alfacell_10k-073109.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
FORM
10-K
[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended July 31, 2009
[ ]
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TRANSITION
REPORT PURSUANT TO 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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ALFACELL
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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22-2369085
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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300 Atrium Drive, Somerset,
New Jersey
(Address
of principal executive offices)
08873
(Zip
Code)
Registrant’s
telephone number, including area code: (732)
652-4525
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [ ] No [ X
]
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes [ ] No [ X
]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one): Large
Accelerated Filer
[ ] Accelerated Filer
[ ] Non-accelerated
Filer [X] Smaller Reporting
Company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes
[ ] No [ X ]
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates based upon the reported last sale price of the common stock on
January 31, 2009, the end of the registrant’s second fiscal quarter, was
approximately $4,766,000. As of November 10, 2009 there were
47,313,880 shares of common stock, par value $.001 per share,
outstanding.
Documents
Incorporated by Reference
Certain
information required in Part III of this annual report on Form 10-K is
incorporated by reference to portions of the registrant’s definitive proxy
statement for its 2010 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission not later than 120 days after the
end of the registrant’s fiscal year.
TABLE
OF CONTENTS
PART
I
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Page
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ITEM 1.
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Business
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5
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ITEM
1A.
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Risk
Factors
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16
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ITEM
1B.
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Unresolved
Staff Comments
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27
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ITEM 2.
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Properties
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27
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ITEM 3.
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Legal
Proceedings
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28
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ITEM 4.
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Submission
of Matters to a Vote of Security Holders
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28
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PART
II
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ITEM 5.
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Market
for Registrant’s Common Equity, Related Stockholder
Matters
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and
Issuer Purchases of Equity Securities
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28
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ITEM 6.
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Selected
Financial Data
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31
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ITEM 7.
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Management's
Discussion and Analysis of Financial
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Condition
and Results of Operations
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32
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ITEM 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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41
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ITEM 8.
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Financial
Statements and Supplementary Data
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41
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ITEM 9.
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Changes
in and Disagreements with Accountants
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on
Accounting and Financial Disclosure
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41
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ITEM
9A(T).
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Controls
and Procedures
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42
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ITEM
9B.
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Other
Information
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43
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PART
III
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ITEM
10.
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Directors,
Executive Officers and Corporate Governance
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43
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ITEM
11.
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Executive
Compensation
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43
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ITEM
12.
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Security
Ownership of Certain Beneficial Owners
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and
Management and Related Stockholder Matters
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43
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ITEM
13.
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Certain
Relationships and Related Transactions and Director
Independence
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43
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ITEM
14.
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Principal
Accounting Fees and Services
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43
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PART
IV
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ITEM
15.
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Exhibits
and Financial Statement Schedules
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44
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The
following trademarks appear in this annual report on Form 10-K: ONCONASE® is
the registered trademark of Alfacell Corporation, exclusively for its
anti-cancer agent, Alimtaâ
is the registered trademark of Eli Lilly, Zolinzaâ
is the registered trademark of Merck & Co. and Avastin® is
the registered trademark of Genentech.
This
annual report on Form 10-K includes forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. We
have based these forward looking statements largely on our current expectations
and projections about future events and financial trends affecting the financial
condition of our business. These forward looking statements are
subject to a number of risks, uncertainties, and assumptions about us,
including, among other things:
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·
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the
failure to obtain regulatory approval of our lead
product;
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·
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the
failure to achieve positive results in clinical
trials;
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·
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available
financial resources and the ability to secure adequate funding for
development projects;
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·
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the
ability to attract and retain qualified
management;
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·
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relationships
with pharmaceutical and biotechnology
companies;
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·
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the
ability to develop safe and efficacious
drugs;
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·
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variability
of royalty, license, and other
revenue;
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·
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the
failure to satisfy the performance obligations in our
agreements;
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·
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the
ability to enter into future collaborative
agreements;
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·
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uncertainty
regarding our patents and patent rights (including the risk that we may be
forced to engage in costly litigation to protect such patent rights and
the material harm to us if there were an unfavorable outcome of any such
litigation);
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·
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governmental
regulation;
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·
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changes
in industry practices;
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·
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the
ability of our senior secured creditors to realize their security interest
in all of our assets and to demand repayment of amounts owed to such
creditors;
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·
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certain
limitations on our ability to use a portion of the proceeds from our
October 2009 private
financing;
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uncertainty
regarding the outcome of legal proceeding including the risk that we may
be forced to engage in lengthy, time-consuming and expensive litigation
and the material adverse effect to us of any unfavorable outcome of any
such litigation;
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In
addition, in this annual report on Form 10-K, the words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar
expressions, as they relate to us, our business, or our management, are intended
to identify forward looking statements. All of our forward looking statements
are qualified in their entirety by reference to the factors discussed in this
annual report under the heading ITEM 1A.—RISK FACTORS, and any documents
incorporated by reference that describe risks and factors that could cause
results to differ materially from those projected in these forward looking
statements.
We
caution you that the risk factors contained herein are not
exhaustive. We operate in a continually changing business climate
which can be expected to impact our forward looking statements, whether as a
result of new information, future events, or otherwise, after the date of this
annual report. In light of these risks and uncertainties, the forward looking
events and circumstances discussed in this annual report may not occur and
actual results could differ materially from those anticipated or implied in the
forward looking statements. Accordingly, you should not rely on
forward looking statements as a prediction of actual results.
All
information in this annual report is as of November 10, 2009, unless otherwise
noted and we undertake no obligation to update this information.
PART
I
ITEM
1. BUSINESS.
Alfacell
Corporation is a Delaware corporation incorporated on August 24,
1981. We are a biopharmaceutical company primarily engaged in the
discovery and development of a new class of therapeutic drugs for the treatment
of cancer and other pathological conditions. Our proprietary drug
discovery and development program consists of novel therapeutics which are being
developed from amphibian ribonucleases (RNases).
RNases
are biologically active enzymes that split RNA molecules. RNases are
enzymes which play important roles in nature, including the embryonic
development of an organism and regulation of various cell
functions. RNA is an essential bio-chemical cellular component
necessary to support life. There are various types of RNA, all of
which have specific functions in a living cell. They help control
several essential biological activities, namely; regulation of cell
proliferation, maturation, differentiation and cell death. Therefore,
they are believed to be good candidates for the development of therapeutics for
cancer and other life-threatening diseases, including HIV and autoimmune
diseases, that require anti-proliferative and apoptotic, or programmed cell
death, properties.
ONCONASE®
(ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of
pancreatic ribonuclease, isolated from the eggs of the Rana pipiens (the Northern
Leopard frog). Ranpirnase is the smallest known protein belonging to
the superfamily of pancreatic ribonuclease and has been shown, on a molecular
level, to re-regulate the unregulated growth and proliferation of cancer
cells. Unlike most anti-cancer agents that attack all cells
regardless of phenotype (malignant versus normal) and cause severe toxicities,
ONCONASE® is
not an indiscriminate cytotoxic drug (cell killing
agent). ONCONASE®
primarily affects exponentially growing malignant cells, with activity
controlled through unique and specific molecular mechanisms.
The
molecular mechanisms which determine the apoptotic cell death induced by
ranpirnase have been identified. tRNA (transfer RNA), rRNA (ribosomal
RNA), mRNA (messenger RNA) and miRNA (micro RNA) are all different types of RNA
with specific functions in a living cell. Ranpirnase preferentially
degrades tRNA and targets miRNA, leaving rRNA and mRNA apparently
undamaged. The RNA damage induced by ranpirnase appears to represent
a “death signal”, or triggers a chain of molecular events culminating in the
activation of proteolytic enzyme cascades which, in turn, induces disintegration
of the cellular components and finally leads to cell death. It has
been shown that there is a protein synthesis inhibition-independent component,
which, together with the changes induced by the protein synthesis inhibition,
results in tumor cell death.
ONCONASE®, our
lead drug product candidate, has been evaluated in human clinical trials for the
treatment of various forms of cancer. Our most recent clinical trial
for ONCONASE® was a
confirmatory Phase IIIb registration trial that was designed to evaluate the
efficacy, safety and tolerability of the combination of ONCONASE® and
doxorubicin as compared to doxorubicin alone in the treatment of patients with
unresectable (inoperable) malignant mesothelioma (“UMM”), a rare and deadly form
of lung cancer. Enrollment in the Phase IIIb trial was completed in
September 2007. In May 2008, we reported that the preliminary
statistical analysis of data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, a predefined primary data set for this sub-group of
patients in the trial, which represents a currently unmet medical
need. The Food and Drug Administration or the FDA, recommended that
an additional clinical trial be conducted in UMM patients that have failed one
prior chemotherapy regimen, prior to filing a New Drug Application or
NDA. At this time we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to purse,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
believe that ONCONASE®, as
well as another group of our amphibian RNases known as Amphinases, may also have
applications in a variety of other areas in addition to those being investigated
currently in our clinical development program. Amphinase is currently
in the pre-clinical research and development stage.
We are a
development stage company as defined in the Financial Accounting Standards
Board’s Statement of Financial Accounting Standards No. 7, “Accounting and
Reporting by Development Stage Enterprises.” We are devoting
substantially all of our present efforts to establishing a new business and
developing new drug products. Our planned principal operations of marketing
and/or licensing new drugs have not commenced and, accordingly, we have not
derived any significant revenue from these operations.
According
to the American Cancer Society (“ACS”) 2009 Cancer Facts and
Figures, cancer is the second leading cause of death in the United
States, accounting for one in every four deaths. The ACS 2009 Cancer Facts and Figures
also estimates that doctors will diagnose over 1.5 million new cases of cancer
in the United States in 2009. The National Institutes of Health or
NIH estimate that the annual cost of cancer in 2008 was approximately $228.1
billion, including $93.2 billion in direct medical costs and $18.8 billion for
morbidity costs, which includes the cost of lost productivity.
Cancer is
characterized by uncontrolled cell division resulting in the growth of a mass of
cells commonly known as a tumor. Cancerous tumors can arise in almost
any tissue or organ and cancer cells, if not eradicated, spread, or metastasize,
throughout the body. Cancer is believed to occur as a result of a
number of factors, including hereditary and environmental factors.
For the
most part, cancer treatment depends on the type of cancer and the stage of
disease progression. Generally, staging is based on the size of the tumor and
whether the cancer has metastasized or spread. Following diagnosis,
solid tumors are typically surgically removed or the patient is given radiation
therapy. Chemotherapy is the principal treatment for tumors that are
likely to, or have, metastasized. Chemotherapy involves the
administration of drugs which are designed to kill cancer cells, affect the
growth of tumors, or reduce bloodflow to tumors, in an effort to reduce or
eliminate cancerous tumors.
Because
in most cases cancer is fatal, cancer specialists attempt to attack the cancer
aggressively, with as many therapies as available and with as high a dose as the
patient can tolerate. Since traditional chemotherapy attacks both
normal and cancerous cells, treatment often tends to result in complicating side
effects. Additionally, cells which have been exposed to several
rounds of chemotherapy develop a resistance to the cancer drugs that are being
administered. This is known as “multi-drug
resistance.” The side effects of chemotherapy often limit the
effectiveness of treatment. Cancers often recur and mortality rates
remain high. Despite large sums of money spent on cancer research,
current treatments are largely inadequate and improved anti-cancer agents are
needed.
We
believe that the products we currently have under development could be used to
target a broad range of solid tumors. The table below shows the
incidence and mortality estimated for the year 2009 for various types of solid
tumor cancers that our products could be designed to treat:
Cancer Indication
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New Cases
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Deaths
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Lung
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219,440
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159,390
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Breast
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194,280
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40,610
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Brain
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22,070
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12,920
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Esophageal
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16,470
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14,530
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Source:
National Cancer Institute
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Competition
There are
many companies with resources significantly greater than ours that are currently
marketing approved drug products that treat, and are developing new drug
products that are designed to treat, several of the cancers that we may seek to
treat with our products. The drug products currently marketed or developed by
these companies may prove to be more effective that the products we seek to
develop.
We are
not aware, however, of any product currently being marketed that has the same
mechanism of action as our proposed anti-tumor agent, ONCONASE®. Search
of scientific literature reveals no published information that would indicate
that others are currently employing this method or producing such an anti-tumor
agent. However, we cannot assure you that others may not develop new
treatments that are more effective than ONCONASE®.
BUSINESS
STRATEGY
Our goal
is to become a leading biopharmaceutical company focused on discovering and
developing innovative anti-cancer treatments based on our proprietary RNase
technology platform. Our strategy consists of the following key
elements:
Focus
on the growing cancer market
Cancer is
the second leading cause of death in the United States, yet there remain unmet
needs, and current treatments remain ineffective and inadequate for some
populations. Given the life-threatening nature of cancer, the FDA has
adopted procedures to accelerate the approval of cancer drugs. We
intend to continue to use our expertise in the field of cancer research to
target this significant market opportunity for cancer drug
development.
Develop
our existing product portfolio
We
currently have a portfolio of clinical and pre-clinical drug product candidates
under development for potential use as anti-cancer, and other
therapeutics. We intend to further develop these drug product
candidates both by utilizing our internal resources and by continuing to
collaborate with other companies and leading governmental and academic research
institutions.
Commercialize
pharmaceutical products focused on cancer in selected markets
Our
current strategy is to partner with third parties to market our future products
to oncologists and other key specialists involved in the treatment of cancer
patients. We may also elect to develop an appropriately-sized internal
oncology sales and marketing capability in the United States. This group
may function as a standalone operation or in a supportive, co-promotion capacity
in collaboration with a partner.
RESEARCH
AND DEVELOPMENT PROGRAM
Research
and development expenses for the fiscal years ended July 31, 2009, 2008 and 2007
were approximately $3,268,000, $8,503,000 and $5,543,000,
respectively. Our research and development programs focus primarily
on the clinical and pre-clinical research and development of therapeutics from
our pipeline of amphibian RNases.
Clinical
Development Program
ONCONASE® was
most recently evaluated as a treatment for UMM in an international, centrally
randomized, confirmatory Phase IIIb registration trial. Malignant
mesothelioma is a rare cancer, primarily affecting the pleura (lining of the
lungs), and is usually associated with asbestos exposure. The first
Phase III trial of ONCONASE® in
UMM was completed in 2000. The most recent confirmatory Phase IIIb registration
trial was closed to patient accrual in September 2007.
