The difference between the fair value of the Preferred Stock and the fair value of the Common Stock given in conversion is recognized as a gain or loss on the extinguishment of debt.
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·
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Dividends
:
Dividends paid with scheduled redemptions are expected to be paid in Common Stock. When an investor voluntarily converts its preferred shares, we are required to pay the investor for the dividends that would have been earned had the shares been held to maturity. The portion of those dividends that have not been accrued may be paid in cash or Common Stock, and are referred to as “make whole” payments. Dividends paid in stock are valued at the fair value of the Common Stock as of the date of issuance and are charged to interest expense.
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Three months ended January 31,
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Nine months ended January 31,
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|||||||||||||||
2012
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2011
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2012
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2011
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|||||||||||||
Historical net loss per share:
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||||||||||||||||
Numerator
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||||||||||||||||
Net loss, as reported
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$ | (7,298,614 | ) | $ | (2,544,187 | ) | $ | (13,097,606 | ) | $ | (7,598,423 | ) | ||||
Less: Effect of amortization of interest expense on convertible notes
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(4,258,037 | ) | - | (4,258,037 | ) | - | ||||||||||
Net loss attributed to common stockholders (diluted)
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(11,556,651 | ) | (2,544,187 | ) | (17,355,643 | ) | (7,598,423 | ) | ||||||||
Denominator
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||||||||||||||||
Weighted-average common shares outstanding
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27,558,532 | 23,391,155 | 24,922,512 | 23,331,614 | ||||||||||||
Effect of dilutive securities
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2,172,949 | - | 1,707,799 | - | ||||||||||||
Denominator for diluted net loss per share
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29,731,481 | 23,391,155 | 26,630,311 | 23,331,614 | ||||||||||||
Basic net loss per share
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$ | (0.26 | ) | $ | (0.11 | ) | $ | (0.53 | ) | $ | (0.33 | ) | ||||
Diluted net loss per share
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$ | (0.39 | ) | $ | (0.11 | ) | $ | (0.65 | ) | $ | (0.33 | ) | ||||
Nine months ended
January 31,
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||||||||
2012
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2011
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|||||||
Warrants to purchase common stock
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5,759,247 | 4,026,352 | ||||||
Convertible preferred shares outstanding
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1,490,783 | - | ||||||
Options to purchase common stock
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397,823 | 855,181 | ||||||
Convertible note shares outstanding
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1,942 | 1,942 |
January 31,
2012
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April 30,
2011
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|||||||
Raw materials
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$ | 49,220 | $ | 107,271 | ||||
Work in process
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- | 124,308 | ||||||
Finished goods
|
67,487 | 25,803 | ||||||
$ | 116,707 | $ | 257,382 |
January 31,
2012
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April 30,
2011
|
|||||||
R&D materials
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$ | 159,349 | $ | - | ||||
Dermacyte samples
|
19,529 | 1,052 | ||||||
Other
|
27,590 | 7,090 | ||||||
$ | 206,468 | $ | 8,142 |
January 31,
2012
|
April 30,
2011
|
|||||||
Laboratory equipment
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$ | 963,580 | $ | 970,463 | ||||
Office furniture and fixtures
|
140,255 | 140,255 | ||||||
Computer equipment and software
|
152,024 | 153,234 | ||||||
Leasehold improvements
|
4,810 | 4,810 | ||||||
1,260,669 | 1,268,762 | |||||||
Less: Accumulated depreciation and amortization
|
(943,247 | ) | (826,176 | ) | ||||
$ | 317,422 | $ | 442,586 |
January 31,
2012
|
April 30,
2011
|
|||||||
Prepaid royalty fee
|
$ | 50,000 | $ | 50,000 | ||||
Other
|
