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Share Name | Share Symbol | Market | Type |
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Molecular Pharmacology Limited (PK) | USOTC:MLPH | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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OMB Number: 3235-0063 |
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UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
, D.C.
20549
FORM 10-K
(Mark One) |
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X |
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the year ended June 30, 2010 |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from___________ to __________ |
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Commission file number 000-50156 |
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MOLECULAR PHARMACOLOGY (USA) LIMITED |
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(Exact name of registrant as specified in its charter) |
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NEVADA |
71-0900799 |
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(State or other jurisdiction
of
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(I.R.S. Employer
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Drug Discovery Centre, 284 Oxford Street, Leederville 6007 Perth, Western Australia |
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(Address of principal executive offices) |
(Zip Code) |
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Registrant's telephone number, including area code |
011-61-8-9443-3011 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
Name of each exchange on which registered |
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Not Applicable |
Not Applicable |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock with a par value of $0.001 per share |
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Indicate by check mark if the registrant is a well known seasoned issuer, as defined by Rule 405 of Securities Act |
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Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non accelerated filer, or a small reporting company. See the definitions of "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): |
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23,553,740 common shares @ $0.034 (1) = $800,827.16 |
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(1) Last close price on December 31, 2009 |
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Table of Contents
iii
iv
FORWARD LOOKING INFORMATION
This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars. All references to CDN$ refer to Canadian Dollars.
As used in this annual report, the terms " we ", " us ", " our ", " Corporation " and " Molecular USA " mean Molecular Pharmacology (USA) Limited unless otherwise indicated.
Molecular USA was incorporated in the state of Nevada on May 1, 2002 under the name " Blue Hawk Ventures, Inc ." Molecular USA changed its name to "Molecular Pharmacology (USA) Limited" on August 29, 2005. At this same time Molecular USA completed a four for one forward split of its issued and outstanding share capital and altered its share capital to 300,000,000 shares of common stock with a par value of $0.001 per share.
Molecular USA has not been involved in any bankruptcy, receivership or similar proceeding nor has there been any material reclassification or merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of business other than as disclosed herein.
Up until the fall of 2005, Molecular USA was in the business of mineral exploration and development of a mineral property.
On October 13, 2005, Molecular USA entered into a distribution and supply agreement with Molecular Pharmacology Limited (" MPLA "). MPLA is incorporated under the laws of Australia and at the time was a wholly owned subsidiary company of PharmaNet Group Limited, an Australian company listed on the Australian Stock Exchange. Under the terms of the distribution and supply agreement, Molecular USA received the exclusive distribution rights to distribute, market, promote, detail, advertise and sell certain " Licensed Products ", as defined in the agreement, with metallo-polypeptide analgesic as an active ingredient, in the United States (excluding its territories and possessions).
On May 9, 2006, Molecular USA announced that it has acquired 100% of the issued and outstanding share capital of MPLA. The transaction was originally announced by Molecular USA in a press release dated November 29, 2005, and was subsequently approved by a majority of the stockholders of the Corporation at a stockholders meeting held on April 21, 2005. As a result of the transaction, PharmaNet Group Limited (" PharmaNet "), the former parent company of MPLA, now controls approximately 79% of Molecular USA 's issued and outstanding share capital. The transaction between the parties closed in escrow with an effective closing date of May 8, 2006. The business of MPLA is now the business of Molecular USA.
1
The acquisition of MPLA provided Molecular USA an immediate and solid international foundation which management believes will allow it to grow its business into all major geographical markets. The assets and resources of the Australian company and its existing teams and development programs has augmented Molecular USA's plan to develop safe and effective pain and inflammation management products.
Molecular USA through its wholly owned subsidiary MPLA is in the business of developing and commercializing a new analgesic and anti-inflammatory molecule known as Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable for the treatment of common every-day pain. As an analgesic and anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action and its topical or rub-on application.
The majority of over-the-counter anti-pain and anti-inflammatory products sold for the treatment of acute localised pain are based on non-steroidal anti-inflammatory drugs or NSAIDs. The majority of such products are slow acting and provide only mild pain relief.
The NSAID group has come under additional pressure and increasing medical alarm, as many drugs in this class have been found to set-back the recovery of certain conditions and treatments for which they were marketed. Moreover, NSAIDs are associated with severe gastro-intestinal side-effects. This has left a niche in an industry under-served by new products and ingredients.
MPLA's business strategy is to exploit the fast and locally acting, low side effects, and recovery-enhancing properties of its new drug group and to market this as a new ingredient, enabling pharmaceutical companies to develop and market effective and safer products suited to a broad range of common everyday pain.
Molecular USA has exclusive distribution
rights to distribute, market, promote, detail, advertise and sell certain
"Licensed Products", with metallo-polypeptide analgesic and
anti-inflammatory activity as an active ingredient, in the United States
(excluding its territories and possessions) from its wholly owned subsidiary company
MPLA.
The Licensed Products include all products in
all dosage forms, formulations, line extensions and package configurations
using or otherwise incorporating any aspect or production method of
metallo-polypeptide analgesic and anti-inflammatory activity as an active
ingredient marketed by MPLA or its affiliates under the trade name Tripeptafen
or any other trade names or trademarks used by MPLA relating to the product and
any improvements to such formulations or dosages as may hereafter be
distributed by MPLA or its affiliates in the territory during the term of the
distribution and supply agreement between Molecular and MPLA for the topical
application for human use only, and specifically excludes:
All Licensed Products must first obtain regulatory clearance in the United States before they may be marketed and sold by Molecular USA in that territory. Clinical programs are currently planned by MPLA for Europe, USA and Australia. The clinical trial program is expected to be expanded with follow-up trials. Regulatory approval, commencement of the Master Drug File (MDF) and market approval are the focus of an ongoing program expected to continue over the next 18 to 24 months.
MPLA has an exclusive license from Cambridge Scientific Pty Ltd of Australia. This license is restricted to a "field of use" defined in the license documentation. Cambridge Scientific may grant other licenses to third parties outside the "field of use" the subject of the licenses granted to MPLA.
2
Molecular USA and its subsidiary MPLA, regard
their intellectual property rights, such as copyrights, trademarks, trade
secrets, practices and tools, as important to the success of their company. To
protect their intellectual property rights, Molecular USA relies on a
combination of patent, trademark and copyright law, trade secret protection,
confidentiality agreements and other contractual arrangements with their
employees, affiliates, clients, strategic partners, acquisition targets and
others. Effective patent, trademark, copyright and trade secret protection may
not be available in every country in which the combined company intends to
offer its products. The steps taken by Molecular USA and MPLA to protect their
intellectual property rights may not be adequate. Third parties may infringe or
misappropriate the combined company's intellectual property rights or the
combined company may not be able to detect unauthorized use and take
appropriate steps to enforce its rights. In addition, other parties may assert
infringement claims against the combined company. Such claims, regardless of
merit, could result in the expenditure of significant financial and managerial
resources. Further, an increasing number of patents are being issued to third
parties regarding these processes. Future patents may limit the combined
company's ability to use processes covered by such patents or expose the
combined company to claims of patent infringement or otherwise require the
combined company to seek to obtain related licenses. Such licenses may not be
available on acceptable terms. The failure to obtain such licenses on
acceptable terms could have a negative effect on the combined company's
business.
To protect their intellectual property
rights, MPLA relies on a combination of license and patent applications held by
Cambridge Scientific Pty Ltd, namely "Analgesic and Anti-Inflammatory
Composition" comprising USA patent application in completion plus PCT Provisional
Specification having the same name designated as Serial No. 11/059580. These
patent applications embody all the current Analgesic and Anti-inflammatory
assets. MPLA will also rely on the exclusive nature of its license, trademark
and copyright law, trade secret protection, confidentiality agreements and
other contractual arrangements as it may execute from time to time.
Management of Molecular USA and MPLA believes
that MPLA's products, trademarks, and other proprietary rights do not infringe
on the proprietary rights of third parties.
Molecular USA
plans to market its Licensed Products, when approved, through existing
pharmaceutical distributors and by collaborative dealings with major companies
active in the United States
and Europe.
In addition, Molecular USA plans to explore
opportunities for direct sales, out-licensing and the integration of the
company's proprietary anti-inflammatory and analgesic components in
products already distributed through various international markets.
Molecular USA expects that these activities may even help fund the development costs of the Licensed Products in the United States.
Molecular USA and MPLA have no manufacturing facilities. MPLA is required to supply Molecular USA with all Licensed Products under the distribution and supply agreement entered into by the parties in October 2005. It is likely MPLA will enter into arrangements with various Good Manufacturing Practice ("GMP") certified formulation and manufacturers of the Licensed Products for clinical trial and sales purposes. These formulations and the manufacturing facilities must comply with regulations and current good laboratory practices or CGLPs, and current good manufacturing practices or GMPs, enforced by the Food and Drug Administration ("FDA"). Molecular USA plans to continue MPLA's practice to outsource formulation and manufacturing for its clinical trials and potential commercialization after the acquisition of MPLA by Molecular USA.