The
confirmatory Phase IIIb registration trial was a randomized and controlled
clinical trial designed to evaluate the efficacy, safety and tolerability of the
combination of ONCONASE® and
doxorubicin as compared to doxorubicin alone, and powered to reach a
statistically significant difference in overall survival between the
ONCONASE® +
doxorubicin treatment group and the doxorubicin treatment group at 316 evaluable
events. Patients were stratified based on Cancer Adult Leukemia Group
B (“CALGB”) Group (1 to 4) and histology and then assigned treatment using a
centralized randomization plan. The primary endpoint of the trial was
overall patient survival. The following data sets were analyzed for
efficacy as per the statistical analysis plan for this clinical
trial:
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All
patients randomized who received at least one dose of study therapy
(evaluable patients),
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Previously
treated patients,
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All
patients randomized,
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All
patients who completed 6 cycles of therapy per protocol,
and
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All
patients with identical inclusion criteria as used in the Alimta
submission.
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In
addition, secondary endpoints that were analyzed in accordance with the Phase
IIIb clinical trial statistical analysis plan included:
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Progression
free survival,
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Patient
assessment of symptoms associated with malignant
mesothelioma,
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Investigator
assessment of malignant mesothelioma
symptoms,
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Narcotic
pain medication usage,
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In May
2008, we reported that the results of the preliminary statistical analysis of
data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, one of the predefined primary sub-group data sets
for patients in the trial, which represents a currently unmet medical
need. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an NDA.
A Phase
I/II program to evaluate a new dose and administration schedule of ONCONASE® was
initiated in 2005 to attempt to take advantage of potentially increased efficacy
with higher and more frequent doses of ONCONASE®. The
Phase I portion of this program is complete and currently, we plan to initiate a
Phase II clinical trial in non-small cell lung cancer (NSCLC) for patients who
have reached maximum progression on their current chemotherapy regimens in
2010.
Pre-Clinical
Research Program
Our drug
discovery and pre-clinical research programs form the basis for the development
of specific recombinant RNases for chemically linking drugs and other compounds
such as monoclonal antibodies, growth factors, etc., as well as developing gene
fusion products with the goal of targeting various molecular
functions. These programs provide for joint design and generation of
new products with outside collaborators. Through these
collaborations, we may own these new products along with, or we may grant an
exclusive license to, the collaborating partner(s).
The
multiple effects of biological activity of ONCONASE® has
led to research in other areas of cancer biology. Two important areas
associated with significant market opportunities are radiation therapy and
control of tumor angiogenesis, or new tumor blood vessel
formation. Many types of cancers undergo radiation therapy at early
stages of the disease; however, success of such treatment is often
limited. We believe any agent capable of enhancing tumor
radiosensitivity has great market potential. Moreover, since the
growth of essentially all types of cancer is dependent on new blood vessel
formation, any agent that has anti-angiogenic activity, we believe, is most
desirable.
Ranpirnase Conjugates and
Fusion Proteins
The
concept of targeting potent toxins as effector molecules to kill cancer or other
specifically targeted cells has been extensively evaluated over the last two
decades. An immunotoxin is an antibody linked to a toxic molecule
that is used to destroy specific cells. Several immunotoxins
containing bacterial and plant toxins or other biotoxins, have been evaluated in
human clinical trials. Efficacy has always been limited due to the
high incidence of immunogenicity, or an immune response, and other intolerable
toxicities, including death. Conjugation of ranpirnase to targeting
ligands, or binding to other molecules, appears to eliminate this safety problem
in pre-clinical studies.
A
Cooperative Research and Development Agreement (CRADA) with the National Cancer
Institute, or NCI, has produced RN321, a conjugate of ranpirnase with a
monoclonal antibody, that has demonstrated activity against non-Hodgkin’s
lymphoma in preclinical studies. The relative benefit of killing
targeted tumor cells versus non-targeted healthy cells, or the therapeutic
index, is greater than 200,000-fold with this conjugate. This CRADA
has been concluded and data published.
We have
also developed a variety of uniquely designed versions of ONCONASE® and
amphinase conjugates. These compounds target the EGF receptors and
neo-vascularization (tumor blood vessel formation) which have potential clinical
application in a broad spectrum of solid tumors.
Novel Amphibian
Ribonucleases (Amphinases)
We have
also discovered another series of proteins, collectively named amphinases that
may have therapeutic uses. These proteins are
bioactive in that they have an effect on living cells and organisms and have
both anti-cancer and anti-viral activity. All of the proteins
characterized to date are RNases. Preclinical testing of the new
candidates collectively called amphinases showed them to be similarly active to
ranpirnase. Their chemical structure makes them ideal candidates for
genetic engineering of designer products.
These
compounds have undergone screening by the National Institute of Allergy and
Infectious Diseases (NIAID) against various RNA viruses and by outside
collaborators. One of these compounds, AC-03-636 has been determined
to be active in yellow fever, Hepatitis C and Dengue fever. The same
compound has been evaluated at Johns Hopkins University in a sustained time
release formulation for the treatment of brain tumors, or gliomas.
Evaluation Of
ONCONASE® As A Radiation
Enhancer
The p53
gene is a tumor-suppressor gene, which means that if it malfunctions, tumors may
be more likely to develop. Published preclinical studies have
demonstrated that ONCONASE®
causes an increase in both tumor blood flow and in median tumor oxygen partial
pressure, causing tumor cells to become less resistant to radiation therapy
regardless of the presence or absence of the functional p53 tumor-suppressor
gene. In pre-clinical research at the University of Pennsylvania,
ONCONASE®, when
combined with radiation therapy, enhanced the radiation-sensitivity to treatment
in NSCLC tumor cells without causing the common radiation-induced tissue damage
to non-tumor cells. ONCONASE®
inhibited sub-lethal damage repair, or SLDR and potentially lethal
damage repair, or PLDR in these animal models. We believe
these findings further expand the profile of ONCONASE® in vivo activities and its
potential clinical utility and market potential.
ONCONASE® As a Resistance-Overcoming
and Apoptosis-Enhancing Agent
The Fas (CD95) cell surface
receptor (and its Fas
ligand FasL) has been
recognized as an important “death” receptor involved in the induction of the
“extrinsic” pathway of apoptosis. The apoptotic pathways have been
the preferred target for new drug development in cancer, autoimmune, and other
therapeutic areas.
The
Thoracic Surgery Branch of the NCI confirmed the synergy between ranpirnase and
soluble Fas ligand, or
sFasL in inducing
significant apoptosis in sFasL-resistant Fas+tumor
cells. These results provided rationale for using ONCONASE® as a
potential treatment of FasL-resistant tumors and
possibly other disorders such as the autoimmune lympho-proliferative syndrome
(ALPS).
Evaluation Of
ONCONASE® As An Anti-Viral
Agent
The
ribonucleolytic activity was the basis for testing ONCONASE® as a
potential anti-viral agent against HIV. The NIH has performed an
independent in vitro
screen of ONCONASE®
against the HIV virus type 1. The results showed ONCONASE® to
inhibit replication of HIV by up to 99.9% after a four-day incubation period at
concentrations not toxic to uninfected cells. In vitro findings by the NIH
revealed that ONCONASE®
significantly inhibited production of HIV in several persistently infected human
cell lines, preferentially breaking down viral RNA while not affecting normal
cellular ribosomal RNA and messenger RNAs, which are essential to cell
function.
Moreover,
the NIAID also screened ONCONASE® for anti-HIV
activity. ONCONASE®
demonstrated highly significant anti-HIV activity in the monocyte/macrophage, or
anti-viral, system. Ranpirnase may inhibit viral replication at
several points during the life cycle of HIV, including its early
phases. Ranpirnase may inhibit replication of all different HIV-1
subtypes. These properties of ranpirnase are particularly relevant in
view of the extremely high and exponentially increasing rate of mutations of HIV
that occur during infection, and which are primarily responsible for the
development of resistance to several currently available anti-viral
drugs. At present, over 50% of clinical isolates of HIV are resistant
to both reverse transcriptase, mechanisms which combat viral replication, and
protease inhibitors drugs, a class of anti-viral drugs. An additional
25%, while being sensitive to protease inhibitors, are resistant to reverse
transcriptase inhibitor drugs.
COMMERCIAL
RELATIONSHIPS
License
Agreements
In January 2008, we entered into a U.S.
License Agreement for ONCONASE® with
Par Pharmaceutical, Inc. (“Par”). Under the terms of the License
Agreement, Strativa Pharmaceuticals (“Strativa”), the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. We retained
all rights and obligations for product manufacturing, clinical development and
obtaining regulatory approvals, as well as all rights for those non-U.S.
jurisdictions in which we have not currently granted any such rights or
obligations to third parties. We received a cash payment of $5 million upon the
signing of the License Agreement and were entitled to additional development and
sales milestone payments and double-digit royalties on net sales of
ONCONASE®.
On
September 8, 2009, we entered into a Termination and Mutual Release Agreement
(the “Termination Agreement”) with Par pursuant to which our License Agreement
and Supply Agreement with Par were terminated. The License Agreement
was terminated and all rights under the license granted to Par revert back to us
under the Termination Agreement. Under the Supply Agreement, we had agreed to supply all
of Par’s requirements for ONCONASE®. Pursuant to the
Termination Agreement, Par will be entitled to a royalty of 2% of net sales of
ONCONASE® or
any other ranpirnase product developed by us for use in the treatment of cancer
in the United States and its territories commencing with the first sale of such
product and terminating upon the later to occur of the 12th
anniversary of the first sale and the date of expiration of the last valid claim
of a pending application or issued patent owned or controlled by us with respect
to such product.
Marketing
and Distribution Agreements
Megapharm
Ltd.
In May 2008, we entered into an
exclusive marketing, sales and distribution agreement with Megapharm Ltd. for
the commercialization of ONCONASE® in
Israel. Under the agreement, we are eligible to receive 50% of net
sales in the territory. We will be responsible for the manufacture
and supply of ONCONASE® to
Megapharm, while Megapharm will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
BL&H
Co. Ltd.
In January 2008, we entered into a
marketing and distribution agreement with BL&H Co. Ltd. for the
commercialization of ONCONASE® in
Korea, Taiwan and Hong Kong. Under the agreement, we received a $100,000
up-front fee and are eligible to receive additional cash milestones and 50% of
net sales in the territory. We will be responsible for the manufacture and
supply of ONCONASE® to
BL&H, while BL&H will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
US
Pharmacia
In July
2007, we entered into a Distribution and Marketing Agreement (the
“Distribution Agreement”), with USP Pharma Spolka Z.O.O. (the “Distributor”), an
affiliate of US Pharmacia, pursuant to which the Distributor was granted
exclusive rights for the marketing, sales, and distribution of ONCONASE® for
use in oncology in Poland, Belarus, Ukraine, Estonia, Latvia, and Lithuania (the
“Territory”) for an initial term that ends upon the earlier of
(i) 10 years from the first commercial sale in the Territory and (ii)
the date all of the patents covering the product in the Territory
expire. We received an up-front payment of $100,000 and will also be
entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to the Distributor. We will be responsible for making regulatory filings with
and seeking marketing approval of ONCONASE® in
the Territory and manufacturing and supplying ONCONASE® to
the Distributor. The Distributor will be responsible for all
commercial activities and related costs in the Territory.
In
connection with the Distribution Agreement, we also entered into a Securities
Purchase Agreement, with Unilab LP, an affiliate of US Pharmacia, pursuant to
which we issued a total of 553,360 shares of restricted common stock for
approximately $1.4 million, or $2.53 per share.
GENESIS Pharma
S.A.
In
December 2006, we entered into a Distribution and Marketing Agreement with
GENESIS Pharma S.A. (“GENESIS”), pursuant to which GENESIS was granted exclusive
rights for the marketing, sales, and distribution of ONCONASE® for
use in oncology in Greece, Cyprus, Bulgaria, Romania, Slovenia, Croatia, Serbia,
and the Former Yugoslavian Republic of Macedonia (the “Region”) for an initial
term that ends upon the earlier of (i) 10 years from the first
commercial sale in the Region and (ii) the date all of the patents covering the
product in the Region expire. We will retain ownership of all
intellectual property relating to ONCONASE® and
responsibility for all regulatory filings with EMEA in the European Union (EU),
with GENESIS providing assistance with regard to regulatory filings in the
non-EU countries included in this agreement. We will also be
responsible for manufacturing and supplying the product to GENESIS, which will
distribute the product. GENESIS will have lead responsibility for all
ONCONASE®
commercialization activities and will manage all operational aspects of the
marketing, sales and distribution of the product in the Region. We
are entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to GENESIS.
Manufacturing
In
January 2008, we entered into a Purchase and Supply Agreement (the “Supply
Agreement”) with Scientific Protein Laboratories LLC (“SPL”). Under the Supply
Agreement, SPL will manufacture and be our exclusive supplier for the bulk drug
substance used to make ONCONASE®. The
term of the Supply Agreement shall be ten years and we have the right to
terminate the Supply Agreement at any time without cause on two years prior
notice to SPL.
Additionally,
we contract with Ben Venue Laboratories Inc. (“Ben Venue”) for vial filling and
with Bilcare Global Clinical Supplies, Americas (“Bilcare”), Aptuit, Inc.
(“Aptuit”) and Catalent Pharma Solutions, Inc. (“Catalent”) for the labeling,
storage and shipping of ONCONASE® for
use in clinical trials. Other than these arrangements we do not have
specific arrangements for the manufacture of ONCONASE®.
Products
manufactured for use in clinical trials and for commercial sale must be
manufactured in compliance with Current Good Manufacturing Practices
(“CGMP”). SPL, Ben Venue, Aptuit and Catalent are all licensed or
approved by the appropriate regulatory agencies and all work is performed in
accordance with CGMP. For the foreseeable future, we intend to rely
on these manufacturers and related service providers, or substitute vendors, if
necessary, to manufacture our product. We believe, however, that
there are substantial alternative providers for the services for which we
contract. For those relationships where we have not entered into
formal agreements, we utilize the services of these third party contractors
solely on an as needed basis with prices and terms customary for companies in
businesses that are similarly situated. In order to replace an
existing manufacturer, we must amend our Investigational New Drug application to
notify the appropriate regulatory agencies of the change. We are
dependent upon our contract manufacturers to comply with CGMP and to meet our
production requirements. It is possible that our contract manufacturers may not
comply with CGMP or deliver sufficient quantities of our products on schedule,
or that we may be unable to find suitable and cost effective alternative
providers if necessary.