15,666 | 15,086 | ||||||
Reimbursable patent expenses- Glucometrics
|
- | 82,522 | ||||||
$ | 65,666 | $ | 147,608 |
January 31,
2012
|
April 30,
2011
|
|||||||
Section 409A tax liability
|
$ | 532,350 | $ | 532,350 | ||||
Deferred government grant revenue
|
298,533 | - | ||||||
Employee related
|
176,528 | 493,640 | ||||||
Preferred stock dividend payable
|
21,479 | - | ||||||
Legal
|
16,715 | - | ||||||
Other
|
92,143 | 74,583 | ||||||
Clinical trial related
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- | 150,000 | ||||||
$ | 1,137,748 | $ | 1,250,573 |
Asset Category
|
Value Assigned
|
Weighted Average Amortization Period (in Years)
|
Impairments
|
Accumulated Amortization
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Carrying Value (Net of Impairments and Accumulated Amortization)
|
|||||||||||||||
Patents
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$ | 503,122 | 11.4 | $ | - | $ | (227,905 | ) | $ | 275,217 | ||||||||||
License Rights
|
527,424 | 17.1 | - | (82,600 | ) | 444,824 | ||||||||||||||
Trademarks
|
143,469 | N/A | - | - | 143,469 | |||||||||||||||
Total
|
$ | 1,174,015 | $ | - | $ | (310,505 | ) | $ | 863,510 |
Asset Category
|
Value Assigned
|
Weighted Average Amortization Period (in Years)
|
Impairments
|
Accumulated Amortization
|
Carrying Value (Net of Impairments and Accumulated Amortization)
|
|||||||||||||||
Patents
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$ | 566,564 | 10.1 | $ | (202,934 | ) | $ | (214,840 | ) | $ | 148,790 | |||||||||
License Rights
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558,532 | 17.6 | (68,602 | ) | (63,395 | ) | 426,535 | |||||||||||||
Trademarks
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155,134 | N/A | (30,508 | ) | - | 124,626 | ||||||||||||||
Total
|
$ | 1,280,230 | $ | (302,044 | ) | $ | (278,235 | ) | $ | 699,951 |
January 31,
2012
|
April 30,
2011
|
|||||||
Current portion of notes payable
|
$ | 96,983 | $ | 36,100 | ||||
Current portion of convertible notes payable
|
7,195 | 7,195 | ||||||
Current portion of notes payable, net
|
$ | 104,178 | $ | 43,295 | ||||
Long-term portion of notes payable
|
$ | - | $ | 6,881,600 | ||||
Less: Unaccreted premium
|
- | (2,417,965 | ) | |||||
- | 4,463,635 | |||||||
Long-term portion of convertible notes payable
|
$ | 4,900,001 | $ | - | ||||
Less: Unamortized discount
|
(3,947,224 | ) | - | |||||
952,777 | - | |||||||
Long-term portion of notes payable, net
|
$ | 952,777 | $ | 4,463,635 |
Non-cash interest:
|
Amount
|
|||
Dividends paid in common stock with conversions
|
$ | - | ||
Dividends paid in common stock with redemptions
|
20,808 | |||
Interest expense on redemption of preferred stock
|
133,849 | |||
Fair value adjustment to preferred stock
|
2,170,007 | |||
Accrued dividends payable
|
21,479 | |||
Non-cash interest expense as of January 31, 2012
|
$ | 2,346,143 |
Installement Date
|
Pre-delivery Date
|
Preferred Shares Redeemedable
|
Less: Preferred Shares Redeemed / Converted at 1/31/12
|
Balance of Preferred Stock at 1/31/12
|
Fair Value of Preferred Stock at 1/31/12
|
|||||||||||||
1/12/2012
|
12/12/2011
|
583 | (583 | ) | - | $ | - | |||||||||||
2/13/2012
|
1/10/2012
|
583 | 583 | 782,802 | ||||||||||||||
3/12/2012
|
2/10/2012
|
583 | 583 | 782,802 | ||||||||||||||
4/12/2012
|
3/10/2012
|
583 | 583 | 782,802 | ||||||||||||||
5/12/2012
|
4/10/2012
|
583 | 583 | 782,802 | ||||||||||||||
6/12/2012
|
5/10/2012
|
585 | 585 | 785,488 | ||||||||||||||
Convertible preferred stock
|
3,500 | (583 | ) | 2,917 | $ | 3,916,696 |
For the three months ending
January 31, |
For the nine months ending
January 31, |
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Product revenue
|
||||||||||||||||
United States
|
$ | 4,673 | $ | 26,712 | $ | 65,565 | $ | 69,693 | ||||||||
Latin America
|
- | - | 26,000 | - | ||||||||||||
Europe
|
- | 25,850 | - | 25,850 | ||||||||||||
Total product revenue
|
$ | 4,673 | $ | 52,562 | $ | 91,565 | $ | 95,543 | ||||||||
Segment (income) loss
|
||||||||||||||||
United States
|
$ | (1,335 | ) | $ | 283,888 | $ | 330,830 | $ | 466,154 | |||||||
Latin America
|
- | - | (10,585 | ) | - | |||||||||||
Europe
|
- | 9,771 | - | 9,771 | ||||||||||||
Unallocated revenues
|
||||||||||||||||
Government grant revenue
|
(146,101 | ) | - | (224,345 | ) | - | ||||||||||
Unallocated expenses
|
||||||||||||||||
General and administrative
|
1,421,277 | 1,962,575 | 4,519,709 | 5,142,355 | ||||||||||||
Research and development
|
599,935 | 498,521 | 1,740,473 | 2,216,413 | ||||||||||||
Net interest and other expense (income)
|
5,424,838 | (210,568 | ) | 6,741,524 | (236,270 | ) | ||||||||||
Net loss
|
$ | 7,298,614 | $ | 2,544,187 | $ | 13,097,606 | $ | 7,598,423 |
(1)
|
The Company issued 14,093 shares of Common Stock upon vesting of outstanding restricted stock grants.
