ITEM 1 FINANCIAL STATEMENTS
ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
June 30,
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
121,705
|
|
$
|
511,687
|
|
Prepaid and other current assets
|
|
|
85,097
|
|
|
60,115
|
|
Total current assets
|
|
|
206,802
|
|
|
571,802
|
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
1,268
|
|
|
3,464
|
|
Total assets
|
|
$
|
208,070
|
|
$
|
575,266
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIT
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable (including related party account payable of $750,000 and $650,000, respectively)
|
|
$
|
1,087,810
|
|
$
|
933,547
|
|
Accrued expenses (including related party accrued expenses of $585,000 and $610,000, respectively)
|
|
|
1,390,154
|
|
|
1,172,752
|
|
Derivative liability
|
|
|
41,761
|
|
|
82,200
|
|
Other liability stock grant
|
|
|
66,000
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,585,725
|
|
|
2,254,499
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 147,397,390 shares authorized, 21,627,868 shares issued and outstanding
|
|
|
21,627
|
|
|
21,627
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
20,214,774
|
|
|
20,207,647
|
|
Accumulated deficit
|
|
|
(22,614,056)
|
|
|
(21,908,507)
|
|
Total deficit
|
|
|
(2,377,655)
|
|
|
(1,679,233)
|
|
Total liabilities and deficit
|
|
$
|
208,070
|
|
$
|
575,266
|
|
See accompanying notes to the condensed consolidated financial statements
ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
215,718
|
|
|
341,402
|
|
|
453,535
|
|
|
640,227
|
|
General and administrative
|
|
|
135,702
|
|
|
224,091
|
|
|
292,534
|
|
|
412,867
|
|
Total operating expenses
|
|
|
351,420
|
|
|
565,493
|
|
|
746,069
|
|
|
1,053,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(351,420)
|
|
|
(565,493)
|
|
|
(746,069)
|
|
|
(1,053,094)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
48
|
|
|
1,033
|
|
|
233
|
|
|
2,388
|
|
Gain (loss) on derivative liability
|
|
|
94,127
|
|
|
316,496
|
|
|
40,439
|
|
|
146,683
|
|
Interest expense
|
|
|
(116)
|
|
|
(3,476)
|
|
|
(152)
|
|
|
(6.845)
|
|
Other
|
|
|
-
|
|
|
883
|
|
|
-
|
|
|
883
|
|
Total other income (expense), net
|
|
|
94,059
|
|
|
314,936
|
|
|
40,520
|
|
|
143,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(257,361)
|
|
$
|
(250,557)
|
|
$
|
(705,549)
|
|
$
|
(909,985)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.01)
|
|
$
|
(0.01)
|
|
$
|
(0.03)
|
|
$
|
(0.04)
|
|
Weighted average number of shares
outstanding during the period - basic and
diluted
|
|
|
21,627,868
|
|
|
21,418,763
|
|
|
21,627,868
|
|
|
21,394,744
|
|
See accompanying notes to the condensed consolidated financial statements
ONCOVISTA INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six months ended
June 30,
|
|
|
|
2013
|
|
2012
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(705,549)
|
|
$
|
(909,985)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,196
|
|
|
3,490
|
|
Employee stock-based compensation
|
|
|
3,927
|
|
|
37,595
|
|
Non-employee stock-based consulting expense
|
|
|
|
|
|
6,492
|
|
Common stock issued for consulting
|
|
|
|
|
|
|
|
Non-employee stock-based consulting expense (warrants)
|
|
|
|
|
|
|
|
(Gain) loss on derivative liability
|
|
|
(40,439)
|
|
|
(146,683)
|
|
Loss on disposal of assets
|
|
|
|
|
|
|
|
Loss on legal settlement
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivables, prepaid and other current assets
|
|
|
(24,982)
|
|
|
(87,801)
|
|
Accounts payable
|
|
|
154,263
|
|
|
6,483
|
|
Accrued expenses
|
|
|
220,602
|
|
|
123,751
|
|
Accrued interest payable
|
|
|
|
|
|
6,784
|
|
Net cash used in operating activities
|
|
|
(389,982)
|
|
|
(959,874)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows for financing activities
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
257
|
|
Net cash provided by (used in) financing activities
|
|
|
-
|
|
|
257
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(389,982)
|
|
|
(959,617)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
511,687
|
|
|
2,125,229
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
121,705
|
|
$
|
1,165,612
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
-
|
|
Cash paid for taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non-Cash financing and investing activities:
|
|
|
|
|
|
|
|
Warrants issued for legal settlement
|
|
$
|
3,200
|
|
$
|
-
|
|
See accompanying notes to the condensed consolidated financial statements
Note 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
OncoVista Innovative Therapies, Inc. (“OVIT”) is a biopharmaceutical company developing targeted anticancer therapies by utilizing tumor-associated biomarkers. OVIT’s product pipeline is comprised of advanced (Phase II) and early (Phase I) clinical-stage compounds, late preclinical drug candidates and early preclinical leads. OVIT is not committed to any single treatment modality or class of compound, but believes that successful treatment of cancer requires a tailored approach based upon individual patient disease characteristics.