Raw
Materials
The major
active ingredient derived from leopard frog eggs is the protein
ranpirnase. We believe we have sufficient egg inventory on hand to
produce enough ONCONASE® for
our future clinical trials and early commercialization. In addition,
we have successfully produced ranpirnase in small proof-of-concept size batches
using recombinant technology. However, this technology requires
additional testing and FDA approval and it may be determined to not be more cost
effective than current methods of production.
Patents
and Proprietary Technology
We have
sought to protect our technology by applying for, and obtaining, patents and
trademark registrations. We have also relied on trade secrets and
know-how to protect our proprietary technology. We continue to
develop our portfolio of patents, trade secrets, and know how. We
have obtained, and continue to apply for, patents concerning our RNase-based
technology.
In
addition, we have filed (and we intend to continue to file) foreign counterparts
to certain U.S. patent applications. Generally, we apply for patent protection
in the United States, Europe, Japan, and certain other foreign
countries.
We own
the following U.S. patents:
Patent No.
|
Issue Date
|
Subject Matter
|
Expiration
**
|
5,529,775
|
June
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
June
2013
|
5,728,805
|
Mar.
1998
|
covers
a family of variants of ONCONASE®
|
June
2013
|
5,540,925
|
July
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
July
2013
|
5,559,212
|
Sept.
1996
|
covers
the amino acid sequence of ONCONASE®
|
Sept.
2013
|
5,595,734
|
Jan.
1997
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
Jan.
2014
|
6,649,392
B1*
|
Nov.
2003
|
covers
a family of recombinant variants of ONCONASE®
|
Apr.
2016
|
6,649,393
B1*
|
Nov.
2003
|
covers
nucleic acids encoding recombinant variants of ONCONASE®
and methodology for producing such variants
|
Apr.
2016
|
Patent No.
|
Issue Date
|
Subject Matter
|
Expiration
**
|
6,290,951
B1
|
Sept.
2001
|
covers
alteration of the cell cycle in vivo, particularly
for inducing apoptosis of tumor cells
|
Aug.
2018
|
6,239,257
B1
|
May
2001
|
covers
a family of variants of ONCONASE®
|
Dec.
2018
|
6,175,003
B1
|
Jan.
2001
|
covers
the genes of ONCONASE®
and a variant of ONCONASE®
|
Sept.
2019
|
6,423,515
B1
|
July
2002
|
covers
methodology for synthesizing gene sequences of ranpirnase and a
genetically engineered variant of ranpirnase
|
Sept.
2019
|
7,229,824
B1***
|
June
2007
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
May
2024
|
7,556,952
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,556,951
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,556,953
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,442,535
B2
|
October
2008
|
covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,585,655
B2
|
September
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding such variant
|
July
2023
|
7,442,536
B2
|
October
2008
|
covers
genetically engineered variants of ONCONASE®
|
July
2023
|
7,585,654
B2
|
September
2009
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®,
and a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,473,542
B2
|
January
2009
|
Covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
*We own
this patent jointly with the U.S. Government. We do not pay
maintenance fees to keep this patent in force.
We own
the following foreign patents in Europe (European patents are validated in
selected European nations), Japan and Singapore:
Patent No.
|
Subject Matter
|
Expiration **
|
EP
0 500 589
JP
2972334
|
cover
combinations of ONCONASEâ with
certain other pharmaceuticals
|
Oct.
2010
|
EP
0 656 783
JP
3655628
|
covers
combinations of ONCONASEâ with
certain other pharmaceuticals
|
July
2013
|
EP
0 837 878
JP
3779999
|
covers
a variant of ONCONASEâ
|
June
2016
|
EP
1 141 004
|
covers
a family of variants of ONCONASE®
|
December
2019
|
SG
118886
|
covers
variants of ONCONASEâ and
methods of making them
|
May
2024
|
**Assumes
timely payment of all applicable maintenance fees and annuities; excludes term
extensions that do or may apply.
***Includes
a term extension of 312 days under 35 U.S.C. §154(b).
We also
have patent applications pending in the United States, Europe, Japan, and other
foreign countries.
The scope
of protection afforded by patents for biotechnological inventions can be
uncertain, and such uncertainty may apply to our patents as well. The
patent applications we have filed, or that we may file in the future, may not
result in patents. Our patents may not give us a competitive
advantage, may be wholly or partially invalidated or held unenforceable, or may
be held not to have been infringed by products that compete with our
products. Patents owned by others may adversely affect our ability to
do business. Furthermore, others may independently develop products
that are similar to our products or that duplicate our products, and may design
around the claims of our patents. Although we believe that our
patents and patent applications are of substantial value to us, we cannot assure
you that such patents and patent applications will be of commercial benefit to
us, will adequately protect us from competing products or will not be
challenged, declared invalid, or found not to have been infringed by competing
products. We also rely on proprietary know-how and on trade secrets
to develop and maintain our competitive position. Others may
independently develop or obtain access to such know-how or trade
secrets. Although our employees and consultants having access to
proprietary information are required to sign agreements that require them to
keep such information confidential, our employees or consultants may breach
these agreements or these agreements may be held to be
unenforceable.
Government
Regulation
The
manufacturing and marketing of pharmaceutical products in the United States
require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable regulatory agencies are required
in most foreign countries. The FDA has established mandatory procedures and
safety standards that apply to the clinical testing, manufacturing and marketing
of pharmaceutical products in the United States. Obtaining FDA approval for a
new therapeutic may take many years and involve substantial
expenditures. State, local and other authorities also regulate
pharmaceutical manufacturing facilities.
As the
initial step in the FDA regulatory approval process, preclinical studies are
conducted in laboratory dishes and animal models to assess the drug's efficacy
and to identify potential safety problems. Moreover manufacturing processes and
controls for the product are required. The manufacturing information
along with the results of these studies is submitted to the FDA as a part of the
Investigational New Drug Application, or IND, which is filed to obtain approval
to begin human clinical testing. The human clinical testing program typically
involves up to three phases. Data from human trials as well as other regulatory
requirements such as chemistry, manufacturing and controls, pharmacology and
toxicology sections, are submitted to the FDA in an NDA or Biologics License
Application, or BLA. Preparing an NDA or BLA involves considerable
data collection, verification and analysis. A similar process in
accordance with EMEA regulations in Europe and with TGA regulations in Australia
is required to gain marketing approval. Moreover, a commercial entity
must be established and approved by the EMEA in a member state of the EU at
least three months prior to filing the Marketing Authorization Application, or
MAA.
We have
not received United States or other marketing approval for any of our product
candidates and may not receive any approvals. We may encounter
difficulties or unanticipated costs in our effort to secure necessary
governmental approvals, which could delay or preclude us from marketing our
products.
With
respect to patented products, delays imposed by the governmental approval
process may materially reduce the period during which we may have the exclusive
right to exploit them.
Environmental
Matters
Our
operations are subject to comprehensive regulation with respect to
environmental, safety and similar matters by the United States Environmental
Protection Agency and similar state and local agencies. Failure to comply with
applicable laws, regulations and permits can result in injunctive actions,
damages and civil and criminal penalties. If we expand or change our existing
operations or propose any new operations, we may need to obtain additional or
amend existing permits or authorizations. We spend time, effort and
funds in operating our facilities to ensure compliance with environmental and
other regulatory requirements.
Such
efforts and expenditures are common throughout the biotechnology industry and
generally should have no material adverse effect on our financial
condition. The principal environmental regulatory requirements and
matters known to us requiring or potentially requiring capital expenditures by
us do not appear likely, individually or in the aggregate, to have a material
adverse effect on our financial condition. We believe that we are in
compliance with all current laws and regulations.
Employees
As of
July 31, 2009, we had six full time employees, of whom three were engaged in
clinical and pre-clinical research and development activities and three were
engaged in administration and management. Two employees hold Ph.D.
degrees. All of our employees have entered into confidentiality
agreements with us. We consider relations with our employees to be
good. None of our employees are covered by a collective bargaining
agreement.
Copies of
our annual report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available free of charge through our website
(www.alfacell.com) as soon as reasonably practicable after we electronically
file the material with, or furnish it to, the Securities and Exchange Commission
(the “SEC”). You may read and copy any document we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room. Our SEC filings are also available to the public at the
SEC’s website at http://www.sec.gov. Additionally, we have also adopted a Code
of Business Conduct and Ethics applicable to all officers, directors, and
employees, which is also available on our website.
ITEM
1A. RISK
FACTORS.
An
investment in our common stock is speculative and involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below and the other information in this Form 10-K and our other SEC
filings before deciding whether to purchase shares of our common
stock. If any of the following risks actually occur, our business and
operating results could be harmed. This could cause the trading price
of our common stock to decline, and you may lose all or part of your
investment.
We
are highly dependent on achieving success in the clinical testing, regulatory
approval, and commercialization of ONCONASE® and
our other compounds currently under development. If we fail to obtain
the necessary regulatory approvals, we will not be allowed to commercialize
ONCONASE® and
our business will be harmed.
The FDA
in the United States and comparable regulatory agencies in foreign countries
impose substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve the completion of lengthy
and detailed pre-clinical and clinical testing and other costly and time
consuming procedures. Satisfaction of these requirements typically takes several
years depending on the level of complexity and novelty of the product. The
length of time required to complete a clinical trial depends on several factors
including the size of the patient population, the ability of patients to get to
the site of the clinical study, and the criteria for determining which patients
are eligible to join the study. A significant portion of our expenditures have
been devoted, in the future will be devoted, to the clinical trials for our lead
product candidate, ONCONASE® .
Although the financing we received in October 2009 will enable us to commence a
new clinical trial for ONCONASE®, we
will be required to obtain additional financing to complete this trial and
pursue the further development of ONCONASE®. Such
financing may not be available, and even if it is available, it may not be
available on terms favorable or acceptable to us.
All
statutes and regulations governing the conduct of clinical trials are subject to
future changes by various regulatory agencies, including the FDA, which could
affect the cost and duration of our clinical trials. Any unanticipated costs or
delays in our clinical studies would delay our ability to generate product
revenues and to raise additional capital and could cause us to be unable to fund
the completion of the studies.
We may
not market or sell any product for which we have not obtained regulatory
approval. We cannot assure you that the FDA or other regulatory agencies will
ever approve the use of our products that are under development. Even if we
receive regulatory approval, such approval may involve limitations on the
indicated uses for which we may market our products. Further, even after
approval, discovery of previously unknown problems could result in additional
restrictions, including withdrawal of our products from the market.
If we
fail to obtain the necessary regulatory approvals, we cannot market or sell our
products in the United States or in other countries and our viability would be
threatened. If we fail to achieve regulatory approval or foreign marketing
authorizations for ONCONASE® we
will not have a product suitable for sale or product revenues for quite some
time, if at all, and may not be able to continue operations.
Our
profitability will depend on our ability to develop, obtain regulatory approvals
for, and effectively market ONCONASE® as
well as entering into strategic alliances for the development of new drug
candidates from the out-licensing of our proprietary RNase technology. The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize
ONCONASE®
depends on the success of our clinical development programs, our efforts to
obtain regulatory approval and our sales and marketing efforts or those of our
marketing partners, directed at physicians, patients and third-party payors. A
number of factors could affect these efforts including:
· our
ability to demonstrate clinically that our products are effective and
safe;
· delays
or refusals by regulatory authorities in granting marketing
approvals;
· our
limited financial resources relative to our competitors;
|
·
|
our
ability to obtain and maintain relationships with current and additional
marketing partners;
|
· the
availability and level of reimbursement for our products by third party
payors;
· incidents
of adverse reactions to our products;
· misuse
of our products and unfavorable publicity that could result; and
· the
occurrence of manufacturing or distribution disruptions.
Based
upon guidance provided by the FDA at a pre-NDA meeting, we decided not to file a
new drug application (NDA) for ONCONASE®
for unresectable malignant mesothelioma (UMM).
As we
have previously reported, the results of the preliminary statistical analysis of
the data from the confirmatory Phase IIIb clinical trial for ONCONASE®
in patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. Although a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a pre-defined primary data set for
this sub-group of patients in the trial, at a pre-NDA meeting with the FDA held
in January 2009, the FDA recommended that an additional clinical trial be
conducted in this sub-group of patients prior to our submitting an NDA for
ONCONASE®. Based
upon our assessment that it would be difficult to design and conduct a clinical
trial that would comply with the FDA’s recommendation and allow us to file an
NDA, we have determined at this time not to pursue further clinical trials for
the treatment of UMM. Based upon our current operations and our plans
to conduct a Phase II clinical trial for ONCONASE®,
we expect that our current cash reserves will enable us to maintain our reduced
operations through July 2010. While we intend to continue to pursue
strategic transactions and additional capital, we cannot provide any assurance
that we will be successful in our efforts, and if we are not successful in these
efforts we will be forced to cease operations.
We
have incurred losses since inception and anticipate that we will incur continued
losses for the foreseeable future. We do not have a current source of product
revenue and may never be profitable.
We are a
development stage company and since our inception one of the principal sources
of our working capital has been private sales of our common
stock. Over the past three fiscal years, we have incurred aggregate
net losses of approximately $25.6 million and since our inception we have
incurred aggregate net losses of approximately $108.9 million. We expect to
incur additional losses and, as our development efforts, efforts to file an NDA
for ONCONASE® and
clinical testing activities continue, our rate of losses may increase. We also
expect to experience negative cash flows for the foreseeable future as we fund
our losses and capital expenditures. Our losses have adversely impacted, and
will continue to adversely impact, our working capital, total assets and
stockholders’ equity. To date, we have not sold or received approval to sell any
drug product candidates, and it is possible that revenues from drug product
sales will never be achieved. We cannot at this time predict when or if we will
be able to develop other sources of revenue or when or if our operations will
become profitable, even if we are able to commercialize some of our drug product
candidates.
We will
seek to generate revenue through licensing, marketing and development
arrangements prior to receiving revenue from the sale of our products.
Currently, we are party to four non-US regional marketing and distribution
agreements and we may not be able to successfully negotiate any additional
agreements. In the past, we have entered into several development arrangements
which have resulted in limited revenues for us. We cannot assure investors that
these arrangements or future arrangements, if any, will result in significant
amounts of revenue for us in the future. We, therefore, are unable to predict
the extent of any future losses or the time required to achieve profitability,
if at all.