Molecular USA has not entered into any supply agreements.
Molecular USA and MPLA compete in the segment of the pharmaceutical market that treats pain and inflammation, which is highly competitive. We face significant competition from most pharmaceutical companies as well as biotechnology companies that are also researching and selling products designed to treat pain and inflammation. Many of our competitors
3
have significantly greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are active in neurological research, some in direct competition with us. These companies, as well as academic institutions, governmental agencies and other public and private organizations conducting research, also compete with Molecular USA and MPLA in recruiting and retaining highly qualified scientific personnel and consultants and may establish collaborative arrangements with competitors of Molecular USA.
Molecular USA's competition will be determined in part by the potential indications for which the MPLA's products are developed and ultimately approved by regulatory authorities.
Molecular USA knows of other companies and institutions dedicated to the development of anti-pain and anti-inflammatory pharmaceuticals similar to those being developed by MPLA and licensed to Molecular USA. Many of Molecular USA's competitors, existing or potential, have substantially greater financial and technical resources and therefore may be in a better position to develop, manufacture and market pharmaceutical products. Many of these competitors are also more experienced with regard to preclinical testing, human clinical trials and obtaining regulatory approvals. The current or future existence of competitive products may also adversely affect the marketability of Molecular USA's products.
FDA Regulation
. Pharmaceutical products are subject to extensive pre- and post-marketing regulation by the Food and Drug Administration, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record-keeping, advertising and promotion of the products under the Federal Food, Drug and Cosmetic Act and the Public Health Services Act, and by comparable agencies in most foreign countries. The process required by the FDA before a new drug may be marketed in the U.S. generally involves the following: completion of pre-clinical laboratory and animal testing; submission of an investigational new drug application, or IND, which must become effective before clinical trials may begin; performance of adequate and well controlled human clinical trials to establish the safety and efficacy of the proposed drug's intended use; and approval by the FDA of a New Drug Application, or NDA.The activities required before a pharmaceutical agent may be marketed in the United States begin with pre-clinical testing. Pre-clinical tests include laboratory evaluation of potential products and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies and other information must be submitted to the FDA as part of an IND application, which must be reviewed and approved by the FDA before proposed clinical testing can begin. Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND application. Further, each clinical study must be conducted under the auspices of an independent institutional review board. The institutional review board will consider, among other things, ethical factors and the safety of human subjects.
Typically, human clinical trials are conducted in three phases that may
overlap. In Phase 1, clinical trials are conducted with a small number of
subjects to determine the early safety profile and pharmacology of the new
therapy. In Phase 2, clinical trials are conducted with groups of patients
afflicted with a specific disease in order to determine preliminary efficacy,
optimal dosages and expanded evidence of safety. In Phase 3, large scale,
multicenter, comparative clinical trials are conducted with patients afflicted
with a target disease in order to provide enough data for the statistical proof
of efficacy and safety required by the FDA and others.
The results of the pre-clinical and clinical testing, together with
chemistry and manufacturing information, are submitted to the FDA in the form
of an NDA for a pharmaceutical product in order to obtain approval to commence
commercial sales. In responding to an NDA, the FDA may grant marketing
approvals, request additional information or further research, or deny the
application if it determines that the application does not satisfy its
regulatory approval criteria. Patient-specific therapies may be subject to
additional risk with respect to the regulatory review process. FDA approval for
a pharmaceutical product may not be granted on a timely basis, if at all, or if
granted may not cover all the clinical indications for which approval is sought
or may contain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
Satisfaction of FDA premarket approval requirements for new drugs
typically takes several years, and the actual time required may vary
substantially based upon the type, complexity and novelty of the product or
targeted disease. Government regulation may delay or prevent marketing of potential
products for a considerable period of time and impose costly procedures upon
our
4
activities. Success in early stage clinical trials or with prior
versions of products does not assure success in later stage clinical trials.
Data obtained from clinical activities are not always conclusive and may be
susceptible to varying interpretations that could delay, limit or prevent
regulatory approval.
Once approved, the FDA may withdraw the product approval if compliance
with pre- and post-marketing regulatory standards is not maintained or if
problems occur after the product reaches the marketplace. In addition, the FDA
may require post-marketing studies, referred to as Phase 4 studies, to monitor
the effect of an approved product, and may limit further marketing of the
product based on the results of these post-market studies. The FDA has broad
post-market regulatory and enforcement powers, including the ability to levy
fines and civil penalties, suspend or delay issuance of approvals, seize or
recall products, or withdraw approvals.
Facilities used to manufacture drugs are subject to periodic inspection
by the FDA, Drug Enforcement Agency and other authorities where applicable, and
must comply with the FDA's Current Good Manufacturing regulations.
Failure to comply with the statutory and regulatory requirements subjects the
manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product or voluntary recall of a product. Adverse
experiences with the product must be reported to the FDA and could result in
the imposition of market restriction through labeling changes or in product
removal. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or efficacy of
the product occur following approval.
With respect to post-market product advertising and promotion, the FDA
imposes a number of complex regulations on entities that advertise and promote
pharmaceuticals, which include, among other things, standards and regulations
relating to direct-to-consumer advertising, off-label promotion, industry
sponsored scientific and educational activities, and promotional activities
involving the Internet. The FDA has very broad enforcement authority under the
Federal Food, Drug and Cosmetic Act
, and failure to abide by
these regulations can result in penalties including the issuance of a warning
letter directing the entity to correct deviations from FDA standards, a
requirement that future advertising and promotional materials be pre-cleared by
the FDA, and state and federal civil and criminal investigations and
prosecutions.
Research facilities are subject to various laws and regulations
regarding laboratory practices, the experimental use of animals, and the use
and disposal of hazardous or potentially hazardous substances in connection
with the research in question. In
each of these areas, as above, the government has broad regulatory and
enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products, and withdraw
approvals, any one or more of which could have a material adverse effect upon
us.
Other Government Regulations
.
In addition to laws and regulations enforced
by the FDA, research of Molecular USA's products in the United States are
subject to regulation under National Institutes of Health guidelines, as well
as under the Controlled Substances Act, the Occupational Safety and Health Act,
the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state or local laws and regulations, as research and development of
its products involves the controlled use of hazardous materials, chemicals,
viruses and various radioactive compounds.
In addition to regulations in the United States, Molecular
USA's products are subject to a variety of foreign regulations governing
clinical trials and commercial sales and distribution of its Licensed Products.
Whether or not Molecular USA obtains FDA approval for a product, Molecular USA
or its subsidiaries must obtain approval of a product by the comparable
regulatory authorities of foreign countries before it can commence clinical
trials or marketing of the product in those countries. The approval process
varies from country to country, and the time may be longer or shorter than that
required for FDA approval. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country
to country.
Sarbanes-Oxley Act of 2002
. On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002, or the SOA. SOA imposes a wide variety of new
requirements on both U.S.
and non-U.S. companies, that file or are required to file periodic reports with
the Securities and Exchange Commission (the "
SEC
") under the Securities Exchange
Act of 1934. Many of these new requirements will affect Molecular USA and its
board of directors. For instance, under SOA Molecular USA is required to:
form an audit committees in compliance with SOA;
have Molecular USA's chief executive officer and chief financial
officer are required to certify its financial statements;
5
ensure Molecular USA's directors and senior officers are required
to forfeit all bonuses or other incentive-based compensation and profits
received from the sale of Molecular USA's securities in the twelve month
period following initial publication of any of Molecular USA's financial
statements that later require restatement;
disclose any off-balance sheet transactions as required by SOA;
prohibit all personal loans to directors and officers;
insure directors, officers and 10% holders file their Forms 4's within
two days of a transaction;
adopt a code of ethics and file a Form 8-K whenever there is a change
or waiver of this code; and
insure Molecular USA's auditor is independent as defined by SOA.
SOA has required us to review our current
procedures and policies to determine whether they comply with the SOA and the
new regulations promulgated thereunder. We will continue to monitor our
compliance with all future regulations that are adopted under the SOA and will
take whatever actions are necessary to ensure that we are in compliance.
The
nature of Molecular USA's and MPLA's business does not require
special environmental or local government approval. Molecular USA and MPLA are compliant with all
environmental laws. The cost of such compliance is minimal for the Corporation.
In the year ended 2010, Molecular USA did not
have any employees and does not intend to hire any employees in the upcoming
year. We rely heavily on outside
contractors to conduct our business.
The Corporation, through its subsidiary MPLA, plans to continue to
pursue the various levels of the international regulatory approval processes.
Applications and product opportunities for Tripeptofen are believed to be broad
and cover a range of commercial fields, each with distinct pre-market
requirements. The international drug development team, global resources and
local know-how will allow MPLA to seek the most time and cost effective
regulatory pathways for each product and market sector.
On commercial development, MPLA will focus on consolidating the
regulatory pathway work in order to prioritize the path to market. Jeff Edwards
will work to set-out the strategies designed to maximize the
multi-jurisdictional capabilities of MPLA's development teams.