|
(2)
|
The Company issued 9,655 shares of Common Stock as compensation to employees under an employee share program. These shares had a grant date fair value of $20,179.
|
(3)
|
The Company issued 7,333 shares of Common Stock from the cashless exercise of 40,000 stock options.
|
(4)
|
The Company received $619,181 and issued 366,379 shares of Common Stock from the exercise of warrants.
|
(5)
|
The Company recorded $139,303 for the computed fair value of share based grants issued to employees, nonemployee directors, and consultants.
|
(6)
|
The Company issued 161,438 shares of restricted common stock for the payment of interest accrued on convertible notes.
|
(7)
|
The Company recorded $1,960,497 for the computed fair value of 2,172,949 warrants issued with convertible notes issued on June 29, 2011 and July 1, 2011. In addition, the Company recorded $2,939,504 for the computed beneficial conversion features for the intrinsic value of the notes at the commitment date.
|
(8)
|
The Company received $8,000,000 and issued 2,807,018 shares of Common Stock as part of the final closing of the Securities Purchase Agreement on November 14, 2011. An additional 561,404 shares of Common Stock were issued as compensation for services provided in closing the Securities Purchase Agreement.
|
(9)
|
The Company issued 14,342 shares of Common Stock as payment of Preferred Stock dividends.
|
(10)
|
The Company issued 446,496 shares of Common Stock to redeem 583
shares of the Preferred Stock.
|
(11)
|
The Company issued 454,002 shares of
Common Stock
in accordance
with the pre-delivery requirements of the Series A Convertible Preferred Stock Certificate of Designations for dividends payable and preferred shares redeemable on February 13, 2012.
|
(1)
|
The Company received $4,401,400 (net of closing costs) from the issuance of 1,724,138 shares of common stock as part of the registered direct offering in May 2010.
|
(2)
|
The Company received $500,000 (net of closing costs), from the issuance of 133,334 shares of restricted common stock in accordance with the Securities Purchase Agreement with Vatea Fund. An additional 53,334 shares of common stock were issued as compensation for services provided in closing the Securities Purchase Agreement.
|
(3)
|
The Company issued 2,018 shares of common stock from the cashless exercise of 6,333 stock options.
|
(4)
|
The Company issued 2,350 shares of common stock for the conversion of notes payable with a gross carrying value of $8,707, at a conversion price of $3.705 per share. These notes included a discount totaling $868, and thus had a net carrying value of $7,839. The unamortized discount of $868 was recognized as interest expense upon conversion.
|
(5)
|
The Company issued 19,275 shares of its common stock as compensation. These shares had a fair value at the grant date of $56,318.
|
(6)
|
The company recorded $111,802 for the computed fair value of options issued to employees, nonemployee directors, and consultants.