We
will need additional financing to continue operations, which may not be
available on favorable or acceptable terms, if it is available at
all.
We
estimate that as of July 31, 2009, our cash reserves should be sufficient to
support our activities into the fourth quarter of our fiscal year 2010, after
taking into consideration the cash infusion of $3.25 million received in October
2009 and based upon our current operations and our plans to conduct a Phase II
clinical trial for ONCONASE®. As
a result of our continuing losses and lack of capital, the report of our
independent registered public accounting firm on our July 31, 2009 financial
statements included an explanatory paragraph which states that our recurring
losses from operations and negative cash flows from operating activities raise
substantial doubt about our ability to continue as a going
concern. Our financial statements at July 31, 2009 do not
include any adjustments that might result from the outcome of this
uncertainty. We will need additional financing to conduct our
business after July 2010. Factors that would affect the amount and
timing of additional capital required include, but are not limited to, the
following:
|
·
|
the
condition of the capital markets in general and the willingness of
investors to invest in development stage biotech companies, in
particular;
|
|
·
|
the
progress and cost of research and development and clinical trial
activities relating to our drug product
candidates;
|
|
·
|
the
progress and cost of completing and filing marketing registrations for
ONCONASE®
with the FDA in the United States, with the EMEA in Europe and with the
TGA in Australia;
|
|
·
|
our
degree of success in commercializing our drug product candidates,
including entering into additional marketing and distribution
agreements;
|
|
·
|
the
costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our patent claims and other intellectual
property rights and investigating and defending against infringement
claims asserted against us by
others;
|
|
·
|
the
emergence of competing technologies and other adverse market
developments;
|
|
·
|
changes
in or terminations of our existing licensing, marketing and distribution
arrangements;
|
|
·
|
the
amount of milestone payments we may receive from current and future
collaborators, if any; and
|
|
·
|
the
cost of manufacturing scale-up and development of marketing operations, if
we undertake those activities.
|
Additional
financing may not be available when we need it or be on terms acceptable to us.
If adequate financing is not available or we are unable to conclude a strategic
transaction prior to the time our current cash reserves are exhausted we will be
required to cease operations. If additional capital is raised through
the sale of equity, our stockholders’ ownership interest could be diluted and
such newly-issued securities may have rights, preferences, or privileges
superior to those of our other stockholders. The terms of any debt securities we
may sell to raise additional capital may place restrictions on our operating
activities.
Budget
constraints may force us to delay our efforts to develop certain drug product
candidates in favor of developing others, which may prevent us from
commercializing all drug product candidates as quickly as possible.
Because
we are an emerging company with limited resources, and because completing and
submitting an NDA is an expensive process, we must regularly assess the most
efficient allocation of our research and development budget. As a result, we may
have to further prioritize development activities and may not be able to fully
realize the value of some of our drug product candidates in a timely manner, and
they may be delayed in reaching the market, if at all. A reduction in spending
on our other drug product candidates could delay our commercialization efforts
and negatively impact our ability to diversify our development risk across a
broad portfolio of drug product candidates.
Competition
in the biopharmaceutical field is intense and subject to rapid technological
change. Our principal competitors have substantially greater resources to
develop and market products that may be superior to ours.
If we
obtain regulatory approval for any of our drug product candidates, the extent to
which they achieve market acceptance will depend, in part, on competitive
factors. Competition in our industry is intense, and it is increased by the
rapid pace of technological development. Existing drug products or new drug
products developed by our competitors may be more effective or have fewer side
effects, or may be more effectively marketed and sold, than any that we may
develop. Our principal competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial, and managerial resources than we do. Competitive drug compounds may
render our technology and drug product candidates obsolete or noncompetitive
prior to our recovery of research, development, or commercialization expenses
incurred through sales of any of our drug product candidates. The FDA’s policy
of granting “fast track” approval for cancer therapies may also expedite the
regulatory approval of our competitors’ drug product candidates.
To our
knowledge, no other company is developing a product with the same mechanism of
action as ONCONASE®.
However, there may be other companies, universities, research teams or
scientists who are developing products to treat the same medical conditions our
products are intended to treat.
We also
compete with other drug development companies for collaborations with large
pharmaceutical and other companies.
Our
stock price has been and is likely to continue to be volatile, and an investment
in our common stock could decline in value.
The
market price of our common stock, like that of the securities of many other
development stage biotechnology companies, has fluctuated over a wide range and
it is likely that the price of our common stock will fluctuate in the future.
For example, over the past three fiscal years, the sale price for our common
stock, as reported by Nasdaq and the OTCBB has fluctuated from a low of $0.06 to
a high of $3.74. The market price of our common stock could be
impacted by a variety of factors, including:
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the
success or failure of our clinical trials, including, but not limited to,
the Phase IIIb trial involving our lead compound, ONCONASE®,
or those of our competitors;
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announcements
of technological innovations or new drug products by us or our
competitors;
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actual
or anticipated fluctuations in our financial
results;
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our
ability to obtain financing, when
needed;
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economic
conditions in the United States and
abroad;
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comments
by or changes in our assessments or financial estimates by securities
analysts;
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adverse
regulatory actions or decisions;
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losses
of key management;
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changing
governmental regulations;
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our
ability to secure adequate third party reimbursement for products
developed by us;
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developments
or disputes concerning patents or other proprietary
rights;
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product
or patent litigation; and
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public
concern as to the safety of products developed by
us.
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The stock
market continues to experience extreme price and volume fluctuations and these
fluctuations have especially affected the market price of many biotechnology
companies. Such fluctuations have often been unrelated to the operating
performance of these companies. Volatility or a lack of positive performance in
our stock price may adversely affect our ability to retain key employees, all of
whom have been granted stock options. These factors and fluctuations, as well as
political and market conditions, may materially adversely affect the market
price of our common stock.
The
trading market for our common stock may be limited since our common stock is no
longer listed on the Nasdaq Capital Market.
On
January 6, 2009 our common stock was delisted from the Nasdaq Capital
Market. Since then our common stock has been quoted on the Pink
Sheets and may be thinly traded at times. You may be unable to sell
our common stock during times when the trading market is limited.
We
are and will be dependent upon third parties for manufacturing our products. If
these third parties do not devote sufficient time and resources to our products
our revenues and profits may be adversely affected.
We do not
have the required manufacturing facilities to manufacture our product. We
presently rely on third parties to produce ONCONASE® for
use in clinical trials. We have entered into a ten-year purchase and supply
agreement with SPL, for the manufacturing of ranpirnase (protein drug substance)
from the oocytes, or the unfertilized eggs, of the Rana pipiens frog, which is
found in the Northwest United States and is commonly called the leopard
frog.
Additionally,
we contract with Ben Venue for the manufacturing of ONCONASE® and
with Bilcare, Catalent and Aptuit for the storage, labeling and shipping of
ONCONASE® for
clinical trial use. We utilize the services of these third party manufacturers
solely on an as needed basis with terms and prices customary for our
industry.
We use
FDA CGMP licensed manufacturers for ranpirnase and ONCONASE®. We
have identified alternative providers for the manufacturing services for which
we may contract. In order to replace an existing service provider we must amend
our IND to notify the FDA of the new manufacturer. Although the FDA generally
will not suspend or delay a clinical trial as a result of replacing an existing
manufacturer, the FDA has the authority to suspend or delay a clinical trial if,
among other grounds, human subjects are or would be exposed to an unreasonable
and significant risk of illness or injury as a result of the replacement
manufacturer.
We intend
to rely on third parties to manufacture our products if they are approved for
sale by the appropriate regulatory agencies and are commercialized. Third party
manufacturers may not be able to meet our needs with respect to the timing,
quantity or quality of our products or to supply products on acceptable
terms.
Because
we do not have in-house marketing, sales or distribution capabilities, we have
contracted with third parties and expect to contract with third parties in the
future for these functions and we will therefore be dependent upon such third
parties to market, sell and distribute our products in an effort to generate
revenues.
We
currently have no in-house sales, marketing or distribution capabilities. In
order to commercialize any product candidates for which we receive FDA or
non-U.S. approval, we expect to rely on established third parties who have
strategic partnerships with us to perform these functions. To date, we have
entered into four marketing and distribution agreements for ONCONASE® in
regions outside the United States. We cannot assure you we will be able to
maintain these relationships or establish new relationships with
biopharmaceutical or other marketing companies with existing distribution
systems and direct sales forces to market any or all of our product candidates
on acceptable terms, if at all.
In
addition, we may incur significant expenses in determining our commercialization
strategy with respect to one or more of our product candidates for regions
outside the United States. The determination of our commercialization strategy
with respect to a product candidate will depend on a number of factors,
including:
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the
extent to which we are successful in securing third parties to collaborate
with us to offset some or all of the funding obligations with respect to
product candidates;
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the
extent to which our agreement with our collaborators permits us to
exercise marketing or promotion rights with respect to the product
candidate;
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how
our product candidates compare to competitive products with respect to
labeling, pricing, therapeutic effect, and method of delivery;
and
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whether
we are able to establish agreements with third party collaborators,
including large biopharmaceutical or other marketing companies, with
respect to any of our product candidates on terms that are acceptable to
us.
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Our
lack of operating experience may cause us difficulty in managing our
growth.
We have
no experience in selling pharmaceutical or other products or in manufacturing or
procuring drug products in commercial quantities in compliance with FDA
regulations and we have only limited experience in negotiating, establishing and
maintaining collaborative relationships and conducting later stage phases of the
regulatory approval process. Our ability to manage our growth, if any, will
require us to improve and expand our management and our operational and
financial systems and controls. If our management is unable to manage growth
effectively, our business and financial condition would be adversely affected.
In addition, if rapid growth occurs, it may strain our operational, managerial
and financial resources, which are limited.
Our
proprietary technology and patents may offer only limited protection against
infringement and the development by our competitors of competitive
products.
We own
two patents jointly with the United States government. These patents expire in
2016. We also own eighteen United States patents with expiration dates ranging
from 2013 to 2024, four European patents with expiration dates ranging from 2010
to 2019, three Japanese patents with expiration dates ranging from 2010 to 2016
and one Singaporean patent with an expiration date in 2024. The scope
of protection afforded by patents for biotechnological inventions is uncertain,
and such uncertainty applies to our patents as well. Therefore, our patents may
not give us competitive advantages or afford us adequate protection from
competing products. Furthermore, others may independently develop products that
are similar to our products, and may design around the claims of our patents.
Patent litigation and intellectual property litigation are expensive and our
resources are limited. To date, we have not received any threats of litigation
regarding patent issues. However, if we were to become involved in
litigation, we might not have the funds or other resources necessary to conduct
the litigation effectively. This might prevent us from protecting our patents,
from defending against claims of infringement, or both.
We
may be sued for infringing on the intellectual property rights of
others.
Our
commercial success also depends in part on ensuring that we do not infringe the
patents or proprietary rights of third parties. The biotechnology industry has
produced a proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of products. The
coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. While we have not been sued for infringing
the intellectual property rights of others, there can be no assurance that the
drug product candidates that we have under development do not or will not
infringe on the patent or proprietary rights of others. Third parties may assert
that we are employing their proprietary technology without authorization.
Moreover, United States patent applications filed in recent years are
confidential for 18 months, while older applications are not published
until the patent issues. Further, some applications are kept secret during the
entire length of their pendency by request of the applicant in special
circumstances. As a result, there may be patents of which we are unaware, and
avoiding patent infringement may be difficult. Patent holders sometimes send
communications to a number of companies in related fields, suggesting possible
infringement. If we are sued for patent infringement, we would need to
demonstrate that we either do not infringe the patent claims of the relevant
patent and/or that the patent claims are invalid, which we may not be able to
do. Proving invalidity, in particular, is difficult since it requires a showing
of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Parties making claims against us may be able to obtain
injunctive or other equitable relief that could effectively block our ability to
further develop, commercialize and sell products, and such claims could result
in the award of substantial damages against us. In the event of a successful
claim of infringement against us, we may be required to pay damages and obtain
one or more licenses from third parties. We may not be able to obtain these
licenses at a reasonable cost, if at all. In that event, we could encounter
delays in product introductions while we attempt to develop alternative methods
or products or be required to cease commercializing affected products and our
operating results would be harmed.
In the
future, others may file patent applications covering technologies that we may
wish to utilize with our proprietary technologies, or products that are similar
to products developed with the use of our technologies. If these patent
applications result in issued patents and we wish to use the claimed technology,
we would need to obtain a license from the third party, and this would increase
our costs of operations and harm our operating results.
If
we lose key management personnel or are unable to attract and retain the talent
required for our business, our business could be materially harmed.
We
currently have only one executive officer, Charles Muniz, our President, Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). We are
highly dependent on Mr. Muniz, who has an employment contract with
us. During the fiscal year ended July 31, 2009, Kuslima Shogen, our
scientific founder and former CEO retired, and Lawrence A. Kenyon, our former
President, CFO, and Corporate Secretary resigned.
We do not
have key man insurance on any of our management. If we were to lose
the services of Mr. Muniz or other members of our management team, and were
unable to replace them, our product development and the achievement of our
strategic objectives could be delayed.
In
addition, our success will depend on our ability to attract and retain qualified
commercial, scientific, technical, and managerial personnel. While we have not
experienced unusual difficulties to date in recruiting and retaining personnel,
there is intense competition for qualified staff and there is no assurance that
we will be able to retain existing personnel or attract and retain qualified
staff in the future.
If
we are unable to obtain favorable reimbursement for our product candidates,
their commercial success may be severely hindered.
Our
ability to sell our future products may depend in large part on the extent to
which reimbursement for the costs of our products is available from government
entities, private health insurers, managed care organizations and others.
Third-party payors are increasingly attempting to contain their costs. We cannot
predict what actions third-party payors may take, or whether they will limit the
coverage and level of reimbursement for our products or refuse to provide any
coverage at all. Reduced or partial reimbursement coverage could make our
products less attractive to patients, suppliers and prescribing physicians and
may not be adequate for us to maintain price levels sufficient to realize an
appropriate return on our investment in our product candidates or to compete on
price.
In some
cases, insurers and other healthcare payment organizations try to encourage the
use of less expensive generic brands and over-the-counter, or OTC, products
through their prescription benefits coverage and reimbursement policies. These
organizations may make the generic alternative more attractive to the patient by
providing different amounts of reimbursement so that the net cost of the generic
product to the patient is less than the net cost of a prescription brand
product. Aggressive pricing policies by our generic product competitors and the
prescription benefits policies of insurers could have a negative effect on our
product revenues and profitability.