We are required to file annual reports on Form
10-K and quarterly reports on Form 10-Q with the Securities Exchange Commission
on a regular basis, and will be required to timely disclose certain material
events (e.g., changes in corporate control; acquisitions or dispositions of a
significant amount of assets other than in the ordinary course of business; and
bankruptcy) in a current report on Form 8-K.
Although our Internet site www.mpl-usa.com does
not contain our reports, you may read and copy any materials we file with the
Securities and Exchange Commission at their Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Additionally, the SEC maintains an
Internet site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC.
No disclosure is required hereunder as the Corporation is a
"smaller reporting company," as defined in Item 10(f) of Regulation
S-K.
6
Not applicable.
Molecular USA's office space is located
at Drug Discovery Centre, 28 Oxford Street, Leederville 6007 Perth, Western
Australia. This office space was
provided free of charge during the year ended June 30, 2010, from a company
controlled by an officer of PharmaNet.
We know of no material, active or pending legal
proceedings against our Corporation, nor are we involved as a plaintiff in any
material proceeding or pending litigation.
There are no proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or
has a material interest adverse to our interest.
Not Applicable.
Our common shares are quoted on the PinkSheets
under the symbol "
MLPH
".
The following quotations reflect the high and low bids for our common stock
based on inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. The high and low bid prices for our
common shares (obtained from www.otcmarkets.com) for each full financial
quarter for the two most recent full fiscal years were as follows:
Quarter Ended
(1) (2)
High
Low
June 30, 2010
$0.028
$0.018
March 31, 2010
$0.057
$0.018
December 31, 2009
$0.040
$0.015
September 30, 2009
$0.020
$0.005
June 30, 2009
$0.038
$0.010
March 31, 2009
$0.040
$0.010
December 31, 2008
$0.040
$0.010
September 30, 2008
$0.049
$0.015
June 30, 2008
$0.050
$0.015
(1)
The quotations above reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
(2)
Molecular USA was originally first quoted on the
OTCBB on May 13, 2005 under the symbol "BHWV". Its symbol was changed to
"MLPH" on August 29, 2005. On November 26, 2007, the stock was
moved to the PinkSheet quotation system for failure to comply with NASD
6530. The shares of Molecular were
eligible to be quoted once again on the OTCBB on November 26, 2008 on
application request by a market maker of the common stock of Molecular.
7
Environmental Compliance
Employees
Immediate
Business Plans
Reports to Securities Holders
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 3. Legal
Proceedings
PART II
Item
5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Note
s:
Holders of Common Stock
As of September 20, 2010, there were 19 registered shareholders of Molecular USA's common stock.
Molecular USA has never declared nor paid any cash dividends on its capital stock and does not anticipate paying cash dividends in the foreseeable future. Molecular USA's current policy is to retain any earnings in order to finance the expansion of its operations. Molecular USA's board of directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes .
We do not have any securities authorized for issuance under any equity compensation plans.
None
No disclosure is required hereunder as Molecular USA is a "smaller reporting company," as defined in Item 10(f) of Regulation S-K.
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE CORPORATION FOR YEAR ENDING JUNE 30, 2010, AND SHOULD BE READ IN CONJUNCTION WITH THE CORPORATIONS 'S FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO CONTAINED ELSEWHERE IN THE FORM 10-K
Our consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
For the year ended June 30, 2010, our net loss was $117,220 ($0.001 per share). The loss per share was based on a weighted average of 111,553,740 common shares outstanding. For the year ended June 30, 2009, the net loss was $94,336 ($0.001 per share) based on a weighted average of 111,553,740 common shares outstanding. For the period from inception on July 14, 2004 to June 30, 2010, Molecular USA has an accumulated net loss of $1,550,806. Molecular has working capital deficit of $11,356 at June 30, 2010 (June 30, 2009 - working capital deficit of $20,369). As a result our auditors have qualified their opinion as having substantial doubt about our ability to continue as a going concern unless we are able to generate sufficient cash flows to meet our obligations and sustain our operations .
To achieve our goals and objectives for the next 12 months, we plan to raise additional capital through private placements of our equity securities, proceeds received from the exercise of outstanding options, future financing from our new majority shareholder PharmaNet and, if available on satisfactory terms, debt financing.
If we are unsuccessful in obtaining new capital, our ability to seek and consummate strategic acquisitions to build our company internationally and to expand on our business development and marketing programs could be adversely affected.
8
For the years ended June 30, 2010 and June 30, 2009 and for the period from July 14, 2004 (inception) through to June 30, 2010 .
REVENUES
REVENUE - Molecular has net loss of $117,220 for the year ended June 30, 2010 (year ended June 30, 2009 - loss of $94,336) and $1,550,806 for the period from inception to June 30, 2010 . To date, we have generated no revenue from our business operations.
LOANS - As of June 30, 2010, PharmaNet has loaned Molecular USA a total of $1,465,002 for working capital (year ended June 30, 2009 - $1,246,058). The advance does not carry an interest rate, is unsecured and has no fixed terms of repayment.
COMMON STOCK - Net cash provided by financing activities during the year ended June 30, 2010 was $Nil (year ended June 30, 2009 - $Nil).
EXPENSES
SUMMARY - Total expenses were $117,220 for the year ended June 30, 2010. Expenses have decreased in the year ended June 30, 2010, by $722 from $117,942 in the previous year ended. A total of $1,835,777 in expenses has been incurred by Molecular USA since inception on July 14, 2004, through to June 30, 2010. The decrease in costs over the past year has occurred as the result of a reduction in professional fees over the year. The costs can be subdivided into the following categories.
Molecular USA continues to carefully control its expenses and overall costs as it moves forward with the development of its new business plan. Molecular USA does not have any employees and engages personnel through outside consulting contracts or agreements or other such arrangements
9
INCOME TAX PROVISION : We have losses carried forward for income tax purpose to June 30, 2010. There are no current or deferred tax expenses for the period ended June 30, 2010, due to our loss position. We have fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized as appropriate.
As of June 30, 2010, we have had no off-balance sheet arrangements.
Since the acquisition of MPLA, Molecular USA has adopted MPLA's research and development program to:
MPLA is in the business of developing and commercializing a new analgesic and anti-inflammatory molecule known as Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable for the treatment of common every-day pain. As an analgesic and anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action and its topical or rub-on application.
On April 19, 2006, Molecular USA, announced the filing of a new patent, Tissue Disruption Treatment and Composition for Use (US Patent number 11218382). The patent describes a proprietary process for the manufacture of topical biological secondary injury mediators (B-SIMs) that should have local, rather than systemic, effects and may be significantly less expensive to manufacture than conventional B-SIMs. MPLA is developing its B-SIMs to stop the tissue disruption that occurs after injury by suppressing the body's reactions, such as inflammation and damage/death of otherwise uninjured cells that are triggered in response to primary injury.
The first conditions targeted by MPLA will be the musculoskeletal injuries. The use of a B-SIM in these markets represents a new approach to one of the world's largest over the counter drug markets and includes indications such as joint inflammation, musculoskeletal pain, overuse and strain injuries, burns and even surgical and cosmetic procedures. MPLA's proprietary, industrially scalable peptide-ligand bond exchange (PLBE) B-SIM manufacturing process involves the disassociation of proteins, rather than the far more costly process of assembling B-SIMs one sequence at a time. The patent was lodged in the name of Cambridge Scientific Pty Ltd; however, Molecular USA holds the worldwide exclusive license to manufacture, commercialize, market and distribute topical anti-inflammatory and analgesic products based on the proprietary MPL-TL compound.
Molecular USA is still working on the projections regarding the necessary expenditure and time frame involved in pursuing this research and development program. Any such program will also be subject to Molecular USA raising the necessary funds to advance such a program.
Capital expenditures during the year ended June 30, 2010, amounted to $Nil ($114 for the year ended June 30, 2009) Molecular USA does not anticipate any significant purchase or sale of equipment over the next 12 months.
On November 25, 2005, Molecular USA entered into a share purchase agreement dated November 25, 2005 with PharmaNet to acquire 100% of the issued and outstanding shares of MPLA. Molecular USA issued a total of 88,000,000 shares of its common stock to PharmaNet the parent company of MPLA. Accordingly, PharmaNet controls approximately 79% of Molecular USA's issued and outstanding shares of common stock.
10
In February 2010, the Financial Accounting Standard Board ("FASB") issued ASU No. 2010-11, "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives". ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption - one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU No. 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after 15 June 2010. Early adoption is permitted at the beginning of each entity's first fiscal quarter beginning after 5 March 2010. The adoption of ASU No. 2010-11 is not expected to have a material impact on the Company's consolidated financial statements.