|
Shares Available for Grant
|
||||
Balances, at April 30, 2011
|
243,832 | |||
Additional shares reserved
|
5,200,000 | |||
Options granted
|
(58,309 | ) | ||
Options cancelled/forfeited
|
168,224 | |||
Restricted stock granted
|
(209,461 | ) | ||
Restricted stock cancelled/forfeited
|
140,032 | |||
Balances, at January 31, 2012
|
5,484,318 |
Outstanding Options
|
||||||||
Number of Shares
|
Weighted Average Exercise Price
|
|||||||
Balances, at April 30, 2011
|
515,071 | $ | 4.54 | |||||
Options granted
|
43,000 | $ | 2.03 | |||||
Options cancelled
|
(3,556 | ) | $ | 5.81 | ||||
Balances, at July 31, 2011
|
554,515 | $ | 4.33 | |||||
Options granted
|
2,500 | $ | 2.50 | |||||
Options exercised
|
(7,333 | ) | $ | 1.96 | ||||
Options cancelled
|
(95,334 | ) | $ | 3.62 | ||||
Balances, at October 31, 2011
|
454,348 | $ | 4.51 | |||||
Options granted
|
12,809 | $ | 1.80 | |||||
Options cancelled
|
(69,334 | ) | $ | 3.69 | ||||
Balances, at January 31, 2012
|
397,823 | $ | 4.57 |
For the the nine months ended
January 31 |
||||||||
2012
|
2011
|
|||||||
Research and development
|
$ | 65,598 | $ | 81,331 | ||||
General and administrative
|
16,677 | 15,813 | ||||||
Marketing and sales
|
2,024 | 3,615 | ||||||
$ | 84,299 | $ | 100,759 |
For the nine months ended
January 31
|
||||||||
2012
|
2011
|
|||||||
Risk-free interest rate (weighted average)
|
2.16 | % | 2.00 | % | ||||
Expected volatility (weighted average)
|
78.65 | % | 84.46 | % | ||||
Expected term (in years)
|
7 | 6 | ||||||
Expected dividend yield
|
0.00 | % | 0.00 | % |
The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of the Company’s stock options.
|
|
Expected Volatility
|
The expected stock price volatility for the Company’s Common Stock was determined by examining the historical volatility and trading history for its Common Stock over a term consistent with the expected term of its options.
|
Expected Term
|
The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the historical experience that the Company has had with its stock option grants.
|
Expected Dividend Yield
|
The expected dividend yield of 0% is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not anticipate paying any dividends in the near future.
|
Forfeitures
|
Stock compensation expense recognized in the statements of operations for the nine months ended January 31, 2012 and 2011 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718,
Compensation – Stock Compensation
, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s historical experience.
|
Outstanding Restricted Stock
|
||||||||
Number of Shares
|
Weighted Average Grant Date Fair Value
|
|||||||
Balances, at April 30, 2011
|
- | |||||||
Restricted stock granted
|
132,900 | $ | 1.96 | |||||
Restricted stock exercised
|
(9,238 | ) | $ | 1.96 | ||||
Restricted stock cancelled
|
(7,322 | ) | $ | 1.96 | ||||
Restricted stock forfeited
|
- | |||||||
Balances, at July 31, 2011
|
116,340 | $ | 1.96 | |||||
Restricted stock granted
|
35,412 | $ | 2.48 | |||||
Restricted stock exercised
|
(3,217 | ) | $ | 1.96 | ||||
Restricted stock cancelled
|
(19,636 | ) | $ | 1.96 | ||||
Restricted stock forfeited
|
(106,616 | ) | $ | 2.04 | ||||
Balances, at October 31, 2011
|
22,283 | $ | 2.40 | |||||
Restricted stock granted
|
41,149 | $ | 2.07 | |||||
Restricted stock exercised
|
(11,293 | ) | $ | 2.08 | ||||
Restricted stock cancelled
|
(6,458 | ) | $ | 1.96 | ||||
Restricted stock forfeited
|
- | |||||||
Balances, at January 31, 2012
|
45,681 | $ | 2.25 |
-
|
The Chief Executive Officer was granted 100,000 shares of restricted common stock, vesting quarterly over a three-year period and 16,800 shares of restricted common stock vesting monthly over a 12-month period.
|
-
|
The Chief Financial Officer was granted 8,600 shares of restricted common stock vesting over a 12-month period, of which 3,600 shares will only vest so long as he continues serving as the Company's Corporate Secretary and/or Treasurer.
|
-
|
The Chief Medical Officer was granted 7,500 shares of restricted common stock, vesting monthly over a 12-month period.
|
Warrants
|
Weighted Average
Exercise Price
|
||||||||||
Outstanding at April 30, 2011
|
3,581,347 | $ | 3.90 | ||||||||
Granted
|
2,961,239 | 2.45 | |||||||||
Exercised
|
(366,379 | ) | 1.69 | ||||||||
Forfeited
|
(1,224,478 | ) | 3.68 | ||||||||
Other
|
807,518 | (1 | ) | ||||||||
Outstanding at January 31, 2012
|
5,759,247 | $ | 2.19 |
(1)
|
(1)
|
The Company has warrants outstanding that contain anti-dilution clauses requiring a repricing in the event of subsequent equity sales. Subsequent to the closing of the Series A Preferred Stock Offering, the repricing of these warrants resulted in an increase of 807,518 potentially issuable shares and a $0.79 reduction in the weighted average exercise price of the Company’s outstanding warrants.