Through its former subsidiary, AdnaGen AG (“AdnaGen”), OVIT previously developed diagnostic kits for several cancer indications, and marketed diagnostic kits in Europe for the detection of circulating tumor cells (“CTCs”) in patients with cancer.
On October 28, 2010, OVIT entered into a Stock Purchase Agreement with Alere Holdings Bermuda Limited Canon's Court (“Alere Holdings”), whereby OVIT sold all of its shares, representing approximately
78
% of the total issued and outstanding shares of AdnaGen to Alere Holdings. Under the terms of the agreement, OVIT and the other AdnaGen shareholders agreed to sell their respective shares of AdnaGen, and all AdnaGen related business assets, to Alere Holdings for: (i) a $
10
million up-front payment; (ii) $
10
million in potential milestone payments contingent upon the achievement of various balance sheet objectives within 24 months; and (iii) up to $
63
million in potential milestone payments contingent upon the achievement of various clinical, regulatory and sales objectives within the next 36 months. OVIT is entitled to receive its pro rata portion of the up-front and potential milestone payments. In November 2010, OVIT received $
6.0
million, net of expenses and certain fees, as its share of the $10 million up-front payment. For the six month periods ended June 30, 2013 and 2012, no milestone payments were received.
OVIT is using the proceeds from the sale of its shares in AdnaGen to fund on-going development activities for its drug candidate portfolio. Additionally, OVIT is evaluating several opportunities to license or acquire other compounds or diagnostic technologies that it believes will provide for treatments that are highly targeted with low or no toxicity.
At June 30, 2013, OVIT had three full time employees. OncoVista, Inc. (“OncoVista”), OVIT’s operating subsidiary, had one full-time employee.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, and changes in deficit or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended June 30, 2013 are not necessarily indicative of results for the full fiscal year.
The unaudited interim consolidated financial statements should be read in conjunction with the required financial information included as part of OVIT’s Form 10-K for the year ended December 31, 2012.
Principles of Consolidation
The consolidated financial statements include the accounts of OVIT and OncoVista (collectively, the “Company”). All intercompany balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the valuation of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude of contingent liabilities, estimates relating to the fair value of derivative liabilities and the valuation allowance for deferred tax assets.
per Share
Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding including the effect of share equivalents. Common stock equivalents consist of shares issuable upon the exercise of certain common stock purchase warrants and stock options.
As the Company had losses from continuing operations for the six month periods ended June 30, 2013 and 2012, respectively, all unvested restricted stock, stock options and warrants are considered to be anti-dilutive. At June 30, 2013 and 2012, the following shares have been excluded since their inclusion in the computation of diluted EPS would be anti-dilutive:
|
|
2013
|
|
2012
|
|
Stock options outstanding under various stock option plans
|
|
1,381,500
|
|
1,381,500
|
|
Warrants
|
|
1,625,000
|
|
4,074,569
|
|
Total
|
|
3,006,500
|
|
5,456,069
|
|
Share-Based Compensation
All share-based payments to employees are recorded and expensed in the statements of operations under Accounting Standards Codification (“ASC”) 718
“Compensation Stock Compensation.”
ASC 718 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including grants of employee stock options, based on estimated fair values. The Company has used the Black-Scholes option-pricing model to estimate grant date fair value for all option grants.
Share-based compensation expense is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the year, less expected forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Recent Accounting Pronouncements
The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.
Note 3. GOING CONCERN AND MANAGEMENT’S PLANS
As reflected in the accompanying consolidated financial statements, the Company reported a net loss of approximately $
706,000
, and net cash used in operations of approximately $
390,000
for the six months ended June 30, 2013, an accumulated deficit of approximately $
22.6
million and a total deficit of approximately $
2.4
million at June 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company believes it has sufficient capital to meet its anticipated operating cash requirements for the next two to three months.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s ability to further implement its strategic plan, obtain additional capital, principally by obtaining additional debt and/or equity financing, and generate revenues from collaborative agreements or sale of pharmaceutical products. There can be no assurance that these plans will be sufficient or that additional financing will be available in amounts or terms acceptable to the Company, if at all.