In February 2010, the FASB issued ASU No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements", which eliminates the requirement for Securities and Exchange Commission filers to disclose the date through which an entity has evaluated subsequent events. ASU No. 2010-09 is effective for fiscal quarters beginning after 15 December 2010. The adoption of ASU No. 2010-06 is not expected to have a material impact on the Company's consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after 15 December 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after 15 December 2010. As ASU 2010-06 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its consolidated financial statements.
Our audited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.
Effective 1 January 2006, the Company adopted the provisions of ASC 718, "Compensation - Stock Compensation", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, the financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, "Equity-Based Payments to Non-Employees".
Item 7A. Quantitative and Qualitative Disclosures about Market RiskNo disclosure is required hereunder as the Corporation is a "smaller reporting company," as defined in Item 10(f) of Regulation S-K.
11
Auditor's Report dated 9 August 2010, except for Note 12, as to which the date is 21 September 2010.
Consolidated Balance Sheets as at 30 June 2010 and 30 June 2009.
Consolidated Statements of Operations for the years ended 30 June 2010, 30 June 2009 and 30 June 2008 and for the period from the date of inception on 14 July 2004 to 30 June 2010.
Consolidated Statements of Cash Flows for the years ended 30 June 2010, 30 June 2009 and 30 June 2008 and for the period from the date of inception on 14 July 2004 to 30 June 2010.
Consolidated Statement of Stockholders' Deficiency for the years ended 30 June 2010, 30 June 2009 and 30 June 2008 and for the period from the date of inception on 14 July 2004 to 30 June 2010.
Notes to Consolidated Financial Statements
12
James Stafford |
|
James
Stafford
, Inc.
|
Report of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Molecular
Pharmacology (USA)
Limited
(A Development Stage
Company)
We have audited the consolidated balance sheets of Molecular Pharmacology (USA) Limited (A Development Stage Company) (the "Company") as of 30 June 2010 and 2009 and the related consolidated statements of operations, cash flows and changes in stockholders' deficiency for each of the years in the three-year period ended 30 June 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 30 June 2010 and 2009 and the results of its operations, its cash flows and its changes in stockholders' deficiency for each of the years in the three-year period ended 30 June 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, conditions exist which raise substantial doubt about the Company's ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Vancouver , Canada | /s/ James Stafford | |
|
Chartered Accountants | |
9 August 2010, except for Note 12, as to which the date is 21 September 2010 |
13
Molecular Pharmacology (USA) Limited
(A
Development Stage Company)
Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 June 2010
14
Molecular Pharmacology (
USA
) Limited
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S.
Dollars)
As at
|
As at
|
|||
$ |
$ |
|||
Assets |
||||
Current |
||||
Cash and cash equivalents |
7,975 |
7,543 |
||
Amounts receivable |
1,480 |
2,917 |
||
|
9,455 |
10,460 |
||
|
2,197 |
2,920 |
||
|
11,652 |
13,380 |
||
Liabilities |
||||
Current |
||||
Accounts payable and accrued liabilities (Note 4) |
20,811 |
30,829 |
||
|
1,477,711 |
1,273,680 |
||
|
1,498,522 |
1,304,509 |
||
Stockholders' deficiency |
||||
Capital stock (Note 6) |
||||
Authorized |
||||
300,000,000 common shares, par value $0.001 |
||||
Issued and outstanding |
||||
30 June 2010 - 111,553,740 common shares, par value $0.001 |
||||
30 June 2009 - 111,553,740 common shares, par value $0.001 |
111,554 |
111,554 |
||
Additional paid-in capital |
106,707 |
106,707 |
||
Cumulative translation adjustment |
(154,325) |
(75,804) |
||
Deficit, accumulated during the development stage |
(1,550,806) |
(1,433,586) |
||
|
||||
(1,486,870) |
(1,291,129) |
|||
|
11,652 |
13,380 |
Nature and Continuance of Operations (Note 1), Commitment (Note 8), Contingency (Note 11) and Subsequent Event (Note 12)
On behalf of the Board:
/s/ Jeffrey D. Edwards
Director
Jeffrey Edwards
The accompanying notes are an integral part of these consolidated financial statements.
15
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in U.S.
Dollars)
For the
|
For the
|
For the
|
For the
|
|||||||
$ |
$ |
$ |
$ |
|||||||
Expenses |
||||||||||
Advertising and promotion |
23,739 |
- |
- |
- |
||||||
Amortization (Note 3) |
5,653 |
723 |
906 |
1,457 |
||||||
Analysis |
33,947 |
- |
- |
- |
||||||
Consulting (Note 5) |
1,136,827 |
41,920 |
35,214 |
88,332 |
||||||
Office and miscellaneous (Note 5) |
171,155 |
25,144 |
22,358 |
33,079 |
||||||
Professional fees |
268,834 |
44,766 |
52,386 |
64,236 |
||||||
Public relations |
3,656 |
- |
- |
- |
||||||
Rent (Note 5) |
27,759 |
- |
- |
- |
||||||
Salaries and benefits |
44,464 |
- |
- |
- |
||||||
Transfer agent and filing fees |
15,494 |
4,667 |
5,395 |
2,239 |
||||||
Travel |
104,249 |
- |
1,683 |
8,968 |
||||||
|
(1,835,777) |
(117,220) |
(117,942) |
(198,311) |
||||||
|
||||||||||
Export market development grants |
69,629 |
- |
6,455 |
63,174 |
||||||
Interest income |
2,322 |
- |
- |
1,564 |
||||||
Research and development tax refund |
213,020 |
- |
17,151 |
195,869 |
||||||
|
(1,550,806) |
(117,220) |
(94,336) |
62,296 |
||||||
|
(0.001) |
(0.001) |
0.001 |
|||||||
|
111,553,740 |
111,553,740 |
111,553,740 |
|||||||
|
||||||||||
Net income (loss) for the period |
(1,550,806) |
(117,220) |
(94,336) |
62,296 |
||||||
Foreign currency translation adjustment |
(154,325) |
(78,521) |
219,034 |
(166,483) |
||||||
|
(1,705,131) |
(195,741) |
124,698 |
(104,187) |
||||||
|
(0.002) |
0.001 |
(0.001) |
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
16
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S.
Dollars)
For the
|
For the
|
For the
|
For the
|
||||||||
$ |
$ |
$ |
$ |
||||||||
Cash flows from (used in) operating activities |
|||||||||||
Net income (loss) for the period |
(1,550,806) |
(117,220) |
(94,336) |
62,296 |
|||||||
Adjustments to reconcile loss to net cash used by operating activities |
|||||||||||
Amortization (Note 3) |
5,653 |
723 |
906 |
1,457 |
|||||||
Write-down of intangible assets |
1,278 |
- |
- |
- |
|||||||
Changes in operating assets and liabilities |
|||||||||||
Decrease in amounts receivable |
746 |
1,437 |
6,479 |
11,906 |
|||||||
Increase (decrease) in accounts payable and accrued liabilities (Note 4) |
(26,606) |
(10,018) |
11,771 |
(39,943) |
|||||||
|
(1,569,735) |
(125,078) |
(75,180) |
35,716 |
|||||||
|
|||||||||||
Purchase of property, plant and equipment (Note 3) |
(7,850) |
- |
(114) |
- |
|||||||
Purchase of intangible assets |
(1,278) |
- |
- |
- |
|||||||
Cash
acquired on the purchase of Molecular
|
37,163 |
- |
- |
- |
|||||||
|
28,035 |
- |
(114) |
- |
|||||||
|
|||||||||||
Common shares issued for cash (Note 6) |
234,497 |
- |
- |
- |
|||||||
Increase (decrease) in due to related parties (Note 5) |
1,469,503 |
204,031 |
(157,687) |
131,263 |
|||||||
|
1,704,000 |
204,031 |
(157,687) |
131,263 |
|||||||
|
(154,325) |
(78,521) |
219,034 |
(166,483) |
|||||||
|
7,975 |
432 |
(13,947) |
496 |
|||||||
|
- |
7,543 |
21,490 |
20,994 |
|||||||
|
7,975 |
7,975 |
7,543 |
21,490 |
|||||||
Supplemental Disclosures with
Respect to Cash Flows
(Note 9)
The accompanying notes are an integral part of these consolidated
financial statements
17
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Consolidated Statements of
Changes in Stockholders' Deficiency
(Expressed in U.S.