|
Three months ended
January 31, |
Increase/ (Decrease)
|
% Increase/ (Decrease)
|
Nine months ended
January 31, |
Increase/ (Decrease)
|
% Increase/ (Decrease
)
|
|||||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||||||||||||
Wholesale & retail revenue
|
$ | 4,673 | $ | 52,562 | $ | (47,889 | ) | (91) % | $ | 65,565 | $ | 95,543 | $ | (29,978 | ) | (31) % | ||||||||||||||||
Distibutor revenue
|
- | - | - | — % | 26,000 | - | 26,000 | — % | ||||||||||||||||||||||||
Product revenue
|
4,673 | 52,562 | (47,889 | ) | (91) % | 91,565 | 95,543 | (3,978 | ) | (4) % | ||||||||||||||||||||||
Cost of sales
|
2,512 | 25,973 | (23,461 | ) | (90) % | 47,616 | 36,718 | 10,898 | 30 % | |||||||||||||||||||||||
Gross profit
|
2,161 | 26,589 | (24,428 | ) | (92) % | 43,949 | 58,825 | (14,876 | ) | (25) % | ||||||||||||||||||||||
Government grant revenue
|
146,101 | - | 146,101 | — % | 224,345 | - | 224,345 | — % | ||||||||||||||||||||||||
Total net revenue
|
148,262 | 26,589 | 121,673 | 458 % | 268,294 | 58,825 | 209,469 | 356 % | ||||||||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||||||||||
Sales and Marketing
|
826 | 298,472 | (297,646 | ) | (100) % | 364,194 | 512,975 | (148,781 | ) | (29) % | ||||||||||||||||||||||
General and administrative
|
1,421,277 | 1,984,351 | (563,074 | ) | (28) % | 4,519,709 | 5,164,130 | (644,421 | ) | (12) % | ||||||||||||||||||||||
Research and development
|
599,935 | 498,521 | 101,414 | 20 % | 1,740,473 | 2,216,413 | (475,940 | ) | (21) % | |||||||||||||||||||||||
Total Operating expenses
|
2,022,038 | 2,781,344 | (759,306 | ) | (27) % | 6,624,376 | 7,893,518 | (1,269,142 | ) | (16) % | ||||||||||||||||||||||
Net operating loss
|
1,873,776 | 2,754,755 | (880,979 | ) | (32) % | 6,356,082 | 7,834,693 | (1,478,611 | ) | (19) % | ||||||||||||||||||||||
Interest expense
|
5,341,988 | 43,093 | 5,298,895 | 12,296 % | 6,649,554 | 49,682 | 6,599,872 | 13,284 % | ||||||||||||||||||||||||
Other expense (income)
|
82,850 | (253,661 | ) | 336,511 | (133) % | 91,970 | (285,952 | ) | 377,922 | (132) % | ||||||||||||||||||||||
Net loss
|
$ | 7,298,614 | $ | 2,544,187 | $ | 4,754,427 | 187 % | $ | 13,097,606 | $ | 7,598,423 | $ | 5,499,183 | 72 % |
Three months ended
January 31,
|
Increase/
|
% Increase/
|
Nine months ended
January 31,
|
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
Wholesale & retail revenue
|
$ | 4,673 | $ | 52,562 | $ | (47,889 | ) | (91) % | $ | 65,565 | $ | 95,543 | $ | (29,978 | ) | (31) % | ||||||||||||||||
Distibutor revenue
|
- | - | - | — % | 26,000 | - | 26,000 | — % | ||||||||||||||||||||||||
Product revenue
|
4,673 | 52,562 | (47,889 | ) | (91) % | 91,565 | 95,543 | (3,978 | ) | (4) % | ||||||||||||||||||||||
Cost of sales
|
2,512 | 25,973 | (23,461 | ) | (90) % | 47,616 | 36,718 | 10,898 | 30 % | |||||||||||||||||||||||
Gross profit
|
2,161 | 26,589 | (24,428 | ) | (92) % | 43,949 | 58,825 | (14,876 | ) | (25) % |
Three months
January 31,
|
Increase/
|
% Increase/
|
Nine months
January 31,
|
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
Government grant revenue
|
$ | 146,101 | $ | - | $ | 146,101 | — % | $ | 224,345 | $ | - | $ | 224,345 | — % |
Three months
January 31, |
Increase/
|
% Increase/
|
Nine months
January 31, |
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
Marketing and sales expense
|
$ | 826 | $ | 298,472 | $ | (297,646 | ) | (100) % | $ | 364,194 | $ | 512,975 | $ | (148,781 | ) | (29) % |
-
|
We reduced the costs associated with direct marketing and advertising approximately $200,000 and $206,000 for the three and nine months ended January 31, 2012, respectively, compared to the same periods in the prior year. These costs include attendance at trade shows and conferences, fees paid to a third party public relations firm, the costs of product samples distributed to potential customers, and the costs of direct print and online advertisements.