Many
managed care organizations negotiate the price of medical services and products
and develop formularies for that purpose. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization
patient population. If our products are not included within an adequate number
of formularies or adequate reimbursement levels are not provided, or if those
policies increasingly favor generic or OTC products, our market share and gross
margins could be negatively affected, as could our overall business and
financial condition.
The
competition among pharmaceutical companies to have their products approved for
reimbursement may also result in downward pricing pressure in the industry or in
the markets where our products will compete. We may not be successful in any
efforts we take to mitigate the effect of a decline in average selling prices
for our products. Any decline in our average selling prices would also reduce
our gross margins.
In
addition, managed care initiatives to control costs may influence primary care
physicians to refer fewer patients to oncologists and other specialists.
Reductions in these referrals could have a material adverse effect on the size
of our potential market and increase costs to effectively promote our
products.
We are
subject to new legislation, regulatory proposals and managed care initiatives
that may increase our costs of compliance and adversely affect our ability to
market our products, obtain collaborators and raise capital.
There
have been a number of legislative and regulatory proposals aimed at changing the
healthcare system and pharmaceutical industry, including reductions in the cost
of prescription products and changes in the levels at which consumers and
healthcare providers are reimbursed for purchases of pharmaceutical products.
For example, the Prescription Drug and Medicare Improvement Act of 2003 provides
a Medicare prescription drug benefit that began in 2006 and mandates other
reforms. Although we cannot predict the full effects on our business of the
implementation of this new legislation, it is possible that the new benefit,
which will be managed by private health insurers, pharmacy benefit managers and
other managed care organizations, will result in decreased reimbursement for
prescription drugs, which may further exacerbate industry-wide pressure to
reduce the prices charged for prescription drugs. This could harm our ability to
market our products and generate revenues. It is also possible that other
proposals will be adopted. As a result of the new Medicare prescription drug
benefit or any other proposals, we may determine to change our current manner of
operation, provide additional benefits or change our contract arrangements, any
of which could harm our ability to operate our business efficiently, obtain
collaborators and raise capital.
Our
product candidates may not be accepted by the market.
Even if
approved by the FDA and other regulatory authorities, our product candidates may
not achieve market acceptance, which means we would not receive significant
revenues from these products. Approval by the FDA does not necessarily mean that
the medical community will be convinced of the relative safety, efficacy and
cost-effectiveness of our products as compared to other products. In addition,
third party reimbursers such as insurance companies and HMOs may be reluctant to
reimburse expenses relating to our products.
Material
weaknesses or deficiencies in our internal control over financial reporting
could harm stockholders’ and business partners’ confidence in our financial
reporting, our ability to obtain financing, and other aspects of our
business.
Internal
control over financial reporting can provide only reasonable and not absolute
assurance that deficiencies or weaknesses are identified. Additionally,
potential control deficiencies that are not yet identified could emerge and
internal controls that are currently deemed to be in place and operating
effectively are subject to the risk that those controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Identification and corrections of these
types of potential control deficiencies could have a material impact on our
business, financial position, results of operations and disclosures and impact
our ability to raise funds.
Our
investments could lose market value and consequently harm our ability to fund
continuing operations.
The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash and cash equivalents
in a variety of securities, including government and corporate obligations and
money market funds. The market values of these investments may fluctuate due to
market conditions and other conditions over which we have no control.
Fluctuations in the market price and valuations of these securities may require
us to record losses due to impairment in the value of the securities underlying
our investment. This could result in future charges to our earnings. All of our
investment securities are denominated in US dollars.
Investments
in both fixed-rate and floating-rate interest earning instruments carry varying
degrees of interest rate risk. Fixed-rate securities may have their fair market
value adversely impacted due to a rise in interest rates. In general, securities
with longer maturities are subject to greater interest rate risk than those with
shorter maturities. While floating-rate securities generally are subject to less
interest rate risk than fixed-rate securities, floating-rate securities may
produce less income than expected if interest rates decrease. Due in part to
these factors, our investment income may fall short of expectations or we may
suffer losses in principal if securities are sold that have declined in market
value due to changes in interest rates.
We
handle hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. We could
also be liable for damages, penalties, or other forms of censure if we are
involved in a hazardous waste spill or other accident.
Our
research and development processes involve the controlled storage, use, and
disposal of hazardous materials and biological hazardous materials. We are
subject to federal, state, and local laws and regulations governing the use,
manufacture, storage, handling, and disposal of hazardous materials and certain
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials comply with the standards prescribed by
law and regulation, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of
an accident, even by a third party, we could be held liable for any damages that
result, and such liability could exceed the $2,000,000 limit of our current
general liability insurance coverage and our financial resources. In the future,
we may not be able to maintain insurance on acceptable terms, or at all. We
could also be required to incur significant costs to comply with current or
future environmental laws and regulations.
We
may be sued for product liability.
Our
business exposes us to potential product liability that may have a negative
effect on our financial performance and our business generally. The
administration of drugs to humans, whether in clinical trials or commercially,
exposes us to potential product and professional liability risks which are
inherent in the testing, production, marketing and sale of new drugs for humans.
Product liability claims can be expensive to defend and may result in large
judgments or settlements against us, which could have a negative effect on our
financial performance and materially adversely affect our business. We maintain
product liability insurance to protect our products and product candidates in
amounts customary for companies in businesses that are similarly situated, but
our insurance coverage may not be sufficient to cover claims. Furthermore,
liability insurance coverage is becoming increasingly expensive and we cannot be
certain that we will always be able to maintain or increase our insurance
coverage at an affordable price or in sufficient amounts to protect against
potential losses. A product liability claim, product recall or other claim, as
well as any claim for uninsured liabilities or claim in excess of insured
liabilities, may significantly harm our business and results of operations. Even
if a product liability claim is not successful, adverse publicity and time and
expense of defending such a claim may significantly interfere with our
business.
Our
incorporation documents may delay or prevent the removal of our current
management or a change of control that a stockholder may consider
favorable.
We are
currently authorized to issue 1,000,000 shares of preferred stock. Our Board of
Directors, or the Board is authorized, without any approval of the stockholders,
to issue the preferred stock and determine the terms of the preferred stock.
This provision allows the Board to affect the rights of stockholders, since the
board of directors can make it more difficult for common stockholders to replace
members of the Board. Because the Board is responsible for appointing
the members of our management, these provisions could in turn affect any attempt
to replace current management by the common stockholders. Furthermore, the
existence of authorized shares of preferred stock might have the effect of
discouraging any attempt by a person, through the acquisition of a substantial
number of shares of common stock, to acquire control of us. Accordingly, the
accomplishment of a tender offer may be more difficult. This may be beneficial
to management in a hostile tender offer, but have an adverse impact on
stockholders who may want to participate in the tender offer or inhibit a
stockholder’s ability to receive an acquisition premium for his or her
shares.
Events
with respect to our share capital could cause the price of our common stock to
decline.
Sales of
substantial amounts of our common stock in the open market, or the availability
of such shares for sale, could adversely affect the price of our common stock.
We had 47,313,880 shares of common stock outstanding as of July 31, 2009. The
following securities that may be exercised into shares of our common stock were
issued and outstanding as of July 31, 2009:
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Options.
Stock options to purchase 4,771,650 shares of our common stock at a
weighted average exercise price of approximately $2.64 per
share.
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Warrants.
Warrants to purchase 8,495,650 shares of our common stock at a weighted
average exercise price of approximately $2.43 per
share.
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The
shares of our common stock that may be issued under the options and warrants are
currently registered with the SEC or are eligible for sale without any volume
limitations pursuant to Rule 144 under the Securities Act.
Additionally,
in October 2009, we completed a private financing pursuant to which we issued
the following securities:
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Senior
Secured Convertible Notes. Notes convertible into an aggregate of
21,666,666 shares of our common stock at a conversion price of $0.15 per
share (the “Senior Secured Notes”).
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Series
A Warrants. Warrants to purchase an aggregate of 21,666,666 shares of our
common stock at a exercise price of $0.15 per share with a three year term
(the “Series A Warrants”).
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Series
B Warrants. Warrants to purchase an aggregate of 21,666,666 shares of our
common stock at a exercise price of $0.25 per share with a five year term
(the “Series B Warrants,” and together with the Series A Warrants, the
“Warrants”).
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Pursuant
to the terms of an investor rights agreement (the “Investor Rights Agreement”)
entered into in connection with the financing, we must file a “resale”
registration statement covering all of the shares issuable upon conversion of
the Senior Secured Notes and the shares issuable upon exercise of the Warrants,
up to the maximum number of shares able to be registered pursuant to applicable
SEC regulations, by February 16, 2010 and obtain the effectiveness of such
registration statement by April 17, 2010. If any securities issuable
upon conversion or exercise, respectively, of the Senior Secured Notes and
Warrants are unable to be included on the initial “resale” registration
statement, we have agreed to file subsequent registration statements until all
of the securities have been registered. We are obligated to maintain the
effectiveness of the “resale” registration statement until all securities
therein are sold or otherwise can be sold pursuant to Rule 144 under the
Securities Act, without any restrictions. A cash penalty at the rate of 1%
per month will be triggered in the event the Company fails to file or obtain the
effectiveness of a registration statement prior to the deadlines set forth in
the Investor Rights Agreement or if the Company ceases to be current in filing
its periodic reports with the SEC. The aggregate penalty accrued with respect to
each investor may not exceed 6% of the original purchase price paid by that
investor, or 12% if the only effectiveness failure is the Company’s failure to
be current in its periodic reports with the SEC.
We
have significant secured indebtedness as a result of a private financing, which
we closed in October 2009, pursuant to which we issued the Senior Secured
Notes. If we are unable to perform our obligations under such notes,
the holders of such notes would be entitled to realize upon their security
interest by taking control of all or a portion of our assets.
We
substantially increased our debt when we issued the Senior Secured Notes in the
aggregate principal amount of $3.25 million pursuant to a private financing in
October 2009. The Senior Secured Notes mature on the earliest of (i)
October 19, 2012; (ii) the closing of a public or private offering of the
Company’s debt or equity securities subsequent to the date of issuance of the
Senior Secured Notes resulting in gross proceeds of at least $8,125,000, other
than a transaction involving a stockholder who holds 5% or more of the Company’s
outstanding capital stock as of the date of issuance of the Senior Secured
Notes; or (iii) on the demand of the holder of a Senior Secured Note upon the
Company’s consummation of a merger, sale of substantially all of its assets, or
the acquisition by any entity, person or group of 50% or more of the voting
power of the Company. Interest accrues on the principal amount outstanding under
the Senior Secured Notes at a rate of 5% per annum, and is due upon maturity.
Upon an event of default under the Senior Secured Notes, the interest rate shall
increase to 7%, provided that if the Company is unable to obtain stockholder
approval by April 1, 2010 to amend its certificate of incorporation to
increase its authorized capital stock to provide for sufficient authorized
shares of common stock to allow for the issuance of all shares of common stock
required upon conversion of all of the Senior Secured Notes and exercise of all
of the Warrants issued with the Senior Secured Notes, the interest rate shall
increase to 15% and such failure will be an event of default under the Senior
Secured Notes. The Senior Secured Notes are convertible into shares of the
Company’s common stock at the option of the holder of such note at a price of
$0.15 per share at any time prior to the date on which the Company makes payment
in full of all amounts outstanding under such note. The Senior Secured Notes are
not prepayable for a period of one year following the issuance
thereof.
The
Senior Secured Notes are secured by a senior security interest and lien on all
of the Company’s rights, title and interest to all of the assets owned by the
Company as of the issuance of the Senior Secured Notes or thereafter acquired
pursuant to the terms of a security agreement (the “Security Agreement”) entered
into by the Company with each of the investors. In the case of an event of
default under the Senior Secured Notes, the holders of the notes would be
entitled to realize their security interests and foreclose on our assets. In
addition, the holders of the notes would be entitled to declare the principal
and accrued interest thereunder to be due and payable. Our assets may not be
sufficient to fully repay amounts outstanding under the Senior Secured Notes in
the event of any such acceleration upon an event of default.
We
have a limited number of authorized shares of common stock available for
issuance, and if our stockholders do not approve an increase in the authorized
number of shares of our common stock to at least 130,593,678 shares by April 1,
2010, we will be in violation of the covenants of the Senior Secured Notes and
in default of our obligations under the Senior Secured Notes.
Pursuant
to the terms of the Senior Secured Notes, we are obligated (i) to issue a proxy
statement soliciting an affirmative vote from each of our stockholders at the
next meeting of stockholders of the Company, which meeting must occur on or
before April 1, 2010, for approval of an increase in the number of authorized
shares of common stock of the Company to at least 130,593,678, (ii) to use our
best efforts to obtain such stockholder approval no later than April 1, 2010,
and (iii) within 2 business days following receipt of such stockholder approval,
to cause an amendment to our certificate of incorporation reflecting the
approved increase in the authorized shares of our common stock to be filed with
the Secretary of State of the State of Delaware. These obligations
are subject to a requirement that each holder of the Senior Secured Notes shall
take all reasonable actions and use its best efforts to cause the Company to
hold such a meeting of its stockholders and to recommend that the Company’s
stockholders approve such amendment to its certificate of
incorporation. Additionally, each holder must cause all shares owned
by such holders, including shares owned by such holder’s affiliates,
representatives and family members, to be voted in favor of such
amendment.
If we are
unable to obtain stockholder approval to amend our certificate of incorporation
as required by the Senior Secured Notes, we will be in violation of the
covenants of the Senior Secured Notes and in default of our obligations under
the Senior Secured Notes. Upon an event of default under the Senior
Secured Notes, the holders of such notes would be entitled to realize upon their
security interests and foreclose on our assets. In addition, the holders of the
notes would be entitled to declare the principal and accrued interest thereunder
to be due and payable.
We
will need additional capital in the future and the Senior Secured Notes may make
it more difficult for us to obtain the needed capital.
We will
need to obtain additional financing over time to fund our
operations. The security interest in all of our assets which secures
our obligations under the Senior Secured Notes, the covenants in the Senior
Secured Notes, the conversion terms of the Senior Secured Notes and the exercise
terms of the Warrants issued with the Senior Secured Notes could make it
difficult for us to obtain needed financing or could result in our obtaining
financing with unfavorable terms. Our failure to obtain financing or
obtaining financing on unattractive terms could have a material adverse effect
on our business.