Dollars)
Number of common shares issued |
Capital stock |
Additional paid-in capital |
Deficit, accumulated during the development stage |
Cumulative translation adjustment |
Stockholders' deficiency |
|||||||
$ |
$ |
$ |
$ |
$ |
||||||||
Balance at 14 July 2004 (inception) |
294 |
- |
1 |
- |
- |
1 |
||||||
Net loss for the period |
- |
- |
- |
(128,488) |
- |
(128,488) |
||||||
Cumulative translation adjustment |
- |
- |
- |
- |
(6,536) |
(6,536) |
||||||
|
294 |
- |
1 |
(128,488) |
(6,536) |
(135,023) |
||||||
Common shares issued for cash - January 2005 |
87,999,706 |
88,000 |
146,496 |
- |
- |
234,496 |
||||||
Net loss for the year |
- |
- |
- |
(387,667) |
- |
(387,667) |
||||||
Cumulative translation adjustment |
- |
- |
- |
- |
(161) |
(161) |
||||||
|
88,000,000 |
88,000 |
146,497 |
(516,155) |
(6,697) |
(288,355) |
||||||
Acquisition of Molecular Pharmacology (USA) Limited - Recapitalization May 2006 |
43,553,740 |
43,554 |
(59,790) |
- |
- |
(16,236) |
||||||
Cancellation of common shares - July 2006 |
(20,000,000) |
(20,000) |
20,000 |
- |
- |
- |
||||||
Net loss for the year |
- |
- |
- |
(508,260) |
- |
(508,260) |
||||||
Cumulative translation adjustment |
- |
- |
- |
- |
(16,222) |
(16,222) |
||||||
|
111,553,740 |
111,554 |
106,707 |
(1,024,415) |
(22,919) |
(829,073) |
||||||
Net loss for the period |
- |
- |
- |
(377,131) |
- |
(377,131) |
||||||
Cumulative translation
|
- |
- |
- |
- |
(105,436) |
(105,436) |
||||||
|
111,553,740 |
111,554 |
106,707 |
(1,401,546) |
(128,355) |
(1,311,640) |
||||||
Net income for the year |
- |
- |
- |
62,296 |
- |
62,296 |
||||||
Cumulative translation
|
- |
- |
- |
- |
(166,483) |
(166,483) |
||||||
|
111,553,740 |
111,554 |
106,707 |
(1,339,250) |
(294,838) |
(1,415,827) |
||||||
Net loss for the year |
- |
- |
- |
(94,336) |
- |
(94,336) |
||||||
Cumulative translation
|
- |
- |
- |
- |
219,034 |
219,034 |
||||||
|
111,553,740 |
111,554 |
106,707 |
(1,433,586) |
(75,804) |
(1,291,129) |
||||||
Net loss for the year |
- |
- |
- |
(117,220) |
- |
(117,220) |
||||||
Cumulative translation
|
- |
- |
- |
- |
(78,521) |
(78,521) |
||||||
|
111,553,740 |
111,554 |
106,707 |
(1,550,806) |
(154,325) |
(1,486,870) |
The accompanying notes are an integral part of these consolidated financial statements.
18
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes to Consolidated
Financial Statements
(Expressed in U.S.
Dollars)
30 June 2010
1. Nature and Continuance of Operations
Molecular Pharmacology (USA) Limited (the "Company") was incorporated in the state of Nevada on 1 May 2002 under the name Blue Hawk Ventures, Inc. The Company changed its name to Molecular Pharmacology (USA) Limited on 29 August 2005. At the same time, the Company completed a four for one forward split of its issued and outstanding share capital and altered its share capital to 300,000,000 shares of common stock with a par value of $0.001 per share.
The Company is a development stage enterprise, as defined in Accounting Standards Codification (the "Codification" or "ASC") 915-10, " Development Stage Entities ". The Company is devoting all of its present efforts to securing and establishing a new business and its current planned principle operations have not commenced. Accordingly, no revenue has been derived during the organization period.
Up until the fall of 2005, the Company was in the business of mineral exploration and development of a mineral property. The Company allowed the option on its mineral claim to lapse in the fall of 2005.
On 13 October 2005, the Company entered into a distribution and supply agreement (the "Distribution Agreement") with Molecular Pharmacology Pty Ltd (formerly Molecular Pharmacology Limited) ("MPLA"). MPLA is incorporated under the laws of Australia and converted to a proprietary company on 29 October 2009. MPLA is a wholly owned subsidiary company of PharmaNet Group Limited ("PharmaNet"), an Australian company listed on the Australian Stock Exchange. Under the terms of the Distribution Agreement, the Company has the exclusive distribution rights to distribute, market, promote, detail, advertise and sell certain "Licensed Products", as defined in the agreement (Note 8).
Since signing the Distribution Agreement with MPLA, the Company has engaged in organizational and start up activities, including developing a new business plan, recruiting new directors, scientific advisors and key scientists, making arrangements for laboratory facilities and office space and raising additional capital. The Company has generated no revenue from product sales. The Company does not have any pharmaceutical products currently available for sale, and none are expected to be commercially available for some time, if at all. The Licensed Products must first undergo pre-clinical and human clinical testing in the United States before they may be sold commercially.
The Company completed a share purchase agreement on 8 May 2006 with PharmaNet. Under the terms of the agreement the Company acquired 100% of the issued and outstanding shares of MPLA (the "Purchase Agreement"). The Company, in exchange for 100% of the issued and outstanding shares of MPLA, issued PharmaNet an aggregate total of 88,000,000 common shares of the Company on the closing of the transaction. The issuance of 88,000,000 common shares of the Company constituted an acquisition of control of the Company by PharmaNet. The transaction has been accounted for as a recapitalization of the Company (Note 2).
MPLA was incorporated on 14 July 2004 under the laws of Australia. The accompanying consolidated financial statements are the historical financial statements of MPLA.
19
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes to Consolidated
Financial Statements
(Expressed in U.S.
Dollars)
30 June 2010
On 15 March 2007, the Board of Directors approved a change in the Company's financial year end from 31 October to 30 June. The decision to change the fiscal year end was intended to assist the financial community in its analysis of the business and in comparing the Company's financial results to others in the industry, and to synchronize the Company's fiscal reporting with MPLA.
The Company's consolidated financial statements as at 30 June 2010 and for the year then ended have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a net loss of $117,220 for the year ended 30 June 2010 (30 June 2009 - net loss of $94,336, 30 June 2008 - net income of $62,296, cumulative - net loss of $1,550,806) and has a working capital deficit of $11,356 at 30 June 2010 (working capital deficit as at 30 June 2009 - $20,369).
Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company's capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 30 June 2011. However, if the Company is unable to raise additional capital in the near future, due to the Company's liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
At 30 June 2010, the Company has suffered losses from development stage activities to date. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2. Significant Accounting Policies
The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.
Basis of presentation
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") applicable for a development stage company for financial information and are expressed in U.S. dollars.
Principle of consolidation
These consolidated financial statements include the accounts of MPLA since its incorporation on 14 July 2004 and Molecular Pharmacology (USA) Limited since the reverse acquisition on 8 May 2006 (Note 1). All intercompany balances and transactions have been eliminated.
20
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes to Consolidated
Financial Statements
(Expressed in U.S.
Dollars)
30 June 2010
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
Financial instruments
The carrying value of cash and cash equivalents, amounts receivable, accounts payable and due to related parties approximates their fair value because of the short maturity of these instruments. The Company's operations are in Australia and virtually all of its assets and liabilities give rise to significant exposure to market risks from changes in foreign currency rates. The Company's financial risk is the risk that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
Foreign currency translation
The Company's functional and reporting currency is U.S. dollars. The consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, " Foreign Currency Matters ". Assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to Other Comprehensive Income . The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Derivative financial instruments
The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Equipment
Equipment is recorded at cost and amortization is provided over their
estimated economic lives at the rate of 15% declining balance.
Income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, " Income Taxes ", which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry forwards.
21
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.
Comprehensive income (loss)
ASC 220, " Comprehensive Income ", establishes standards for the reporting and display of comprehensive income (loss) and its components in the financial statements. As at 30 June 2010, the Company has items that represent a comprehensive income (loss) and, therefore, has included a schedule of comprehensive income (loss) in the consolidated financial statements.
Basic and diluted net loss per share
The Company computes net loss per share in accordance with ASC 260 " Earnings per Share ". ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.
Stock-based compensation
Effective 1 January 2006, the Company adopted the provisions of ASC 718, " Compensation - Stock Compensation ", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, the financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, " Equity-Based Payments to Non-Employees ".
22
Changes in accounting policies
Fair Value Measurement and Disclosure
In August 2009, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") No. 2009-05, " Fair Value Measurement and Disclosure (Topic 820) - Measuring Liabilities at Fair Value ", which provides valuation techniques to measure fair value in circumstances in which a quoted price in an active market for the identical liability is not available. The guidance provided in this update is effective 1 October 2009. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
The Accounting Standards Codification
In June 2009, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 168, " The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principle - a replacement of FASB Statement No. 162 ". The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setter into a single source of authoritative accounting principles arranged by topic. The Codification supersedes all existing U.S. accounting standards; all other accounting literature not included in the Codification (other than Securities and Exchange Commission guidance for publicly-traded companies) is considered non-authoritative. The Codification was effective on a prospective basis for and annual reporting periods ending after 15 September 2009. The adoption of the Codification changed the Company's references to U.S. GAAP accounting standards, but did not impact the Company's results of operations, financial position or liquidity.