|
-
|
We reduced travel and entertainment costs approximately $27,000 and $18,000 for the three and nine months ended January 31, 2012, respectively, compared to the same periods in the prior year.
|
-
|
We reduced compensation costs by approximately $70,000 during the three months ended January 31, 2012 compared to the same period in the prior year.
|
-
|
We incurred an increase in compensation costs of approximately $75,000 during the nine months ended January 31, 2012 compared to the same period in the prior year due to significantly higher headcount in the fourth quarter of the prior year and the first quarter of the current year.
|
Three months
January 31,
|
Increase/
|
% Increase/
|
Nine months
January 31,
|
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
General and administrative expense
|
$ | 1,421,277 | $ | 1,984,351 | $ | (563,074 | ) | (28) % | $ | 4,519,709 | $ | 5,164,130 | $ | (644,421 | ) | (12) % |
-
|
We reduced compensation expenses approximately $875,000 compared to the same period in the prior year due to a reduction in headcount and the prior year severance accrual for a departed officer.
|
-
|
We reduced administrative travel costs by approximately $44,000 compared to the same period in the prior year due to a reduction in headcount and international travel.
|
-
|
We reduced consulting and Board of Director fees by approximately $60,000 compared to the same period in the prior year due to the reduction in our Board of Directors and fees paid to a third-party recruiter in the prior year.
|
-
|
We incurred an increase of approximately $485,000 in legal and accounting fees due primarily to $465,000 in fees incurred for the closing of the December 2011 preferred stock financing and an increase of approximately $35,000 in fees for general corporate matters offset by a reduction of approximately $15,000 in fees associated with our intellectual property.
|
-
|
We reduced compensation expenses approximately $1,348,000 compared to the same period in the prior year due to a reduction in headcount and the prior year severance accrual for a former officer.
|
-
|
We reduced administrative travel costs approximately $175,000 compared to the same period in the prior year due to a reduction in headcount and international travel.
|
-
|
We reduced depreciation and amortization costs approximately $81,000 compared to the same period in the prior year due to impairments to intangible assets recorded in the prior year.
|
-
|
We reduced investor relations costs by approximately $157,000 compared to the same period in the prior year due to a reduction in presentations and costs associated with international marketing firms.
|
-
|
We incurred an increase of approximately $907,000 in legal and accounting fees due primarily to $465,000 in fees incurred for the closing of the December 2011 preferred stock financing, and an increase of approximately $435,000 in accounting and legal fees associated with our filings and other corporate matters.
|
-
|
We incurred an increase in consulting and Board of Director fees of approximately $215,000 compared to the same period in the prior year due to the accrual of severance payments due to a retired Director and fees paid to a third-party recruiter.
|
Three months
January 31, |
Increase/
|
% Increase/
|
Nine months
January 31, |
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | ( Decrease) | |||||||||||||||||||||||||
Research and development expense
|
$ | 599,935 | $ | 498,521 | $ | 101,414 | 20 % | $ | 1,740,473 | $ | 2,216,413 | $ | (475,940 | ) | (21) % |
-
|
We incurred an increase in compensation expenses of approximately $18,000 compared to the same period in the prior year due to personnel additions to manage clinical and preclinical trials and increased laboratory activities.
|
-
|
We incurred an increase of approximately $136,000 in Oxycyte development costs compared to the same period in the prior year due to costs incurred for scale-up manufacturing and preclinical studies.
|
-
|
We incurred an increase of approximately $52,000 in Dermacyte development costs compared to the same period in the prior year due to costs incurred for clinical trials for dermatologic indications.
|
-
|
We incurred an increase of approximately $70,000 in consulting costs compared to the same period in the prior year primarily due to the consulting agreement with our retired Chief Operating Officer entered into in the fourth quarter of the prior year.
|
-
|
We incurred an increase of approximately $21,000 in lab operating costs compared to the same period in the prior year due to costs incurred to scale up activities in our California lab to support manufacturing and clinical trials.