Note 4. EQUIPMENT
Equipment balances at June 30, 2013 and December 31, 2012 are summarized below:
|
|
2013(Unaudited)
|
|
2012
|
|
Equipment
|
|
$
|
30,132
|
|
$
|
30,132
|
|
Computer and office equipment
|
|
|
9,326
|
|
|
9,326
|
|
|
|
|
39,458
|
|
|
39,458
|
|
Less: accumulated depreciation
|
|
|
(38,190)
|
|
|
(35.994)
|
|
Equipment, net
|
|
$
|
1,268
|
|
$
|
3,464
|
|
Note 5. ACCRUED EXPENSES
Accrued expenses at June 30, 2013 and December 31, 2012 are summarized below:
|
|
2013(Unaudited)
|
|
2012
|
|
Legal and professional
|
|
$
|
-
|
|
$
|
30,000
|
|
Clinical and other studies
|
|
|
138,427
|
|
|
138,427
|
|
Compensation
|
|
|
460,023
|
|
|
282,883
|
|
Minimum royalty
|
|
|
785,000
|
|
|
710,000
|
|
Settlement New Millennium
|
|
|
-
|
|
|
10,200
|
|
Other
|
|
|
6,704
|
|
|
1,242
|
|
Total accrued expenses
|
|
$
|
1,390,154
|
|
$
|
1,172,752
|
|
Note 6. DERIVATIVE LIABILITY AND FAIR VALUE INFORMATION
The Company determined that warrants issued in connection with the bridge round of debt financing entered into by the Company in January 2009 required liability classification due to certain provisions that may result in an adjustment to the number shares issued upon settlement.
The estimated fair value of the derivative liability was $
41,761
and $
82,200
at June 30, 2013 and December 31, 2012, respectively.
The Company uses the Black-Scholes pricing model to calculate the fair value of its warrant liabilities. Key assumptions used to apply these models are as follows:
Expected term
|
|
2-3 years
|
|
Volatility
|
|
94.7-95.5%
|
|
Risk-free interest rate
|
|
0.25%
|
|
Dividend yield
|
|
0%
|
|
Fair value measurements
Assets and liabilities measured at fair value as of June 30, 2013, are as follows:
|
|
Value at
June 30, 2013
|
|
Quoted prices
in active
markets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
41,761
|
|
$
|
|
|
$
|
41,761
|
|
$
|
|
|
The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents and the above mentioned derivative liability as of June 30, 2013 and December 31, 2012, respectively. The fair values of accounts receivable, accounts payable, notes payable and stock grant liability approximate the carrying amounts due to the short term nature of these instruments. The fair value of related party accounts payable and accrued expenses are not practicable to estimate due to the related party nature of the underlying transactions.
Note 7. LEASES, COMMITMENTS AND CONTINGENCIES
Lease Obligations
In January 2011, the Company entered a three-year lease with an affiliate of the CEO for laboratory space which expires in December 2013. As of June 30, 2013, future minimum lease payments for the remainder of 2013 are $96,000.
Legal Matters
On
August 11, 2011
, an action was filed against the Company in the United States District Court for the Southern District of New York, entitled New Millennium PR Communications, Inc., against OncoVista Innovative Therapies, Inc., seeking damages for the alleged breach of a public relations agreement. On January 31, 2013 a settlement was reached whereby
the Company agreed to pay New Millennium $7,000, in two payments of $3,500 each, and issue 25,000 warrants at an exercise price of $0.25 per share.
At December 31, 2012 the Company recorded an accrual of approximately $10,200 related to this settlement which was paid during the six month period ended June 30, 2013.
On
August 26, 2011
, an action was filed against the Company in the Supreme Court of the State of New York, New York County, entitled CAMOFI Master LDC and CAMHZN LDC against OncoVista Innovative Therapies, Inc. and OncoVista, Inc. The action seeks damages for the alleged breach of a Subscription Agreement, a Warrant Agreement and an Anti-Dilution Agreement and seeks an order directing the issuance of (i) an aggregate of 1,980,712,767 shares of the Company’s common stock, and (ii) warrants to purchase an aggregate of 702,857,767 shares of the Company’s common stock at an exercise price of $0.001. On October 20, 2011, the Company filed an answer to the complaint. On November 1, 2011, the plaintiffs made an extensive document request to the Company for all documents related to the matter. The Company’s counsel has started taking depositions and has requested access to CAMOFI Master LDC and CAMHZN Master LDC principals for further depositions. On June 29, 2012 CAMOFI Master LDC and CAMHZN Master LDC filed for summary judgment. On August 9, 2012 the parties filed a stipulation with the court extending the return date of motion for summary judgment until September 10, 2012. The court has not yet ruled on the motion to dismiss. Oral arguments for the motion were conducted before the court on January 17, 2013. The judge asked the parties to reconvene and to try to seek a settlement. While the judge indicated her belief that the Company was in breach of the anti-dilution agreement, she also indicated that it may not be equitable to direct the issuance of hundreds of millions of additional shares, and reserved her decision on the issue at that time. The Company was unable to reach a settlement and has asked the court to issue an order on the matter. No accrual for a potential loss contingency has been recorded as it cannot be reasonably estimated.