A
portion of the proceeds received pursuant to our October 2009 private financing
were placed in an escrow account, and pursuant to the terms of an escrow
agreement governing the escrow account may only be used for certain limited
purposes.
In
connection with our October 2009 private financing, we entered into an escrow
agreement whereby certain investors placed $1.6 million of the proceeds paid for
their units purchased in the financing in an escrow account. The escrow
agreement shall terminate on the earlier of the date that all funds have been
disbursed from the escrow account and April 19, 2011, at which time any
remaining funds will be disbursed to us. Such amounts can be
disbursed from the escrow account only to satisfy obligations of ours owed to
clinical research organizations, hospitals, doctors and other vendors and
service providers associated with the clinical trials which we intend to conduct
for our ONCONASE®
product. Until such time that the escrow agreement terminates, we are
not permitted to use the funds in the escrow account for any other
purposes.
We
face certain litigation risks, and unfavorable results of legal proceedings
could have a material adverse effect on us.
As
described in Item 3 – Legal Proceedings of this annual report on Form 10-K, we
are a party to certain lawsuits. Regardless of the merits of any claim,
litigation can be lengthy, time-consuming, expensive, and disruptive to normal
business operations and may divert management’s time and resources, which may
have a material adverse effect on our business, financial condition and results
of operations, including our cash flow. The results of complex legal proceedings
are difficult to predict. Should we fail to prevail in these matters, or should
any of these matters be resolved against us, we may be faced with significant
monetary damages, which also could materially adversely affect our business,
financial condition and results of operations, including our cash flow. In
addition, we may incur higher general and administrative expenses than we have
in the past in order to defend and prosecute this litigation, which could
adversely affects our operating results.
The ability of our stockholders to recover against Armus
Harrison & Co., or AHC, may be limited because we have not been able to
obtain the reissued reports of AHC with respect to the financial statements
included in our annual report on Form 10-K for the fiscal year ended July 31,
2009, nor have we been able to obtain AHC’s consent to the use of such report
herein.
Section
18 of the Securities Exchange Act of 1934 (the “Exchange Act”) provides that any
person acquiring or selling a security in reliance upon statements set forth in
a Form 10-K may assert a claim against every accountant who has with its consent
been named as having prepared or certified any part of the Form 10-K, or as
having prepared or certified any report or valuation that is used in connection
with the Form 10-K, if that part of the Form 10-K at the time it is filed
contains a false or misleading statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading (unless it is proved that at the time of such acquisition such
acquiring person knew of such untruth or omission).
In June
1996, AHC dissolved and ceased all operations. Therefore, we have not been able
to obtain the reissued reports of AHC with respect to the financial statements
included in the annual report on Form 10-K for the fiscal year ended July 31,
2008 nor have we been able to obtain AHC’s consent to the use of such report
herein. As a result, in the event any persons seek to assert a claim against AHC
under Section 18 of the Exchange Act for any untrue statement of a material fact
contained in these financial statements or any omissions to state a material
fact required to be stated therein, such persons will be barred. Accordingly,
you may be unable to assert a claim against AHC under Section 18 of the Exchange
Act for any purchases of the Company’s common stock made in reliance upon
statements set forth in our annual report on Form 10-K for the fiscal year ended
July 31, 2009. In addition, the ability of AHC to satisfy any claims properly
brought against it may be limited as a practical matter due to AHC’s dissolution
in 1996.
ITEM
1B. UNRESOLVED STAFF
COMMENTS.
None.
ITEM
2. PROPERTIES.
In March
2007, we entered into a lease for 15,410 square feet in an industrial office
building located in Somerset, New Jersey to replace our facility in Bloomfield,
NJ as our principal office. The lease term commenced on July 3, 2007
and is scheduled to terminate on November 30, 2017. The average
monthly rental obligation over the full term of the lease is approximately
$25,000. We believe that the facility is sufficient for our needs in
the foreseeable future. Currently, we are in default of our lease agreement for
non payment of rent and failure to maintain security deposit, although Landlord
has been drawing funds from our secured irrevocable letter of credit. Landlord
is seeking to have us vacate the facility.
ITEM
3. LEGAL
PROCEEDINGS.
On October 9, 2009, Robert Love, a
former Chief Financial Officer and alleged shareholder of the Company, filed a
complaint, Love v. Alfacell
Corp. et al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against
the Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
Premier
Research Group filed and served a lawsuit against the Company in the Superior
Court of New Jersey, Law Division, Essex County, on or about July 26, 2009,
seeking the recovery of professional fees that arose from clinical trials
purportedly performed in Europe by Premier Research Group as assignee of a
contract between Alfacell Corporation and IMFORM GmbH dated October 27,
2005. An Answer with Separate Defenses and Counterclaim was filed on
or about July 30, 2009. This case remains in the early stages of
discovery.
I & G
Garden State, LLC (“Landlord”) filed and served a complaint against the Company
in the Superior Court of New Jersey Law Division, Special Civil Part
Landlord-Tenant Section, Somerset County, on or about October 30, 2009, for
non-payment of rent and failure to maintain security deposit. The
complaint seeks to have us vacate the property. Although Landlord
filed this complaint, Landlord has been drawing funds from the Company’s secured
irrevocable letter of credit which was placed in March 2007 in the amount of
$350,000.
ITEM
4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE
OFFICERS OF ALFACELL
The
following person was our only executive officer as of November 10,
2009:
Charles Muniz, 55, has joined
us on April 3, 2009 as our President, Chief Operating Officer (“CEO”) and Chief
Financial Officer and a member of our Board of Directors. From 2007
to April 2009, Mr. Muniz was a consultant to a wide variety of clients focusing
primarily on the strategic use of operations and technology. Prior to
consulting, from 1989 to 2007, he was President and Chief Executive Officer of
Digital Creations Corp., a company he founded which sold high-end systems, work
stations, peripherals, networking and software products. Mr. Muniz
attended Pace University in New York and majored in Business
Administration.
PART II
ITEM 5.
|
MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
Our common stock has been quoted on the
Pink Sheets since our delisting from the Nasdaq Capital Market, or Nasdaq, on
January 6, 2009 for failure to comply with the $35 million minimum market value
requirement under Marketplace Rule 4310(c)(3)(B) or the $1 per share minimum bid
price requirement under Marketplace Rule 4310(c)(4). In addition, we
also did not meet the $2.5 million minimum stockholders’ equity requirement
under Marketplace Rule 4310(c)(3)(A) or the requirement for a minimum net income
from continuing operations of $500,000 in the most recently completed fiscal
year or in two of the last three most recently completed fiscal years under
Marketplace Rule 4310(c)(3)(C). Our common stock remains thinly
traded at times and you may be unable to sell our common stock during times when
the trading market is limited. As of November 10, 2009, there were
approximately 975 stockholders of record of our common stock.
Prior to January 6, 2009, our common
stock was listed on Nasdaq and had traded under the symbol "ACEL" since
September 9, 2004. Before September 9, 2004, our common stock was
traded on the OTC Bulletin Board (OTCBB).
The following table sets forth the
range of high and low sale prices of our common stock for the two fiscal years
ended July 31, 2009 and 2008. The prices were obtained from Pink
Sheets and Nasdaq, and are believed to be representative of inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
|
|
High
|
|
|
Low
|
|
Year
Ended July 31, 2009:
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.85 |
|
|
$ |
0.40 |
|
Second
Quarter
|
|
|
0.54 |
|
|
|
0.08 |
|
Third
Quarter
|
|
|
0.20 |
|
|
|
0.06 |
|
Fourth
Quarter
|
|
|
0.52 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2008:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.70 |
|
|
|
1.75 |
|
Second
Quarter
|
|
|
2.69 |
|
|
|
1.45 |
|
Third
Quarter
|
|
|
2.60 |
|
|
|
1.70 |
|
Fourth
Quarter
|
|
|
2.20 |
|
|
|
0.35 |
|
STOCKHOLDER
RETURN PERFORMANCE GRAPH
The
following graph summarizes the total cumulative return experienced by Alfacell’s
stockholders during the five-year period ended July 31, 2009, compared to the
Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The
changes for the periods shown in the graph and table are based on the assumption
that $100.00 was invested in Alfacell Corporation Common Stock and in each index
below on July 31, 2004 and that all cash dividends were
reinvested. The table does not forecast performance of our common
stock.
Dividends
We have not paid dividends on our
common stock since inception, and we do not plan to pay dividends in the
foreseeable future. Any earnings we may realize will be retained to
finance our growth. Additionally, pursuant to the terms of the Senior
Secured Notes issued in connection with our October 2009 private financing, we
are not permitted to declare or pay any cash dividends or distributions on its
outstanding capital stock for so long as the Senior Secured Notes are
outstanding.
Equity
Compensation Plan Information
The
information called for by Item 5(a) relating to compensation plan
information is incorporated herein by reference to Item 12—Security Ownership of
Certain Beneficial Owners and Management and Related Stock Matters of this
annual report on Form 10-K.
Recent
Sales of Unregistered Securities
On October 19, 2009, we
completed a sale of 65 units (the “Units”) in a private financing to certain
investors pursuant to a securities purchase agreement (the “Securities Purchase
Agreement”) entered into on October 19, 2009. Each Unit consists of
(i) $50,000 principal amount of Senior Secured Notes convertible into
shares of the Company’s common stock at a price of $0.15 per share,
(ii) Series A Warrants to purchase in the aggregate that number of
shares of common stock initially issuable upon conversion of the aggregate
amount of the Senior Secured Notes issued as part of the Unit, at an exercise
price of $0.15 per share with a three year term and (iii) Series B Warrants
to purchase in the aggregate that number of shares of common stock initially
issuable upon conversion of the aggregate amount of the Senior Secured Notes
issued as part of the Unit, at an exercise price of $0.25 per share with a five
year term. The Company received an aggregate of $3,250,000 in gross proceeds
from the private financing. The securities were offered pursuant to
the exemptions from registration set forth in section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
Issuer
Purchases of Equity Securities
There
were no repurchases of our equity securities made by us or on our behalf, or by
any “affiliated purchasers” during the quarter ended July 31, 2009.
ITEM
6. SELECTED
FINANCIAL DATA.
Set forth below is the selected
financial data for our company for the five fiscal years ended July 31,
2009:
|
|
Year
Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Investment
income
|
|
$ |
25,633 |
|
|
$ |
227,591 |
|
|
$ |
370,650 |
|
|
$ |
107,386 |
|
|
$ |
141,708 |
|
Other
income (loss)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,836 |
|
Net
loss (1)
|
|
|
(4,539,396 |
) |
|
|
(12,321,101 |
) |
|
|
(8,755,144 |
) |
|
|
(7,810,175 |
) |
|
|
(6,461,920 |
) |
Dividends
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Total
assets
|
|
|
557,986 |
|
|
|
5,
320,036 |
|
|
|
7,
820,499 |
|
|
|
11,826,428 |
|
|
|
4,901,624 |
|
Long-term
debt
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
equity (deficiency)
|
|
|
(7,150,366 |
) |
|
|
(3,556,606 |
) |
|
|
5,778,480 |
|
|
|
9,233,003 |
|
|
|
3,221,670 |
|
Loss
per basic and diluted common share
|
|
$ |
(0.10 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.18 |
) |
(1) Included
in the net loss of $4,539,396, $12,321,101 and $8,755,144 for the fiscal years
ended July 31, 2009, 2008 and 2007, respectively, are tax benefits of
$1,139,867, $1,755,380 and $510,467, respectively, related to the sale of
certain state tax operating loss carryforwards.
ITEM 7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
The
following discussion of our financial condition and results of operations should
be read together with our consolidated financial statements and notes to those
statements included in Item 8 of Part II of this annual report on
Form 10-K.
Overview
We are a
biopharmaceutical company engaged in the research, development, and
commercialization of drugs for life threatening-diseases, such as malignant
mesothelioma and other cancers. Our corporate strategy is to become a
leader in the discovery, development, and commercialization of novel
ribonuclease (RNase) therapeutics for cancer and other life-threatening
diseases.
We are a
development stage company as defined in the Financial Accounting Standards
Board’s (the “FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 7,
“Accounting and Reporting by Development Stage Enterprises” (“SFAS
7”). We are devoting substantially all of our present efforts to
establishing a new business and developing new drug products. Our planned
principal operations of marketing and/or licensing new drugs have not commenced
and, accordingly, we have not derived any significant revenue from these
operations.
Since our
inception in 1981, we have devoted the vast majority of our resources to the
research and development of ONCONASE®, our
lead drug candidate, as well as other related drug candidates. In
recent years we have focused our resources towards the completion of the
clinical program for ONCONASE® in
patients suffering from unresectable malignant mesothelioma, or
UMM.
During
our fiscal year ended July 31, 2009, our efforts were primarily focused on the
completion of our confirmatory Phase IIIb clinical trial for UMM and preparation
of the remaining components of our NDA. As we previously reported,
the results of the preliminary statistical analysis of the data from the
confirmatory Phase IIIb clinical trial for ONCONASE® in
patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. However, a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a currently unmet medical need and
one of the predefined primary sub-group data sets for patients in the
trial. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an
NDA. At this time, we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to pursue,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
effected a reduction in force and reduced our operations to the minimum
sustainable level required to pursue strategic alternatives and additional
capital during the fiscal year ended July 31, 2009. Charles Muniz, a
long time supporter and significant shareholder of Alfacell, was elected to our
Board and appointed our President, Chief Executive Officer and Chief Financial
Officer. Additional changes to our executive team during the fiscal
year included the resignation of James Loughlin as a member of our Board and
Chairman of the Audit Committee, resignation of Lawrence A. Kenyon as our
President, Chief Financial Officer, Corporate Secretary and member of our Board
and pursuant to a previously reported retirement agreement, Kuslima Shogen, our
scientific founder, retired as our Chief Executive Officer and scientific
founder. Ms. Shogen remains a member of our Board.
Almost
all of the $72.6 million of research and development expenses we have incurred
since our inception has gone toward the development of ONCONASE® and
related drug candidates. For the fiscal years 2009, 2008 and 2007,
our research and development expenses were approximately $3.3 million, $8.5
million, and $5.5 million, respectively, almost all of which were used for the
development of ONCONASE® and
related drug candidates.