|
-
|
We reduced CRO costs approximately $188,000 compared to the same period in the prior year due to the completion of the first cohort of the TBI trials in the prior year and a $42,000 credit for overbillings recognized in the current period.
|
-
|
We reduced CRO costs approximately $675,000 compared to the same period in the prior year due to the completion of the first cohort of the TBI trials in the prior year and a $42,000 credit for overbillings recognized in the current period.
|
-
|
We reduced travel costs by approximately $50,000 compared to the same period in the prior year due to a reduction in headcount, conferences and seminars, and international travel.
|
-
|
We reduced Oxycyte development costs by approximately $74,000 compared to the same period in the prior year due to a credit for billings under a prior year development agreement offset by an increase in costs incurred for scale-up manufacturing and preclinical studies.
|
-
|
We incurred an increase of approximately $188,000 in consulting costs compared to the same period in the prior year primarily due to the consulting agreement with our retired Chief Operating Officer entered into in the fourth quarter of the prior year.
|
-
|
We incurred an increase of approximately $114,000 in Dermacyte development costs compared to the same period in the prior year due to costs incurred for reformulating our existing cosmetic product line and clinical trials for dermatologic indications.
|
-
|
We incurred an increase of approximately $21,000 in lab operating costs compared to the same period in the prior year due to costs incurred to scale up activities in California lab to support manufacturing and clinical trials.
|
Three months
January 31,
|
Increase/
|
% Increase/
|
Nine months
January 31,
|
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
Other expense (income), net
|
$ | 82,850 | $ | (253,661 | ) | $ | 336,511 | (133) % | $ | 91,970 | $ | (285,952 | ) | $ | 377,922 | (132) % |
-
|
During the three months ended January 31, 2012, we wrote-off of approximately $85,000 in receivables from Glucometrics, Inc. for reimbursable patent fees. Glucometrics, Inc. previously held license rights for the use of our patents related to glucose monitoring technology. The license agreement was terminated in the fourth quarter of fiscal year 2011 while they attempted to restructure and obtain additional financing to support the development of their technology. Their restructuring efforts failed during the three months ended January 31, 2012 and management determined the receivable to be uncollectible in the current period.
|
-
|
During the three months ended January 31, 2012, other income decreased approximately $250,000. This decrease is attributed to an award of $244,489 under the Patient Protection and Affordable Care Act of 2010, or PPACA, received in the third fiscal quarter of the prior year.
|
Three months
January 31,
|
Increase/
|
% Increase/
|
Nine months
January 31,
|
Increase/
|
% Increase/
|
|||||||||||||||||||||||||||
2012
|
2011
|
(Decrease) | (Decrease) |
2012
|
2011
|
(Decrease) | (Decrease) | |||||||||||||||||||||||||
Interest expense
|
$ | 5,341,988 | $ | 43,093 | $ | 5,298,895 | 12296 % | $ | 6,649,554 | $ | 49,682 | $ | 6,599,872 | 13284 % |
-
|
During the three and nine months ended January 31, 2012, we recognized approximately $2.4 million and $2.8 million, respectively, for the accretion of the final payment premium due on the long-term notes payable as further described in Note 5 above.
|
-
|
During the three and nine months ended January 31, 2012, we recognized approximately $600,000 and $1.5 million, respectively, for the accretion of the discount and amortization of deferred financing cost attributed to the Convertible notes issued in June 2011 as further described in Note 5 above.
|
-
|
During the three months ended January 31, 2012, we recognized approximately $1.2 million in interest expense for the computed fair value of warrants issued with the Series A Convertible Preferred Stock purchase agreement as further described in Note 6 above.
|
-
|
During the three months ended January 31, 2012, we recognized approximately $200,000 in non-cash interest expense for the conversion of dividends and preferred stock into common stock and approximately $1.0 million in non-cash interest expense for the change in computed fair value of the outstanding Series A Convertible Preferred Stock as further described in Note 6 above.