On
February 16, 2012
, the Company filed an action in the 225 Judicial District Court of the State of Texas, Bexar County, entitled OncoVista Innovative Therapies, Inc. against J. Michael Edwards. The action seeks damages relating to the executive employment agreement of J. Michael Edwards, our former Chief Financial Officer. Specifically, the Company is seeking to have the Stock Option Agreement granted to Mr. Edwards on January 6, 2009 be declared
void ab initio
. The Company is also seeking damages and attorney fees. On March 30, 2012, the Company received a copy of a counterclaim that may be filed in the same court and is seeking approximately $197,000, plus certain health and life insurance benefits, in alleged compensation due. On December 12, 2012 Mr. Edwards filed a third party petition in the court against third party defendant Alexander L. Weis, our Chairman, CEO & President. Depositions are ongoing and the Company believes the counterclaimant’s allegations are without merit and intends to vigorously defend these claims.
Note 8. RELATED PARTY TRANSACTIONS
Alexander L. Weis, Ph.D., Chairman of the Company’s Board of Directors and its Chief Executive Officer, President, Chief Financial Officer and Secretary, and a significant shareholder, is a beneficial owner of Lipitek International, Inc. and Lipitek Research, LLC. The Company leases its laboratory space from Lipitek, Inc. under a three-year lease agreement. Management believes that rent is based on reasonable and customary rates as if the space were rented to a third party.
On November 17, 2005, the Company entered into a purchase agreement with Lipitek and Dr. Weis, under which Lipitek granted the Company an option to purchase all membership interests in Lipitek Research, LLC (Lipitek Research) for a purchase price of $
5.0
million, which is payable quarterly based upon revenues of Lipitek Research up to $
50,000
per quarter. Through June 30, 2013, the Company had paid a total of $
550,000
toward this agreement and has accrued $
750,000
and $
650,000
, which is included in accounts payable in the consolidated balance sheets as of June 30, 2013, and December 31, 2012, respectively. During the six month periods ended June 30, 2013 and 2012, the Company made no payments toward the agreement.
Prior to the full payment of the purchase price, the Company has the option, upon 30 days written notice, to abandon the purchase of Lipitek Research and would forfeit the amounts already paid. All intellectual property developments by Lipitek Research through the term of the agreement or 2012, whichever is later, shall remain the Company’s property, irrespective of whether the option is exercised. In addition, the Company will receive
80
% of the research and development revenue earned by Lipitek while the agreement is in place. In the six month periods ended June 30, 2013 and 2012, the Company did not recognize any revenue from its share of Lipitek revenues.
For the potential acquisition of Lipitek, the Company determined that, under SEC Regulation S-X, Rule 11-01(d) (“
11-01
”), and ASC 805 Lipitek would be classified as a development stage company and thus was not considered a business. As a result, purchase accounting rules did not apply. The Company also cannot determine with any certainty at this time, if it will exercise the option to purchase Lipitek in the future.
Note 9. EQUITY (DEFICIT)
Common Stock
The Company is authorized to issue up to
147,397,390
shares of common stock. At June 30, 2013, shares of common stock reserved for future issuance are as follows:
Stock options outstanding
|
|
1,381,500
|
|
Warrants outstanding
|
|
1,625,000
|
|
Stock options available for grant
|
|
2,159,250
|
|
|
|
5,165,750
|
|
Restricted Stock
On June 13, 2012, the Company entered into an agreement to grant an aggregate of
300,000
shares of common stock to Landmark Financial Corporation which shares vest at the rate of
50,000
shares per month for six months, the term of the agreement. These shares will be granted for services to be provided by Landmark Financial Corporation related to identifying and evaluating alternative strategies for expanding the Company’s business. As of June 30, 2013 the shares have not been issued to Landmark Financial Corporation. The Company recorded $
66,000
in consulting expense for the restricted stock grant for the year ended December 31, 2012, all of which is in accrued expenses as the shares were not issued as of June 30, 2013 and December 31, 2012.
Stock Option Plans
All option grants are expensed in the appropriate period based upon each award’s vesting terms, in each case with an offsetting credit to additional paid in capital. Under the authoritative guidance for share based compensation, in the event of termination, the Company will cease to recognize compensation expense. There is no deferred compensation recorded upon initial grant date, instead, the fair value of the share-based payment is recognized ratably over the stated vesting period. No stock options were granted during the six months ended June 30, 2013 and 2012.