Interest in a Variable Interest Entity
In June 2009, the FASB issued SFAS No. 167, " Amendments to FASB Interpretation No. 46(R) ". SFAS No. 167, which amends ASC 810-10, " Consolidation ", prescribes a qualitative model for identifying whether a company has a controlling financial interest in a variable interest entity ("VIE") and eliminates the quantitative model. The new model identifies two primary characteristics of a controlling financial interest: (1) provides a company with the power to direct significant activities of the VIE, and (2) obligates a company to absorb losses of and/or provides rights to receive benefits from the VIE. SFAS No. 167 requires a company to reassess on an ongoing basis whether it holds a controlling financial interest in a VIE. A company that holds a controlling financial interest is deemed to be the primary beneficiary of the VIE and is required to consolidate the VIE. SFAS No. 167, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative. SFAS No. 167 is effective for financial statements issued for fiscal years and interim periods beginning after 15 November 2009. The adoption of SFAS No. 167 did not have a material impact on the Company's consolidated financial statements.
23
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes to Consolidated
Financial Statements
(Expressed in U.S.
Dollars)
30 June 2010
Transfer of Financial Assets
In June 2009, the FASB issued SFAS No. 166, " Accounting for Transfer of Financial Assets - an amendment of FASB Statement ". SFAS No. 166 removes the concept of a qualifying special-purpose entity from ASC 860-10, " Transfers and Servicing ", and removes the exception from applying ASC 810-10, " Consolidation ". This statements also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. SFAS No. 166, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative. SFAS No. 166 is effective for financial statements issued for fiscal years and interim periods beginning after 15 November 2009. The adoption of SFAS No. 166 did not have a material impact on the Company's consolidated financial statements.
Subsequent Events
In May 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855, " Subsequent Events " is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. The new guidance was effective on a prospective basis for our annual reporting periods ending after 15 June 2009. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Convertible Debt
In May 2008, the FASB issued new guidance for accounting for convertible debt instruments that may be settled in cash. The new guidance, which is now part of ASC 470-20, " Debt with Conversion and Other Options " requires the liability and equity components to be separately accounted for in a manner that will reflect the entity's nonconvertible debt borrowing rate. The Company will allocate a portion of the proceeds received from the issuance of convertible notes between a liability and equity component by determining the fair value of the liability component using the Company's nonconvertible debt borrowing rate. The difference between the proceeds of the notes and the fair value of the liability component will be recorded as a discount on the debt with a corresponding offset to additional paid-in capital. The resulting discount will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes using the effective interest rate method. The new guidance was to be applied retrospectively to all periods presented upon those fiscal years. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
24
Useful Life of Intangible Assets
In April 2008, the FASB issued new guidance for determining the useful life of intangible assets, which is now part of ASC 350, " Intangibles - Goodwill and Other ". In determining the useful life of intangible assets, ASC 350 removes the requirement to consider whether an intangible asset can be renewed without substantial cost of material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. ASC 350 also requires expanded disclosure related to the determination of intangible asset useful lives. The new guidance was effective for financial statements issued for fiscal years beginning after 15 December 2008. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging activities. The new guidance, which is now part of ASC 815, " Derivatives and Hedging Activities " requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The new guidance was effective prospectively for financial statements issued for fiscal years beginning after 15 November 2008, with early application encouraged. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.
Business Combinations
In December 2007, the FASB issued revised guidance for accounting for business combinations. The revised guidance, which is now part of ASC 805, " Business Combination " requires the fair value measurement of assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, at the acquisition date with limited exceptions. Previously, a cost allocation approach was used to allocate the cost of the acquisition based on the estimated fair value of the individual assets acquired and liabilities assumed. The cost allocation approach treated acquisition-related costs and restructuring costs that the acquirer expected to incur as a liability on the acquisition date, as part of the cost of the acquisition. Under the revised guidance, those costs are recognized in the statement of income separately from the business combination. The revised guidance applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 15 December 2008. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
25
Recent accounting pronouncements
In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after 15 December 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after 15 December 2010. As ASU 2010-06 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its consolidated financial statements.
In February 2010, the FASB issued ASU No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements" , which eliminates the requirement for Securities and Exchange Commission filers to disclose the date through which an entity has evaluated subsequent events. ASU No. 2010-09 is effective for fiscal quarters beginning after 15 December 2010. The adoption of ASU No. 2010-06 is not expected to have a material impact on the Company's consolidated financial statements.
In February 2010, the FASB issued ASU No. 2010-11, "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives" . ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption - one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU No. 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after 15 June 2010. Early adoption is permitted at the beginning of each entity's first fiscal quarter beginning after 5 March 2010. The adoption of ASU No. 2010-11 is not expected to have a material impact on the Company's consolidated financial statements.
3. Equipment
Accumulated amortization |
Net Book Value |
|||||||
Cost |
As at 30 June 2010 |
As at 30 June 2009 |
||||||
$ |
$ |
$ |
$ |
|||||
Office equipment |
7,840 |
5,643 |
2,197 |
2,920 |
During the year ended 30 June 2010 the total additions to equipment were $Nil (30 June 2009 - $114).
26
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.
5. Due to Related Parties and Related Party Transactions
As at 30 June 2010, the amount due to related parties includes $1,000 payable to a director of the Company (30 June 2009 - $1,000). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 30 June 2010, the amount due to related parties includes $11,030 payable to a company owned by a director of the Company or an officer of PharmaNet (30 June 2009 - $25,498). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 30 June 2010, the amount due to related parties includes $Nil payable to a company owned by a director of the Company or an officer of PharmaNet (30 June 2009 - $1,124). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 30 June 2010, the amount due to related parties includes $679 payable to a company owned by a director of the Company or an officer of PharmaNet (30 June 2009 - $Nil). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 30 June 2010, the amount due to related parties includes $1,465,002 payable to PharmaNet (30 June 2009 - $1,246,058). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
During the year ended 30 June 2010, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued consulting fees of $41,920 (30 June 2009 - $33,877, 30 June 2008 - $79,118, cumulative - $772,494) by the Company.
During the year ended 30 June 2010, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued office and miscellaneous expenses of $17,352 (30 June 2009 - $19,279, 30 June 2008 - $29,355, cumulative - $80,468) by the Company.
During the year ended 30 June 2010, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued office and miscellaneous expenses of and $4,481 (30 June 2009 - $Nil, 30 June 2008 - $Nil, cumulative - $4,481) by the Company.
During the year ended 30 June 2010, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or accrued rental fees of $Nil (30 June 2009 - $Nil, 30 June 2008 - $Nil, cumulative - $12,987) by the Company.
27
Transactions comprising the amount due to PharmaNet are as follows:
For the
|
For the
|
|||
$ |
$ |
|||
Opening balance, beginning of period |
1,246,058 |
1,411,131 |
||
Funds transferred to the Company by PharmaNet |
144,667 |
57,948 |
||
Expenses paid by PharmaNet on behalf of the Company |
1,557 |
520 |
||
Foreign currency translation adjustment |
72,720 |
(223,541) |
||
Balances as at 30 June 2010 and 2009 |
1,465,002 |
1,246,058 |
The average amount due to PharmaNet for the year ended 30 June 2010 was $1,540,053 (30 June 2009 - $1,270,929, 30 June 2008 - $1,285,705).
6. Capital Stock
Authorized
The total authorized capital is 300,000,000 common shares with a par value of $0.001 per common share.
Issued and outstanding
The total issued and outstanding capital stock is 111,553,740 common shares with a par value of $0.001 per common share.
28
7. Income Taxes
Income tax expense differs from the amount that would result from
applying the federal income tax rate to earnings before income taxes. These differences result from the
following items:
For the
|
For the
|
For the
|
|||
$ |
$ |
$ |
|||
Loss before income taxes |
(117,220) |
(94,336) |
62,296 |
||
Federal income tax rates |
34.0% |
34.0% |
34.0% |
||
Income tax recovery based on the above rates |
(39,855) |
(32,074) |
21,180 |
||
Increase (decrease) due to: |
|||||
Non-deductible expenses |
- |
- |
364 |
||
Difference between US and foreign tax rates |
2,738 |
1,458 |
(5,553) |
||
Change in valuation allowance |
53,228 |
(16,114) |
50,918 |
||
Research and development tax refund not subject to tax |
- |
(5,145) |
(58,761) |
||
Foreign exchange and other |
(16,111) |
51,875 |
(8,148) |
||
Income tax expense |
- |
- |
- |
The composition of the Company's deferred tax assets as at 30
June 2010 and 2009 are as follows:
As at
|
As at
|
|||
$ |
$ |
|||
Net income tax operating loss carryforward |
1,650,819 |
1,479,897 |
||
Deferred tax assets |
521,868 |
468,640 |
||
Less: Valuation allowance |
(521,868) |
(468,640) |
||
Net deferred tax asset |
- |
- |
29
The Company has non-capital loss carry-forwards of approximately $1,650,819 that may be available for tax purposes. The loss carry-forwards are all in respect of US and Australian operations and expire as follows:
2022 |
20,402 |
2023 |
46,992 |
2024 |
27,717 |
2025 |
14,187 |
2026 |
261,311 |
2027 |
111,155 |
2028 |
77,128 |
2029 |
57,881 |
2030 |
48,766 |
No expiry |
985,280 |
1,650,819 |
A full valuation allowance has been recorded
against the potential deferred tax assets associated with all the loss
carry-forwards as their utilization is not considered more likely than not at
this time.