|
For the nine months ended
January 31,
|
||||||||
2012
|
2011
|
|||||||
Net cash used in operating activities
|
(6,857,458 | ) | (6,652,528 | ) | ||||
Net cash used in investing activities
|
(207,200 | ) | (370,627 | ) | ||||
Net cash provided by financing activities
|
9,394,216 | 6,912,789 |
·
|
the initiation, progress, timing and completion of clinical trials for our product candidates and potential product candidates;
|
·
|
the outcome, timing and cost of regulatory approvals and the regulatory approval process;
|
·
|
delays that may be caused by changing regulatory requirements;
|
·
|
the number of product candidates that we pursue;
|
·
|
the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
|
·
|
the timing and terms of future in-licensing and out-licensing transactions;
|
·
|
the cost and timing of establishing sales, marketing, manufacturing and distribution capabilities;
|
·
|
the cost of procuring clinical and commercial supplies of our product candidates;
|
·
|
the extent to which we acquire or invest in businesses, products or technologies; and
|
·
|
the possible costs of litigation.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
·
|
the incurrence of additional indebtedness without the consent of the holders of the Preferred Stock;
|
·
|
the issuance of additional securities, subject to standard exceptions; and
|
·
|
the payment of cash dividends on shares of capital stock outstanding.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Issuer Purchases of Equity Securities
|
||||||||||||||||
Period
|
Total Number of Shares Purchased(1)
|
Average Price Paid per Share(2)
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
||||||||||||
November 1, 2011 – November 30, 2011
|
279 | $ | 2.11 | - | - | |||||||||||
December 1, 2011 – December 31, 2011
|
5,345 | 2.09 | - | - | ||||||||||||
January 1, 2012 – January 31, 2012
|
834 | 1.68 | - | - | ||||||||||||
Total
|
6,458 | $ | 2.04 | - | - |
(1)
|
Represents shares repurchased in connection with tax withholding obligations under the 2008 Stock Option Plan.
|
(2)
|
Represents the average price paid per share for the shares repurchased in connection with tax withholding obligations under the 2008 Stock Option Plan.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
No.
|
Description
|
|
3.1
|
Amended and Restated Bylaws (1)
|
|
3.2
|
Form of Certificate of Designations (3)
|
|
10.1
|
Amendment No. 3 to Securities Purchase Agreement between the Company and Vatea Fund, dated November 14, 2011 (2)
|
|
10.2
|
Task Order between the Company and NextPharma, dated November 15, 2011 (2)
|
|
10.3
|
Termination Agreement between the Company and Hospira, dated August 30, 2011 (2)
|
|
10.4
|
Placement Agency Agreement, dated December 8, 2011, between Oxygen Biotherapeutics, Inc. and William Blair & Company, L.L.C., as placement agent (3)
|
|
10.5
|
Form of Warrant (3)
|
|
10.6
|
Form of Securities Purchase Agreement (3)
|
|
10.7
|
Form of Lock-up Agreement (3)
|
|
10.8
|
Restricted Stock Award Agreement (1)
|
|
Description of Non-Employee Director Compensation
|
||
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
|
||
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101.INS
|
XBRL Instance Document (3)
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document (3)
|
(1)
|
This document was filed as an exhibit to the quarterly report on Form 10-Q filed by Oxygen Biotherapeutics with the SEC on December 15, 2011, and is incorporated herein by reference.
|
(2)
|
This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on November 16, 2011, and is incorporated herein by reference.
|
(3)
|
This document was filed as an exhibit to the current report on Form 8-K filed by Oxygen Biotherapeutics with the SEC on December 9, 2011, and is incorporated herein by reference.
|
(4)
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
OXYGEN BIOTHERAPEUTICS, INC. | |||
Date: March 15, 2012
|
By:
|
/s/ Michael B. Jebsen | |
Michael B. Jebsen | |||
Interim Chief Executive Officer, President and Chief Financial Officer | |||
(Principal Executive Officer) |
1.
|
An annual director fee in each fiscal year of $45,000 ($65,000 for our lead independent director), which is paid in equal monthly installments in arrears on the last day of each month;
|
2.
|
A fee for attending each meeting of the Board in the amount of $4,000;
|
3.
|
A fee for attending each committee meeting of which the Director is a member in the amount of $500; and
|
4.
|
Reimbursement of travel and related expenses for attending Board and Committee meetings, as incurred.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Oxygen Biotherapeutics, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
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c)
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evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: March 15, 2012
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By:
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/s/ Michael B. Jebsen | |
Michael B. Jebsen, | |||
Interim Chief Executive Officer, President and Chief Financial Officer | |||
(Principal Executive Officer)
(Principal Financial Officer)
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Date: March 15, 2012
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By:
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/s/ Michael B. Jebsen | |
Michael B. Jebsen, | |||
Interim Chief Executive Officer, President and Chief Financial Officer | |||
(Principal Executive Officer)
(Principal Financial Officer)
|