The stock-based compensation expense recorded by the Company for the six months ended June 30, 2013 and 2012, with respect to awards under the Company’s stock plans are as follows:
|
|
2013
|
|
2012
|
|
Research and development
|
|
$
|
3,927
|
|
$
|
25,612
|
|
General and administrative
|
|
$
|
|
|
$
|
11,983
|
|
Total employee stock-based compensation
|
|
$
|
3,927
|
|
$
|
37,595
|
|
The following is a summary of the Company’s stock option activity:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2013
|
|
1,381,500
|
|
$
|
0.91
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
1,381,500
|
|
$
|
0.91
|
|
5.34 years
|
|
$
|
-
|
|
Options Exercisable at June 30, 2013
|
|
1,370,500
|
|
$
|
0.92
|
|
5.33 years
|
|
$
|
-
|
|
The following summarizes the activity of the Company’s stock options that have not vested for the six months ended June 30, 2013:
|
|
Shares
|
|
Weighted
Average
Fair Value
|
|
Nonvested at January 1, 2013
|
|
46,250
|
|
$
|
0.21
|
|
Granted
|
|
-
|
|
|
-
|
|
Vested
|
|
(35,250)
|
|
|
0.21
|
|
Cancelled or forfeited
|
|
-
|
|
|
-
|
|
Outstanding at June 30, 2013
|
|
11,000
|
|
$
|
0.21
|
|
At June 30, 2013, there was approximately $1,000 of additional unrecognized compensation cost which will be recorded over a weighted average future period of approximately three months.
Warrants
On January 31, 2013 a settlement was reached whereby
the Company agreed to pay New Millennium $7,000, in two payments of $3,500 each, and issue 25,000 warrants at an exercise price of $0.25 per share.
The warrants were valued using the Black -Scholes model at $
3,200
. The assumptions used in the Black-Scholes model are as follows: (1) dividend yield of
0
%, (2) expected volatility of
95
%, (3) a contractual life of
5
years, and (4) a risk free rate of
0.88
%. At December 31, 2012 the Company recorded an accrual of approximately $
10,200
related to this settlement which was paid during the six month period ended June 30, 2013.
The following is a summary of the Company’s warrant activity:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2013
|
|
|
2,140,000
|
|
$
|
0.60
|
|
|
|
|
|
|
Granted
|
|
|
25,000
|
|
$
|
0.25
|
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(540,000)
|
|
$
|
0.29
|
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
|
1,625,000
|
|
$
|
0.45
|
|
1.47 years
|
|
$
|
-
|
|
Exercisable at June 30, 2013
|
|
|
1,625,000
|
|
$
|
0.45
|
|
1.47 years
|
|
$
|
-
|
|
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”)). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Commission.
Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
As used in this Quarterly Report, the terms “we,” “us,” and “our,” mean OncoVista Innovative Therapies, Inc., our current subsidiary, OncoVista, Inc. (“OncoVista”) and our former subsidiary, AdnaGen A.G. (“AdnaGen”), collectively, unless otherwise indicated.
Overview
We are a biopharmaceutical company developing targeted anticancer therapies by utilizing tumor-associated biomarkers. Our therapeutic strategy is based on targeting the patient’s tumor(s) with treatments that will deliver drugs selectively based upon specific biochemical characteristics of the cancer cells comprising the tumor. Through a combination of licensing agreements, as well as mergers and acquisitions, we have acquired the rights to several technologies with the potential to more effectively treat cancers and significantly improve quality-of-life for patients. We believe that the development of targeted approaches to the administration of anticancer agents should lead to improved outcomes and reduced toxicity.
We expect to be a major participant in the oncology arena through the successful development and commercialization of innovative therapies which, as a result of their lower toxicity and greater efficacy, will increase patient survival rates and enhance patient quality of life. In targeting compounds for acquisition, we focus on candidates that have been previously tested in human clinical trials or animal models, as well as technologies that may improve the delivery or targeting of previously tested, and in some cases marketed, anticancer agents. Our senior management team and our panel of internationally-recognized clinical advisors have made significant contributions to the development of leading drugs currently used in cancer treatment. Management, in conjunction with our advisors, will evaluate in-licensing candidates based on several criteria, including development and registration strategies to be employed, commercialization opportunities and competitive technologies being developed elsewhere.
|
Ø
|
In the second quarter of 2008, we launched the Phase I/II clinical trial for Cordycepin (OVI-123) at two sites in the U.S. and, following completion of the Phase I portion of the trial, we planned to collect initial Phase II efficacy data in a small cohort of refractory leukemia patients who express the marker, terminal deoxynucleotidyl transferase (TdT). In October 2009, after enrolling five patients in this clinical trial, we placed the clinical trial on administrative hold until such time that additional capital can be raised. We have engaged a clinical research organization (“CRO”) in France to do additional pre-clinical in-vitro evaluations of Cordycepin and the ADA inhibitor Pentostatin with the intent of gaining a better understanding of the inhibition effects of Pentostatin on Cordycepin. We are in the process of reinitiating the Phase I/II clinical trial to determine the maximum tolerated dose, and expect to start enrolling patients in 2013 if additional financing is obtained.