8. Commitment
On 13 October 2005, t he Company entered into the Distribution Agreement with MPLA (Note 1).
The basic terms of the Distribution Agreement are as follows:
MPLA has granted exclusive distribution rights to the Company to
distribute, market, promote, detail, advertise and sell certain "Licensed
Products", as defined in the Distribution Agreement, with metallo-polypeptide analgesic as an active ingredient, in the United States
(excluding its territories and possessions);
The Company paid MPLA $1,000 upon the date of execution of the Distribution Agreement and is required to pay $100,000 six months from the date of execution of the Distribution Agreement or the date that any Licensed Product is available and ready for distribution and sale in commercial quantities in the United States under the terms of the Distribution Agreement (the "Commencement Date"), whichever occurs first;
The Company is also required to pay MPLA a royalty of 5% as set out in the Distribution Agreement;
MPLA will supply all Licensed Products to the Company under the Distribution Agreement;
MPLA is responsible for obtaining all necessary regulatory approvals for the licensed product in the United States; and
30
The Distribution Agreement is for a one year term from the Commencement Date and may be automatically extended by successive one-year periods, unless at least three months prior to the renewal date, as defined in the Distribution Agreement, either party advises the other party that it elects not to permit the extension of the term.
The
$100,000 payment to MPLA according to the terms of the Distribution Agreement
has not yet been made and the Company is currently renegotiating the terms of
the Distribution Agreement (Note 11).
9. Supplemental Disclosures with Respect to Cash Flows
For the
|
For the
|
For the
|
For the
|
|||||||
$ |
$ |
$ |
$ |
|||||||
Cash paid during the year for interest |
- |
- |
- |
- |
||||||
Cash paid during the year for income taxes |
- |
- |
- |
- |
||||||
Common shares issued on acquisition of MPLA |
16,236 |
- |
- |
- |
||||||
Amounts receivable acquired on recapitalization of the Company |
2,226 |
- |
- |
- |
||||||
Accounts payable assumed on recapitalization of the Company |
54,624 |
- |
- |
- |
||||||
Due to related party assumed on recapitalization of the Company |
1,000 |
- |
- |
- |
31
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes to Consolidated
Financial Statements
(Expressed in U.S.
Dollars)
30 June 2010
10. Segmented Information
Details on a geographic basis as at 30 June 2010 are as follows:
Australia |
U.S.A. |
Total |
||||
$ |
$ |
$ |
||||
Assets |
405,152 |
(393,500) |
11,652 |
|||
Loss for the year |
(68,454) |
(48,766) |
(117,220) |
Details on a geographic basis as at 30 June 2009 are as follows:
Australia |
U.S.A. |
Total |
||||
$ |
$ |
$ |
||||
Assets |
348,654 |
(335,274) |
13,380 |
|||
Loss for the year |
(36,455) |
(57,881) |
(94,336) |
Details on a geographic basis as at 30 June 2008 are as follows:
Australia |
U.S.A. |
Total |
||||
$ |
$ |
$ |
||||
Assets |
318,283 |
(283,685) |
34,598 |
|||
Loss for the year |
138,829 |
(76,533) |
62,296 |
11. Contingency
The $100,000 payment to MPLA according to the terms of the Distribution Agreement has not yet been made and the Company is currently renegotiating the terms of the Distribution Agreement (Note 8).
12. Subsequent Event
There are no subsequent events for the period from the date of the year ended 30 June 2010 to the date the consolidated financial statements were available to be issued on 21 September 2010.
32
Molecular USA had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 8.
Item 9A. Controls and ProceduresDisclosure controls are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management carried out an evaluation (with the participation of our CEO and CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, the Corporation's CEO and CFO have concluded that the Corporation's disclosure controls and procedures were not effective as of October 31, 2008, due to management's failure to include its report on internal control over financial reporting in the Form 10-KSB as required by Item 308T(a)(3) of Regulation S-B. This matter has now been corrected and added to our financial filing checklist.
(b) Internal control over financial reportingManagement's annual report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting should include those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of our internal control over financial reporting as of June 30, 2010. Management's assessment took into consideration the size and complexity of the company and was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting -Guidance for Smaller Public Companies. In performing the assessment, management has concluded that our internal control over financial reporting was effective as of June 30, 2010.
33
Attestation report of the registered public accounting firm
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Corporation to provide only management's report in this annual report.
Changes in internal control over financial reporting
There were no changes in our internal controls that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls.
Changes in Internal Controls
Based on the evaluation as of June 30, 2010, Jeff Edwards, our President and Chief Executive Officer, and our Chief Financial Officer have concluded that there were no significant changes in our internal controls over financial reporting or in any other areas that could significantly affect our internal controls subsequent to the date of his most recent evaluation, including corrective actions with regard to significant deficiencies and material weaknesses.
See Item 9A - Controls and Procedures above
None
Identification of Directors and Executive Officers
The following table sets forth the names of all directors and executive officers of the Molecular USA as of September 23, 2010 and June 30, 2010. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.
Name |
Age |
Position |
Date Position
|
Jeffrey D. Edwards |
59 |
President and Chief Executive Officer, acting Chief Financial Officer and Director |
October 28, 2005 |
Mr. Jeffrey D. Edwards . Mr. Edwards has over twenty years of experience in managing new technological innovations in the medical device and pharmaceutical industry. From 2002 to 2005, Mr. Edwards as president and shareholder of International Scientific Pty Ltd., managed a variety of medical and technology projects. In 2002 and 2003, Mr. Edwards was actively involved with Colltech Australia Limited, a company involved in the production and sale of collagen. Colltech is listed on the Australian Stock Exchange ("CAU"). From its inception in 1995 to 2001, Mr. Edwards was the executive director of Genesis Biomedical Limited, a pharmaceuticals & biotechnology listed on the Australian Stock Exchange ("GBL"). While at Genesis, Mr. Edwards was responsible for all medical and clinical activities of the company as well as all day to day management of staff and corporate activities. Mr. Edwards currently serves as a director of: OBJ Limited, a drug delivery company listed on the Australian Stock Exchange ("OBJ") (2005) and Global Energy Medicine Pty Ltd., a private therapeutic device company (2005). He also holds the office of Chief Operations Officer of Molecular Pharmacology Limited, a wholly owned subsidiary of Molecular USA.
34
Not applicable.
We have no employees who are not executive officers, but who are expected to make a significant contribution to the Corporation's business.
During the past five years, none of our directors, or persons nominated to become a director, or executive officer, promoter or control person:
was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
as found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
We do not have a member on our Board of Directors that has been designated as an audit committee "financial expert." We do not believe that the addition of such an expert would add anything meaningful to the Corporation at this time. It is also unlikely we would be able to attract an independent financial expert to serve on our Board of Directors at this stage of our development. In order to entice such a director to join our Board of Directors we would probably need to acquire directors' errors and omission liability insurance and provide some form of meaningful compensation to such a director; two things we are unable to afford at this time.
Under the applicable SEC standards, an audit committee financial expert means a person who has the following attributes:
Molecular USA has a designated audit committee consisting of solely of Mr. Edwards. Mr. Edwards does not meet the independent requirements for an audit committee member. Molecular USA's audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee. Molecular USA has adopted an audit committee charter.
35
Molecular USA has a disclosure committee and disclosure committee charter. Molecular USA's disclosure committee is comprised of all of its officers and directors. The purpose of the committee is to provide assistance to the chief executive officer and the chief financial officer in fulfilling their responsibilities regarding the identification and disclosure of material information about Molecular USA and the accuracy, completeness and timeliness of Molecular USA's financial reports.
Compliance with Section 16(a) of the Securities Exchange Act of 1934Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our executive officers and directors and persons who own more than 10% of a registered class of our equity securities file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.
To the best of our knowledge, during the fiscal year ended June 30, 2010, all executive officers, directors and greater than 10% shareholders filed the required reports in a timely manner.
Molecular USA has adopted a code of ethics that applies to all its executive officers and employees, including its CEO and CFO. A copy of Molecular USA's adopted code of ethics is attached to this annual report. Molecular USA undertakes to provide any person with a copy of its code of ethics free of charge. Please contact Molecular USA at 011-61-8-9443-3011 to request a copy of Molecular USA's code of ethics. Management believes Molecular USA's code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
The following table summarizes the compensation paid to our President and Chief Executive Officer during the last three complete fiscal years. No other officer or director received annual compensation in excess of $100,000 during the last three complete fiscal years.