We have incurred losses
since inception and we have not received FDA approval of any of our drug
candidates. We expect to continue to incur losses for the foreseeable
future as we continue our efforts to receive marketing approval for our drug
candidates, which includes the sponsorship of human clinical
trials. Until we are able to consistently generate revenue through
the sale of drug or non-drug products, we anticipate that we will be required to
fund the development of our pre-clinical compounds and drug product candidates
primarily by other means, including, but not limited to, licensing the
development or marketing rights to some of our drug candidates to third parties,
collaborating with third parties to develop our drug candidates, or selling
Company issued securities.
We fund
the research and development of our products primarily from cash receipts
resulting from the sale of our equity securities and convertible debentures in
registered offerings and private placements. Additionally, we have
raised capital through other debt financings, the sale of our tax benefit and
research products, interest income and financing received from Kuslima Shogen,
our former Chief Executive Officer. During the fiscal year ended July
31, 2009, we received gross proceeds of $13,220 from exercises of stock options
and approximately $1.1 million from the sale of our tax benefit. In
October 2009, we received a capital infusion of $3.25 million in gross proceeds
from a private financing. These proceeds will be used to continue our
operations, explore strategic alternatives and initiate a Phase II clinical
study for non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens. We have incurred
losses since inception and, to date, we have generated only small amounts of
capital from commercial agreements for ONCONASE®.
Results
of Operations
Fiscal
Year Ended July 31, 2009, as compared to Fiscal Year Ended July 31,
2008
We are a
development stage company as defined in the FASB's SFAS 7. We are
devoting substantially all our present efforts to establishing a new business
and developing new drug products. Our planned principal operations of
marketing of new drugs have not commenced and, accordingly, we have not derived
any significant revenue from these operations. We focus most of our
productive and financial resources on the development of ONCONASE®. We
did not record any revenue in fiscal years 2009 or 2008.
Research
and development expense for fiscal year 2009 was $3.3 million compared to $8.5
million for fiscal year 2008, a decrease of approximately $5.2 million, or
61.6%. The decrease was primarily due to decreased expenses of
approximately $4.2 million related to costs incurred for the ONCONASE®
rolling NDA submission of our confirmatory Phase IIIb ONCONASE®
clinical trial for malignant mesothelioma; decreased compensation expense of
approximately $0.7 million, due to the reduction in force; and a decrease of
approximately $0.3 million in expenses due to the completion of the Phase I
component of our Phase I/II ONCONASE®
clinical trials.
General and administrative expense for
fiscal year 2009 was approximately $2.4 million compared to approximately $5.8
million for fiscal year 2008, a decrease of approximately $3.4 million, or
58%. This decrease was primarily due to decreased compensation
expense of approximately $2.4 million directly related to the retirement
agreement executed by Kuslima Shogen, our former Chief Executive Officer in
fiscal year 2008, resignation of our President and Chief Financial Officer in
fiscal 2009 and share-based compensation. Additionally, a decrease in
professional fees for consultants and legal advisors of approximately $0.9
million was related to negotiations that resulted in commercial partnerships for
ONCONASE® in fiscal year 2008 and reduced
operations in fiscal year 2009. Other general and administrative
expenses also decreased by approximately $0.1 million.
Investment
income for fiscal year 2009 was approximately $26,000 compared to $228,000 for
fiscal year 2008, a decrease of $202,000. The decrease was due to
lower balances of cash and cash equivalents on hand during the fiscal year 2009
as compared to the same period in 2008.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2009 (July 1, 2008 to June 30, 2009), we had approximately
$1,274,000 of total available state tax benefit that was saleable. On
December 1, 2008, we received approximately $1,140,000 from the sale of our
total available state tax benefit, which was recognized as state tax benefit in
the fiscal year ended July 31, 2009.
We have
incurred net losses during each year since our inception. The net
loss for fiscal year 2009 was approximately $4.5 million as compared to $12.3
million in fiscal year 2008. The decreased net loss was primarily
related to the decreased research and development expenses incurred in 2009 as
compared to 2008. The cumulative loss from the date of inception,
August 24, 1981 to July 31, 2009, amounted to $108.9 million. Such
losses are attributable to the fact that we are still in the development stage
and, accordingly, have not derived sufficient revenues from operations to offset
the development stage expenses.
Fiscal
Year Ended July 31, 2008, as compared to Fiscal Year Ended July 31,
2007
We did
not record any revenue in fiscal years 2008 and 2007.
Research
and development expense for fiscal year 2008 was $8.5 million compared to $5.5
million for fiscal year 2007, an increase of approximately $3 million, or
53.4%. The increase in research and development expenses is directly
related to increased expenses of approximately $3.2 million related to our
preparations for the completion of the ONCONASE®
rolling NDA submission, which included the required statistical analysis of the
data from our confirmatory Phase IIIb clinical trial, offset by a
decrease of approximately $0.2 million in expenses incurred from the completion
of the Phase I component of our Phase I/II ONCONASE®
clinical trials.
General
and administrative expense for fiscal year 2008 was approximately $5.8 million
compared to approximately $4.1 million for fiscal year 2007, an increase of
approximately $1.7 million, or 41.6%. This increase was primarily the
result of increased compensation expense of approximately $1.1 million directly
related to the planned retirement of Kuslima Shogen, our former Chief Executive
Officer in 2009. Additionally, professional service fees for
consultants and legal advisors increased approximately $0.5 million as a result
of our increased activity in pursuing and negotiating commercial agreements in
fiscal year 2008. Other general and administrative expenses increased
by a total of approximately $0.1 million in 2008 as a result of increased
commercial insurance premiums.
Investment
income for fiscal year 2008 was $0.2 million compared to $0.4 million for fiscal
year 2007, a decrease of $0.2 million. The decrease was due to lower
balances of cash and cash equivalents on hand during the fiscal year 2008 as
compared to the same period in 2007.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2008 (July 1, 2007 to June 30, 2008), we had approximately
$2.5 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $2.0 million. In
December 2007, we received approximately $1.8 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2008.
For the
state fiscal year 2007 (July 1, 2006 to June 30, 2007), we had approximately
$2.3 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $0.6 million. In
December 2006, we received approximately $0.5 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2007.
The net
loss for fiscal year 2008 was $12.3 million as compared to $8.8 million in
fiscal year 2007.
Liquidity
and Capital Resources
We have
reported cumulative net losses of approximately $25.6 million for the three most
recent fiscal years ended July 31, 2009. The net losses from date of
inception, August 24, 1981 to July 31, 2009, amounts to approximately $108.9
million. As of July 31, 2009, we have a working capital deficit of
approximately $1.2 million.
We have
financed our operations since inception primarily through the sale of our equity
securities and convertible debentures in registered offerings and private
placements. Additionally, we have raised capital through other debt
financings, the sale of our state tax benefits and research products, and
investment income and financing received from Kuslima Shogen, our former Chief
Executive Officer. As of July 31, 2009, we had approximately $129,000
in cash and cash equivalents. We effected a reduction in force in
January 2009 and have otherwise reduced our operations to the minimum
sustainable level required to pursue strategic alternatives and additional
capital. Based upon these actions, and after taking into
consideration the capital infusion of $3.25 million received in October 2009
from a private financing and our currently planned Phase II clinical trial for
ONCONASEâ,
we currently believe that our cash and cash equivalents on hand at July 31, 2009
can support our activities into the fourth quarter of our fiscal year
2010.
The
primary use of cash over the next nine months will be to fund our clinical and
pre-clinical research and development efforts for ONCONASEâ. The
most significant expenses will be incurred for the currently planned Phase II
clinical study for non-small cell lung cancer. Additional expenses
are also expected to be incurred as we continue to move our drug product
candidates towards the next phase of clinical and pre-clinical
development.
On October 20, 2009, we announced
that we completed a sale of 65 Units in a private financing to certain investors
pursuant to a securities purchase agreement (the “Securities Purchase
Agreement”) entered into on October 19, 2009. Each Unit consists of
(i) $50,000 principal amount of Senior Secured Notes convertible into
shares of the Company’s common stock at a price of $0.15 per share,
(ii) Series A Warrants to purchase in the aggregate that number of
shares of common stock initially issuable upon conversion of the aggregate
amount of the Senior Secured Notes issued as part of the Unit, at an exercise
price of $0.15 per share with a three year term and (iii) Series B Warrants
to purchase in the aggregate that number of shares of common stock initially
issuable upon conversion of the aggregate amount of the Senior Secured Notes
issued as part of the Unit, at an exercise price of $0.25 per share with a five
year term. The closing of the private financing occurred on October 19,
2009, and the Company received an aggregate of $3,250,000 in gross
proceeds.
Pursuant to the terms of the Securities
Purchase Agreement, certain investors party thereto are permitted to appoint a
designee to the Board within a reasonable period of time following the closing
of the private financing. In addition, as a condition to closing the private
financing, each member of the Board other than David Sidransky, Chairman of the
Board, and Charles Muniz, agreed to resign from the Board upon the request of
Dr. Sidransky made at any time following the closing of the private financing
and prior to December 31, 2009.
In connection with the private
financing, the Company entered into the Investor Rights
Agreement with each of the investors. The Investor Rights Agreement
provides that the Company will file a “resale” registration statement covering
all of the shares issuable upon conversion of the Senior Secured Notes and the
shares issuable upon exercise of the Warrants, up to the maximum number of
shares able to be registered pursuant to applicable SEC regulations, by February
16, 2010. If any of the securities issuable upon conversion or exercise,
respectively, of the Senior Secured Notes and Warrants are unable to be included
on the initial “resale” registration statement, the Company has agreed to file
subsequent registration statements until all the securities have been
registered. Under the terms of the Investor Rights Agreement, the Company is
obligated to maintain the effectiveness of the “resale” registration statement
until all securities therein are sold or are otherwise can be sold pursuant to
Rule 144 of the Securities Act, without any restrictions. A cash penalty at the
rate of 1% per month will be triggered in the event the Company fails to file or
obtain the effectiveness of a registration statement prior to the deadlines set
forth in the Investor Rights Agreement or if the Company ceases to be current in
filing its periodic reports with the SEC. The aggregate penalty accrued with
respect to each investor may not exceed 6% of the original purchase price paid
by that investor, or 12% if the only effectiveness failure is the Company’s
failure to be current in its periodic reports with the SEC.
In connection with the private
placement, the Company also entered into an escrow agreement whereby
certain investors placed $1,600,000 of the proceeds paid for their Units in an
escrow account pursuant to the terms of the Securities Purchase Agreement. Such
amounts can be disbursed from the escrow account only to satisfy obligations of
the Company owed to clinical research organizations, hospitals, doctors and
other vendors and service providers associated with the clinical trials which
the Company intends to conduct for its Onconase product. The escrow agreement
shall terminate on the earlier of the date that all funds have been disbursed
from the escrow account and April 19, 2011, at which time any remaining funds
will be disbursed to the Company.
In
connection with our private financing completed in October 2009, we issued $3.25
million of Senior Secured Notes convertible into shares of the Company’s common
stock at a price of $0.15 per share. The Senior Secured Notes mature
on the earlier of (i) October 19, 2012; (ii) the closing of a public or private
offering of the Company’s debt or equity securities subsequent to the date of
issuance resulting in gross proceeds of at least $8,125,000 other than a
transaction involving a stockholder who holds 5% or more of the Company’s
outstanding capital stock as of the date of issuance; or (iii) on the demand of
the holder of the Senior Secured Note upon the Company’s consummation of a
merger, sale of substantially all of its assets, or the acquisition by any
entity, person or group of 50% or more of the voting power of the Company.
Interest accrues on the principal amount outstanding under the Senior Secured
Notes at a rate of 5% per annum, and is due upon maturity. Upon an event of
default under the Notes, the interest rate shall increase to 7%, provided that
if the Company is unable to obtain stockholder approval by April 1, 2010 to
amend its certificate of incorporation to increase its authorized capital stock,
the interest rate shall increase to 15% and such failure will be an event of
default under the Senior Secured Notes. The Senior Secured Notes are
not prepayable for a period of one year following the issuance thereof. The
Senior Secured Notes are secured by a senior security interest and lien on all
of the Company’s right, title and interest to all of the assets owned by the
Company as of the closing of the private financing or thereafter acquired
pursuant to the terms of a security agreement entered into the by the Company
with each of the investors.
For so
long as the Senior Secured Notes are outstanding, the Company is not permitted,
among other restrictions, to liquidate or dissolve, consolidate with or merge
into or with any other corporation, to sell its assets, other than in the
ordinary course of business, redeem or repurchase any outstanding equity or debt
securities, create or incur any indebtedness which is not subordinate to the
Senior Secured Notes or create liens on its assets with certain
exceptions.
Our
audited financial statements for the fiscal year ended July 31, 2009, were
prepared under the assumption that we will continue our operations as a going
concern. We were incorporated in 1981 and have a history of losses
and negative cash flows from operating activities. As a result, our
independent registered public accounting firm in their audit report has
expressed substantial doubt about our ability to continue as a going concern.
Continued operations are dependent on our ability to raise additional capital
from various sources such as those described above. Such capital
raising opportunities may not be available or may not be available on reasonable
terms. Our financial statements do not include any adjustments that
may result from the outcome of this uncertainty.
We may
seek to satisfy future funding requirements through public or private offerings
of securities or with collaborative or other arrangements with corporate
partners. Additional financing or strategic transactions may not be
available when needed or on terms acceptable to us, if at all. If
adequate financing is not available, we may be required to delay, scale back, or
eliminate certain of our research and development programs, relinquish rights to
certain of our technologies, drugs or products, or license third parties to
commercialize products or technologies that we would otherwise seek to develop
ourselves.
Off-Balance
Sheet Arrangements
We have
no debt, no exposure to off-balance sheet arrangements, no special purpose
entities, nor activities that include non-exchange-traded contracts accounted
for at fair value as of July 31, 2009.
Contractual
Obligations and Commercial Commitments
Our major outstanding contractual
obligations relate to our building and equipment operating
leases. During the fiscal year ended July 31, 2008, we entered into
an equipment capital lease which obligates us to pay $635 per month for five
years and during the fiscal year ended July 31, 2007, we entered into separate
building and equipment operating leases, which obligates us to pay an average of
$25,393 per month for the building and $1,866 per month for the equipment for
ten and five years, respectively. Below is a table that presents our
contractual obligations and commercial commitments as of July 31,
2009:
|
|
|
|
|
Payments
Due in Fiscal Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and Thereafter
|
|
Building
lease
|
|
$ |
2,750,685 |
|
|
$ |
302,036 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Equipment
lease
|
|
|
83,612 |
|
|
|
31,024 |
|
|
|
25,976 |
|
|
|
25,976 |
|
|
|
636 |
|
|
|
- |
|
|
|
- |
|
Total
contractual cash obligations
|
|
$ |
2,834,297 |
|
|
$ |
333,060 |
|
|
$ |
343,422 |
|
|
$ |
343,422 |
|
|
$ |
318,082 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain. The accounting policies set forth below have been
considered critical because changes to certain judgments, estimates and
assumptions could significantly affect our financial statements.