|
13
|
Ø
|
We have completed Good Laboratory Practice (“GLP”) animal drug safety studies in two species for our lead drug candidate from the L-nucleoside conjugate program (OVI-117). We have accumulated
in vitro
and
in vivo
data indicating that several of the L-nucleoside conjugates are effective against various types of cancer. To date, OVI-117 has undergone two proof-of-concept studies of human cancers in animal models, as both a single agent and as a multi-agent combination therapy with oxaliplatin. The Investigational New Drug application (IND) was submitted to the FDA on June 2, 2012 and approved by the FDA on July 5, 2012. We have engaged a contract manufacturer and a clinical batch of OVI-117 is available for use in our proposed Phase 1 trial. The clinical protocol has been written and a principal investigator engaged. We believe that OVI-117 should be ready to enter Phase I clinical trials in 2013 if additional financing is available.
|
|
Ø
|
We previously developed diagnostic kits through our former majority-owned German operating subsidiary, AdnaGen AG for several cancer indications, and marketed diagnostic kits in Europe for the detection of circulating tumor cells (“CTCs”) in patients with cancer. In October 2010, we entered into a Stock Purchase Agreement with Alere Holdings Bermuda Limited Canon's Court (“Alere Holdings”), whereby we sold all of our shares, representing approximately 78% of the total issued and outstanding shares of AdnaGen. Under the terms of the agreement, we and the other AdnaGen shareholders agreed to sell our respective shares of AdnaGen, and all AdnaGen related business assets, to Alere Holdings for: (i) a $10 million up-front payment; (ii) $10 million in potential milestone payments contingent upon the achievement of various balance sheet objectives within 24 months; and (iii) up to $63 million in potential milestone payments contingent upon the achievement of various clinical, regulatory and sales objectives within the next 36 months. We are entitled to receive our pro rata portion of the up-front and potential milestone payments. No milestone payments were received in the six months ended June 30, 2013 nor the year ended December 31, 2012.
|
To date, we have financed our operations principally through offerings of securities exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”). We are using the proceeds from the sale of our shares in AdnaGen to fund on-going development activities for our drug candidate portfolio. We estimate that our cash reserves will be sufficient to permit us to continue at our anticipated level of operations for at least 2 to 3 months. However, we anticipate we will need to raise additional capital to support our current operations and fund in-licensing and research and development programs and will further require additional financing at various intervals in the future. We can provide no assurance that additional funding will be available on a timely basis, terms acceptable to us, or at all.
If we are unsuccessful raising additional funding, our business may not continue as a going concern and if sufficient capital is not available, we may be required to delay, further scale back or eliminate one or more of our research and development or acquisition and in-licensing programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves. In such event, our business, prospects, financial condition, and results of operations may be adversely affected because we may be required to further scale back, eliminate, or delay development or acquisition efforts or product introductions or enter into royalty, sales, or other agreements with third parties in order to commercialize our products. Even if we do find additional funding sources, we may be required to issue securities with greater rights than those currently possessed by holders of our common stock. We may also be required to take other actions that may lessen the value of our common stock or dilute our common stockholders, including borrowing money on terms that are not favorable to us or issuing additional equity securities. If we experience difficulties raising money in the future, our business, prospects, financial condition, and results of operation will be materially adversely affected.
During the last four fiscal years, we spent approximately $4.2 million on research and development, excluding discontinued operations.
14
Development Programs
Our most advanced product candidate is Cordycepin (OVI-123) which is in Phase I/II clinical trials for refractory leukemia patients who express the enzyme TdT. We have received orphan drug designation from the FDA for Cordycepin which affords us seven years of market exclusivity once the drug is approved for marketing. We initiated a Phase I/II trial based on the “original” ADA-sensitive compound in the second quarter of 2008. The trial was being conducted at two U.S. centers (The Dana Farber Cancer Institute in Boston, Massachusetts and the Cancer Therapy Research Center at the University of Texas Health Sciences Center at San Antonio, Texas) and was designed to enroll up to 24 patients in the first stage and up to 20 patients in the second stage. The primary objective of the 1
st
phase of the study is to determine the maximally tolerated dose (“
MTD
”) and the recommended dose (RD) of Cordycepin, given one hour following a fixed dose of the ADA inhibitor Pentostatin, in patients with refractory TdT-positive leukemia. The primary objectives of the 2
nd
phase of the study will be to determine the single and multiple dose pharmacokinetics of Cordycepin given one hour following a fixed dose of Pentostatin and to measure and quantify any clinical responses following administration of Cordycepin/Pentostatin at the recommended dose in 20 subjects. Secondary objectives will include assessing the pharmacokinetics efficacy and safety at the MTD. We anticipate a total time period of 18 months for the trial during which patients will receive Cordycepin for three consecutive days repeated every 28 days. Patients will be eligible for re-treatment if all dose-related toxicities have been resolved by day 28 and there is no evidence of disease progression. Subjects may receive treatment until disease progression and will be followed for at least 30 days after the last administration of study drug. In October 2009, after enrolling five patients in this clinical trial, we placed the clinical trial on administrative hold until such time that additional capital can be raised. We engaged a clinical research organization (“CRO”) in France to do additional pre-clinical in-vitro evaluations of Cordycepin and the ADA inhibitor Pentostatin with the intent of gaining a better understanding of the inhibition effects of Pentostatin on Cordycepin. We are in the process of reinitiating the Phase I/II clinical trial to determine the maximum tolerated dose, and expect to start enrolling patients in 2013 if additional financing is available.