SUMMARY COMPENSATION TABLE |
|||||||||
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
Stock
|
Option
|
Non-Equity
|
Nonquali-
|
All Other
|
Total
|
John Palermo
|
2010 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
$63,753 |
$63,753 |
2009 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
$58,877 |
$58,877 |
|
2008 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
$80,361 |
$80,361 |
|
Jeffery D. Edwards, President, CEO and Director (2) |
2010 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
2009 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
2008 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
$228,112 |
$228,112 |
|
Simon Watson, CFO, Secretary and Director (3) |
2009 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
2008 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
36
Notes : |
|
(1) |
Mr. John Palermo is the Corporate Secretary of PharmaNet. He is not a director or officer of Molecular USA. Mr. Palermo or entities controlled by him were paid or accrued consulting fees during the fiscal periods ended June 30, 2010, fiscal year ended June 30, 2009 and the fiscal year ended June 30, 2008. Mr. Palermos or entities controlled by him also were paid or accrued rental fees of $Nil during the fiscal year ended June 30, 2010 |
(2) |
Mr. Jeffery D. Edwards was appointed to the office of President and Chief Executive Officer of Molecular USA on July 20, 2006. |
(3) |
Mr. Watson was appointed to the office of Chief Financial Officer, Secretary and director of Molecular US on June 7, 2006 and resigned as a director and officer of Molecular USA on November 12, 2008 |
As of the date of this annual report, we have no compensatory plan or arrangement with respect to any officer that results or will result in the payment of compensation in any form from the resignation, retirement or any other termination of employment of such officer's employment with our Corporation, from a change in control of our Corporation or a change in such officer's responsibilities following a change in control.
The Board of Directors of Molecular USA is responsible for reviewing and determining the annual salary and other compensation of the executive officers and key employees of Molecular USA. The goals of Molecular USA are to align compensation with business objectives and performance and to enable Molecular USA to attract, retain and reward executive officers and other key employees who contribute to the long-term success of Molecular USA. Molecular USA will provide base salaries to its executive officers and key employees sufficient to provide motivation to achieve certain operating goals. Although salaries are not specifically tied to performance, incentive bonuses are available to certain executive officers and key employees. In the future, executive compensation may include without limitation cash bonuses, stock option grants and stock reward grants. In addition, Molecular USA may set up a pension plan or similar retirement plans.
Molecular USA has no pension, health, annuity, insurance, profit sharing or similar benefit plans.
During the fiscal years ended June 30, 2010 and June 30, 2009, we did not grant any stock options or stock appreciation rights to any of our directors or officers. There were no stock options exercised during the fiscal year ended June 30, 2010 or June 30, 2009, and there were no stock options or stock appreciation rights outstanding on June 30, 2010 or June 30, 2009.
Long-Term Incentive Plans/ Equity Compensation PlanThere are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.
We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.
No cash compensation was paid to any of our directors for the director's services as a director during the year ended June 30, 2010 or since our inception. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors except for the granting from time to time of incentive stock options. The board of directors may award special remuneration to any director undertaking any special services on behalf of our Corporation other than services ordinarily required of a director. Other than indicated below, no director received and/or accrued any compensation for his services as a director, including committee participation and/or special assignments.
37
Molecular USA has not adopted a stock option plan or long-term incentive plans at this time.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSecurity Ownership of Certain Beneficial Owners and Management
The following table sets forth, as at September 23, 2010, certain information with respect to the beneficial ownership of our common stock by each shareholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, and by each of our current directors and executive officers.
Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Ownership (1) |
Percentage of Class (1) |
|||
Pharmanet Group Limited
|
78.89% |
78.89% |
|||
Jeffery Edwards
|
0 |
0% |
|||
Directors and Executive Officers as a Group |
0 |
0% |
|||
Notes: |
|||||
(1) |
Based on 111,553,740 shares of common stock issued and outstanding as of September 23, 2010. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. |
||||
There are no present arrangements or pledges of the Corporations securities which may result in a change in control of the Corporation.
I tem 13. Certain Relationships and Related Transactions, and Directors IndependenceOther than as noted below, none of the following parties has, during the fiscal year ended June 30, 2010, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
38
As at June 30, 2010, we owe $1,000 to Jeff Edwards, a director and officer of Molecular USA, for monies advanced by him to us (June 30, 2009 -$1,000). The advances do not carry an interest rate and are due on demand.
As at June 30, 2010 we owed $11,030 to a company owned by a director of Molecular USA or an officer of PharmaNet (June 30, 2009 -$25,498).
As at June 30, 2010, the amount due to related parties includes $Nil payable to a company owned by a director of Molecular USA or an officer of PharmaNet (June 30, 2009 - $1,124). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at June 30, 2010, the amount due to related parties includes $679 payable to a company owned by a director of Molecular USA or an officer of PharmaNet (June 30, 2009 - $Nil). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As of June 30, 2010 we owed $1,465,002 to PharmaNet for loans advanced to us (June 30, 2009- $1,246,058). PharmaNet owns approximately 78.89% of the common stock of Molecular USA. This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
During the fiscal year ended June 30, 2010, officers and directors of PharmaNet and companies controlled by them were paid or accrued consulting fees of $41,920 (June 30, 2009 - $33,877, June 30, 2008 - $79,118 cumulative $772,494) by the Corporation.
During the year ended June 30, 2010, a director of Molecular USA or an officer of PharmaNet, and their controlled entities were paid or accrued office and miscellaneous expenses of $17,352 (June 30, 2009 - $19,279, June 30, 2008 - $29,355, cumulative - $80,468) by the Corporation.
During the year ended June 30, 2010, a director Molecular USA or an officer of PharmaNet, and their controlled entities were paid or accrued office and miscellaneous expenses of and $4,481 (June 30, 2009 - $Nil, June 30, 2008 - $Nil, cumulative - $4,481) by the Corporation.
During the fiscal year ended June 30, 2010, officers and directors of PharmaNet or companies controlled by them were paid or accrued rental fees of $Nil (June 30, 2009 - $Nil, June 30, 2008 cumulative - $12,987).
As at the date of this annual report, we do not have any policies in place with respect to whether we will enter into agreements with related parties in the future.
We currently do not have any independent directors, as the term "independent" is defined by the rules of the NASDAQ Stock Market (Note: Our shares of common stock are not listed on NASDAQ or any other national securities exchange and this reference is used for definition purposes only).
Our principal accountant, James Stafford Chartered Accountants, billed an aggregate of $18,158 for the fiscal year ended June 30, 2010 and for professional services rendered for the audited of the Corporation's annual financial statements and review of the financial statements for the included in its quarterly reports.
39
The following is an aggregate of fees billed for each of the fiscal years ended June 30, 2010 and June 30, 2009 for professional services rendered by our principal accountants:
Fiscal
|
Fiscal
|
|
Audit fees* |
$12,881 |
$14,642 |
Audit-related fees |
5,277 |
4,453 |
Tax fees |
- |
- |
All other fees |
- |
- |
Total fees paid or accrued to our principal accountants |
$18,158 |
$19,095 |
* Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements, the review of the financial statements included in each of our quarterly reports on Form 10-Q.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee's policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. We approved all services that our independent accountants provided to us in the past two fiscal years.
Exhibit Number |
Exhibit Title |
2.1 |
Share Purchase Agreement dated November 25, 2005 to acquire Molecular Pharmacology Limited (incorporated by reference from our Form 10-KSB Registration Statement, filed January 31, 2006) |
3.1 |
Articles of Incorporation as Amended (incorporated by reference from our Form 10-SB Registration Statement, filed January 23, 2003) |
3.2 |
Certificate of Amendment to Articles of Incorporation, dated July 15, 2002 (incorporated by reference from our Form 10-SB, filed January 23, 2003) |
3.3 |
Certificate of Amendment to Articles of Incorporation, dated August 29, 2005 |
3.4 |
Bylaws (incorporated by reference from our Form 10-SB Registration Statement, filed May 2002 |
14.1 |
Code of Ethics (incorporated by reference from our Form 10-KSB Registration Statement, filed January 31, 2006) |
21 |
Subsidiaries of Molecular USA (incorporated by reference from our Form 10-KSB Registration Statement, filed January 31, 2006) |
31.1 |
Certificate of CEO as Required by Rule 13a-14(a)/15d-14 |
31.2 |
Certificate of CFO as Required by Rule 13a-14(a)/15d-14 |
32 |
Certificate of CEO and CFO as Required by Rule Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code |
99.1 |
Disclosure Committee Charter (incorporated by reference from our Form 10-KSB Registration Statement, filed January 31, 2006) |
99.2 |
Audit Committee Charter (incorporated by reference from our Form 10-KSB Registration Statement, filed January 31, 2006) |
40
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.
|
MOLECULAR PHARMACOLOGY (USA) LIMITED |
|
BY: |
|
|
Jeffrey D. Edwards, President and Chief Executive Officer, Chief Financial Officer and Member of the Board of Directors |
||
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
|
||
BY: |
|
|
Jeffrey D. Edwards, President and Chief Executive Officer, Chief Financial Officer and Member of the Board of Directors |
||
|
|
|
41
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