One of our L-nucleoside conjugate candidates, OVI-117, is a conjugate of an L-nucleoside (L-uridine) and the highly toxic compound 5’-fluorodeoxyuridine monophosphate (FdUMP), a thymidylate synthase (TS) inhibitor. We have accumulated
in vitro
and
in vivo
data indicating that several of the L-nucleoside conjugates are effective against various types of cancer. To date, OVI-117 has undergone two proof-of-concept studies in animals, as both a single agent and as a multi-agent combination therapy with oxaliplatin. We have completed Good Laboratory Practice (“GLP”) animal drug safety studies in two species for OVI-117. The Investigational New Drug application (IND) was submitted to the FDA on June 2, 2012 and approved by the FDA on July 5, 2012. We engaged a contract manufacturer and a clinical batch of OVI-117 is available for use in our proposed Phase 1 trial. The clinical protocol has been written and a principal investigator engaged. We believe that OVI-117 should be ready to enter Phase I clinical trials in 2013 if additional financing is available.
Other Research and Development Plans
In addition to conducting Phase I and Phase II clinical trials, we plan to conduct pre-clinical research to accomplish the following:
⋅
further deepen and broaden our understanding of the mechanism of action (MoA) of our products in cancer;
⋅
develop alternative delivery systems and determine the optimal dosage for different patient groups;
⋅
demonstrate proof of concept in animal models of human cancers; and
⋅
develop successor products to our current products.
Other Strategic Plans
In addition to developing our existing anti-cancer drug portfolio, we plan to obtain rights to additional drug candidates or diagnostic technologies through licensing, partnerships, and mergers/acquisitions. Our efforts in this area will be guided by business considerations (cost of the opportunity, fit with existing portfolio, etc.) as well as input from our clinical advisory board regarding likelihood of successful clinical development and marketing approval. Our goal is to create a well-balanced product portfolio including lead molecules in different stages of development and addressing different medical needs.
15
Results of Operations
Three Months Ended June 30, 2013 and 2012
Research and development.
Research and development expenses decreased by approximately $126,000, or approximately 37%, to approximately $216,000 for the three months ended June 30, 2013, as compared to approximately $341,000 for the three months ended June 30, 2012.
The decrease in 2013 is primarily due to reduced activities in the Phase 1 trials due to a lack of sufficient capital.
General and administrative.
General and administrative expenses decreased by approximately $88,000, or approximately 39%, to approximately $136,000 for the three months ended June 30, 2013, as compared to approximately $224,000 for the three months ended June 30, 2012.
The decrease was due primarily to a decrease in consulting expense for professional services and legal and professional fees from prior year.
Other Income (Expense)
. Other income decreased $221,000, or 70% to income of approximately $94,000 for the three months ended June 30, 2013 compared to income of approximately $315,000 for the three months ended June 30, 2012.
The decrease is due primarily to a decrease of approximately $222,000, or 70%, in the gain on derivative liability of approximately $316,000 in 2012, compared to a gain of approximately $94,000 in 2013.
Net Loss.
As a result of the foregoing, our net loss increased by approximately $7,000, or 3%, to a net loss of approximately $257,000 for the three months ended June 30, 2013, compared to a net loss of approximately $251,000 for the three months ended June 30, 2012.
Six months ended June 30, 2013 and 2012
Research and development.
Research and
development expenses decreased by approximately $187,000, or 29%, to approximately $
454,000
for the six months ended June 30, 2013, as compared to approximately $640,000 for the six months ended June 30, 2012. The decrease in 2013 is primarily due to reduced activities in the Phase 1 trials due to a lack of sufficient capital.
General and administrative.
General and administrative expenses decreased by approximately $120,000 or 29%, to approximately $293,000 for the six months ended June 30, 2013, as compared to approximately $413,000 for the six months ended June 30, 2012.
The decrease was due primarily to a decrease in consulting expense for professional services and legal and professional fees.
Other Income (Expense)
. Other income decreased $102,000 or 72% to income of approximately $41,000 for the six months ended June 30, 2013 compared to income of approximately $143,000 for the six months ended June 30, 2012.
The decrease is due primarily to a decrease of approximately $106,000 or 72% in the gain on derivative liability of approximately $147,000 in 2012, compared to a gain of approximately $40,000 in 2013.
Net Loss.
As a result of the foregoing, our net loss decreased by approximately $204,000, or 22%, to a net loss of approximately $706,000 for the six months ended June 30, 2013, compared to a net loss of approximately $910,000 for the six months ended June 30, 2012.
Going Concern and Recent Events
Our consolidated financial statements for the six months ended June 30, 2013 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
We reported a net loss of approximately $706,000, and net cash used in continuing operations of approximately $390,000 for the six months ended June 30, 2013, an accumulated deficit of approximately $22.6 million and total deficit of approximately $2.4 million at June 30, 2013. The Report of the Independent Registered Public Accounting Firm on the Company’s financial statements as of and for the year ended December 31, 2012 includes a “going concern” explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.
16
In November 2010, we received approximately $6.0 million as our pro rata portion of the up-front payment from the sale of our shares of AdnaGen as described above. Management believes we now have sufficient capital to meet our anticipated operating cash requirements for the next two to three months.
Our ability to continue as a going concern depends on the success of management’s plans to achieve the following:
⋅
Continue to aggressively seek investment capital;
⋅
Develop our product pipeline;
⋅
Advance scientific progress in our research and development; and
⋅
Continue to monitor and implement cost control initiatives to conserve cash.
17
Liquidity and Capital Resources
At June 30, 2013, we had cash and cash equivalents of approximately $122,000 compared to approximately $512,000 at December 31, 2012. In order to preserve principal and maintain liquidity, our funds are primarily invested in checking and interest bearing saving accounts with the primary objective of capital preservation. Based on our current projections, we believe that our available resources and cash flow are sufficient to meet our anticipated operating cash needs for the next two to three months. Our ability to continue as a going concern is dependent on our ability to further implement our strategic plan, continue to obtain additional debt and/or equity financing, and generate additional revenues from collaborative agreements.
To date, we have financed our operations principally through proceeds of offerings of securities exempt from the registration requirements of the Securities Act. We can provide no assurance that additional funding will be available on terms acceptable to us, or at all. Accordingly, we may not be able to secure the funding which is required to expand research and development programs beyond their current levels or at levels that may be required in the future. If we cannot secure adequate financing, we may be required to delay, scale back or eliminate one or more of our research and development programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves. Our future capital requirements will depend upon many factors, including:
⋅
Continued scientific progress in our research and development programs;
⋅
Costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions;
⋅
Competing technological and market developments; and
⋅
Our ability to establish additional collaborative relationships.
Accordingly, we may be required to issue equity or debt securities or enter into other financial arrangements, including relationships with corporate and other partners, in order to raise additional capital. Depending upon market conditions, we may not be successful in raising sufficient additional capital for our short or long-term requirements. In such event, our business, prospects, financial condition, and results of operations would be materially adversely affected.
Operating Activities.
For the six months ended June 30, 2013, net cash used in operations decreased $570,000, or 59% to approximately $390,000 compared to approximately $960,000 for the six months ended June 30, 2012. The decrease was primarily due to the reduced activities in the clinical development of our agents due to lack of sufficient capital to start our Phase 1 trials.
Investing and Financing Activities.
There was no cash provided by investing or financing activities for the six months ended June 30, 2013 and $257 for the six months ended June 30, 2012.
Recent Accounting Pronouncements
The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are disclosed throughout this section where such policies affect our reported and expected financial results. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Revenue Recognition.
While the Company is not currently recognized revenues, we anticipates that future revenues will be generated from product sales. The Company expects to recognize revenue from product sales in accordance with SEC, Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” that requires the Company recognize revenue when each of the following four criteria is met: 1) a contract or sales arrangement exists; 2) products have been shipped or services have been rendered; 3) the price of the products or services is fixed or determinable; and 4) collectability is reasonably assured. The Company anticipates that customers will have no right of return for products sold. Revenues are considered to be earned upon shipment.
18
Share-Based Compensation.
We follow Accounting Standards Codification (“ASC”) 718 “Compensation Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants. The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As such, as we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future.
Preclinical Study and Clinical Trial Accruals.
Substantially all of our preclinical studies and clinical trials are being performed by third-party CROs and other outside vendors. For preclinical studies, we use the percentage of work completed to date and contract milestones achieved to determine the accruals recorded. For clinical trial accruals, we use the number of patients enrolled, period of patient enrollment and percentage of work completed to date to estimate the accruals. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and status meetings with CROs and review of contractual terms. Our estimates are dependent on the timeliness and accuracy of data provided by our CROs and other vendors. If we have incomplete or inaccurate data, we may under-or overestimate activity levels associated with various studies or clinical trials at a given point in time. In this event, we could record adjustments to research and development expenses in future periods when the actual activity levels become known. No material adjustments to preclinical study and clinical trial expenses have been recognized to date.