Use
of Estimates
The preparation of financial statements
in conformity with U.S. generally accepted accounting principles or 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
revenue and expense during the reporting period. Actual results could
differ from those estimates.
Cash
Equivalents
We consider all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The carrying value of these investments
approximates their fair market value due to their short maturity and
liquidity.
Property
and Equipment
Property and equipment is recorded at
cost and is depreciated using the straight-line method over the estimated useful
lives of the respective assets. Maintenance and repairs that do not
extend the life of assets are charged to expense when incurred. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operations for the period in which the transaction takes
place.
Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted cash flows expected to be generated by the
asset. If the carrying amount exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount exceeds the fair value of the asset.
Income
Taxes
Income taxes are accounted for under
the provisions of SFAS No. 109, "Accounting for Income Taxes". Under
this method, deferred tax assets and liabilities 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 operating loss and tax credit carryforwards. 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 effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Management provides valuation allowances
against the deferred tax assets for amounts which are not considered “more
likely than not” to be realized.
Revenue
Recognition
We recognize revenue in accordance with
Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” issued by the
staff of the SEC. Under SAB No. 104, revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred and/or
services have been rendered, the sales price is fixed or determinable, and
collectibility is reasonably assured.
We enter into marketing and
distribution agreements, which contain multiple deliverables. Under
the provisions of Emerging Issues Task Force (“EITF”) No. 00-21,
“Accounting for Revenue Arrangements with Multiple Deliverables,” we evaluate
whether these deliverables constitute separate units of accounting to which
total arrangement consideration is allocated. A deliverable qualifies
as a separate unit of accounting when the item delivered to the customer has
standalone value, there is objective and reliable evidence of fair value of
items that have not been delivered to the customer, and, if there is a general
right of return for the items delivered to the customer, delivery or performance
of the undelivered items is considered probable and substantially in the control
of the company. Arrangement consideration is allocated to units of
accounting on a relative fair-value basis or the residual method if the company
is unable to determine the fair value of all deliverables in the
arrangement. Consideration allocated to a unit of accounting is
limited to the amount that is not contingent upon future performance by the
company. Upon determination of separate units of accounting and
allocated consideration, the general criteria for revenue recognition are
applied to each unit of accounting.
Research
and Development
Research and development costs are
expensed as incurred. These costs include, among other things,
consulting fees and costs related to the conduct of human clinical
trials. We also allocate indirect costs, consisting primarily of
operational costs for administering research and development activities, to
research and development expenses.
Share-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R)
(revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which amends SFAS
123. The new standard requires all share-based payments, including
stock option grants to employees, to be recognized as an operating expense in
the statement of operations. The expense is recognized over the
requisite service period based on fair values measured on the date of
grant. We adopted SFAS 123(R) effective August 1, 2005 using the
modified prospective method and, accordingly, prior period amounts have not been
restated. Under the modified prospective method, the fair value of
all new stock options issued after July 31, 2005 and the unamortized fair value
of unvested outstanding stock options at August 1, 2005 are recognized as
expense as services are rendered.
Leases
With
respect to our operating leases, we apply the provisions of FASB SFAS No. 13
“Accounting for Leases” (“SFAS 13”) and FASB Technical Bulletin (“FTB”) 88-1
“Issues Relating to Accounting for Leases”, recognizing rent expense on a
straight-line basis over the lease term due to escalating lease payments and
landlord incentives.
Contingencies
Liabilities for loss contingencies
arising from claims, assessments, litigation, fines, and penalties and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the liability can be reasonably estimated. Recoveries from other
parties are recorded when realized.
Fair
Value of Financial Instruments
Financial
instruments consist of cash, cash equivalents, accounts receivable, and accounts
payable. The carrying value of these financial instruments is a
reasonable estimate of fair value.
Recently
Issued Accounting Pronouncements
In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a company’s tax
return. We adopted FIN 48 and determined that it did not have a
material impact on our reported financial results.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
value. We adopted SFAS 159 as of August 1, 2008, and determined that
it did not have a material impact on our reported financial
results.
In June
2007, the FASB issued EITF Issue No. 07-03, “Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities,” (“EITF 07-03”). EITF 07-03 addresses the
diversity that exists with respect to the accounting for the nonrefundable
portion of a payment made by a research and development entity for future
research and development activities. The EITF concluded that an
entity must defer and capitalize nonrefundable advance payments made for
research and development activities and expense these amounts as the related
goods are delivered or the related services are performed. EITF 07-03
will be effective for interim or annual reporting periods in fiscal years
beginning after December 15, 2007. We adopted EITF 07-03 as of
August 1, 2008, and determined that it did not have a material impact on our
reported financial results.
In
December 2007, the FASB issued SFAS No. 141(R) "Business Combinations" (“SFAS
141(R)”). This Statement establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective as of the beginning of a
company's fiscal year beginning after December 15, 2008. We believe
that this new pronouncement will not have a material impact on our financial
statements in future periods.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 does not require new fair value
measurements. We adopted SFAS 157 as of August 1, 2008, and
determined that it did not have a material impact on our reported financial
results.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-1,
“Application of FASB Statement No. 157 to SFAS Statement No. 13 and Other
Accounting Pronouncements that Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13”, (“FSP
157-1”). FSP 157-1 amends SFAS 157 to exclude SFAS 13 and other
accounting pronouncements that address fair value measurements for purposes of
lease classifications under SFAS 13. However, this scope exception
does not apply to assets acquired and liabilities assumed in a business
combination that are required to be measured at fair value under FASB Statement
No. 141, “Business Combinations”, or SFAS 141(R), regardless of whether those
assets and liabilities are related to leases. FSP 157-1 is effective
upon initial adoption of SFAS 157. We adopted SFAS 157 as of August
1, 2008, and determined that it did not have a material impact on our reported
financial results.
In
February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date of FASB SFAS
No. 157”, (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS
157 for non financial assets and non financial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis at least annually. This delay is intended to allow
the FASB and constituents additional time to consider the effect of various
implementation issues that have arisen from the application of SFAS
157. We have reviewed FSP 157-2 and will wait to hear for additional
positions taken by the FASB before proceeding further.
In
October 2008 the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset when the Market for that Asset is not Active” (“FSP
157-3”). FSP 157-3 clarifies the application of FASB No. 157 in a
market that is not active and provides key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. This FSP shall become effective upon issuance. We believe
that this new pronouncement will not have a material impact on our financial
statements in future periods.
In May
2008, the FASB issued SFAS No. 162 “Hierarchy of GAAP”. This
statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with GAAP in the
United States. This statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with
GAAP”. We adopted SFAS 162 in November 2008 and determined that it
did not have a material impact on our reported financial results.
In June
2008, the FASB issued EITF No. 07-05 “Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity’s Own Stock”, (“EITF
07-05”). EITF 07-05 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities.” EITF
07-05 is effective for fiscal years beginning after December 15, 2008 and early
adoption for an existing instrument is not permitted. We do not
expect that the adoption of EITF 07-05 will have a material impact on our
financial statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 establishes standards for reporting events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. It sets forth the period after the
balance sheet date during which a reporting entity’s management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in
its financial statements and the disclosures an entity should make about events
or transactions that occurred after the balance sheet date. This
statement is effective for interim and annual periods ending after June 15, 2009
and will be applied prospectively. We adopted the provisions of SFAS
165 for the fiscal year ended July 31, 2009 and determined that it did not have
a material impact on our reported financial results. We evaluated all
events or transactions that occurred after July 31, 2009 up through November 13,
2009, the date we issued these financial statements. Please see Note
13 - Subsequent Events
for disclosures required by SFAS 165.
In June
2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles - A Replacement of
FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB
Accounting Standards Codification (“Codification”) as the single source of
authoritative U.S. generally accepted accounting principles (“U.S. GAAP”)
recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. SFAS 168 and the Codification are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. When effective, all non-SEC accounting and
reporting standards will be superseded. All other non-grandfathered
non-SEC accounting literature not included in the Codification will become
non-authoritative. After SFAS 168, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates,
which will serve only to: (a) update the Codification; (b) provide background
information about the guidance; and (c) provide the bases for conclusions on the
change(s) in the Codification. We do not expect that the adoption of
SFAS 168 will have a material impact on our financial statements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
As of July 31, 2009, we were exposed to
market risks, primarily changes in U.S. interest rates. As of July 31, 2009, we
held total cash and cash equivalents of approximately $0.1 million. All cash
equivalents have a maturity less than 90 days. Declines in interest rates
over time would reduce our interest income from our investments.
ITEM
8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
The response to this Item is submitted
as a separate section of this report commencing on Page F-1.
ITEM 9.
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There
have been no changes in or disagreements with accountants on accounting or
financial disclosures in the past two fiscal years.
On
December 1, 1993, certain stockholders of Armus Harrison & Co., or AHC,
terminated their association with AHC, or the AHC termination, and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on our behalf. In June 1996, AHC dissolved
and ceased all operations. The report of J.H. Cohn LLP with respect
to our financial statements from inception to July 31, 2008 is based on the
report of KPMG LLP from August 1, 1992 to July 31, 2002 and of AHC for the
period from inception to July 31, 1992, although AHC has not consented to the
use of such report herein and will not be available to perform any subsequent
review procedures with respect to such report. Accordingly, investors
will be barred from asserting claims against AHC under Section 18 of the
Exchange Act on the basis of the use of such report in any annual report on Form
10-K into which such report is incorporated by reference. In
addition, in the event any persons seek to assert a claim against AHC for false
or misleading financial statements and disclosures in documents previously filed
by us, such claim will be adversely affected and possibly
barred. Furthermore, as a result of the lack of a consent from AHC to
the use of its audit report herein, or to its incorporation by reference into an
annual report on Form 10-K, our officers and directors will be unable to rely on
the authority of AHC as experts in auditing and accounting in the event any
claim is brought against such persons under Section 18 of the Exchange Act based
on alleged false and misleading Financial Statements and disclosures
attributable to AHC. The discussion regarding certain effects of the
AHC termination is not meant and should not be construed in any way as legal
advice to any party and any potential purchaser should consult with his, her or
its own counsel with respect to the effect of the AHC termination on a potential
investment in our common stock or otherwise.
ITEM 9A
(T). CONTROLS AND
PROCEDURES.
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act are controls and other procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer, and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
It should
be noted that there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures. These limitations include the
possibility of human error, the circumvention or overriding of the controls and
procedures and reasonable resource constrains. In addition, the
design of any system of control is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. Accordingly, our controls and
procedures, by their nature, only provide reasonable assurance regarding
achieving the management's control objectives.
As of the
end of the period covered by this Annual Report on Form 10-K, we conducted an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures. Based upon
the foregoing evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC and
was accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding the required disclosures.
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)). Internal control over financial reporting
is a process designed by, under the supervision of our principal executive and
principal financial officers, or persons performing similar functions, and
effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements in accordance with GAAP.
Our
internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect our transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of the financial statements in accordance with GAAP, and that
our receipts and expenditures are being made only in accordance with the
authorizations of our management and directors; and (3) provide reasonable
assurance regarding the prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Our
internal control over financial reporting is designed to provide reasonable, but
not absolute, assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP. There
are inherent limitations to the effectiveness of any system of internal control
over financial reporting. These limitations include the possibility
of human error, the circumvention or overriding of the system and reasonable
resource constraints. 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.
In
connection with the preparation of our annual financial statements, management,
including our Chief Executive Officer and Chief Financial Officer, has
undertaken an assessment of the effectiveness of our internal control over
financial reporting as of July 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management’s assessment included an evaluation
of the design of our internal control over financial reporting and testing of
the operational effectiveness of those controls.
Based on
this assessment, management has concluded that our internal controls over
financial reporting were effective as of July 31, 2009, in that they ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is (1) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
(2) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management’s
report in this annual report.
CHANGES
IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There has
been no change in the Company's internal control over financial reporting during
the quarter ended July 31, 2009 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
ITEM
9B. OTHER
INFORMATION.
None.
PART III
The information required by
Item 10 – Directors, Executive Officers and Corporate Governance;
Item 11 – Executive Compensation; Item 12 – Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters;
Item 13 – Certain Relationships and Related Transactions and Director
Independence and Item 14 – Principal Accounting Fees and Services is
incorporated into Part III of this Annual Report on Form 10-K by reference to
the Proxy Statement for the 2010 Annual Meeting of Stockholders, which is to be
filed within 120 days of the Company’s fiscal year ended July 31,
2009.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
In
addition to the materials to be incorporated into this Item 12 by reference to
the Proxy Statement for the 2009 Annual Meeting of Stockholders, the following
table provides additional information on the Company’s equity compensation plans
as of July 31, 2009:
Plan Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
4,771,650 |
|
|
|
$2.64 |
|
|
|
5,012,500 |
|
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES.
(a)(1)
and (2)
|
The
response to these portions of Item 15 is submitted as a separate section
of this report commencing on page
F-1.
|
(a)(3)
|
Exhibits
(numbered in accordance with Item 601 of Regulation
S-K).
|
Exhibit
No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
3.1
|
Certificate
of Incorporation, dated June 12, 1981 (incorporated by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No.
333-112865, filed on February 17, 2004)
|
*
|
3.2
|
Amendment
to Certificate of Incorporation, dated February 18, 1994 (incorporated by
reference to Exhibit 3.2 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.3
|
Amendment
to Certificate of Incorporation, dated December 26, 1997 (incorporated by
reference to Exhibit 3.3 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.4
|
Amendment
to Certificate of Incorporation, dated January 14, 2004 (incorporated by
reference to Exhibit 3.4 to the Company’s Registration Statement on Form
S-1, File No. 333-112865, filed on February 17, 2004)
|
*
|
3.5
|
Certificate
of Designation for Series A Preferred Stock, dated September 2, 2003
(incorporated by reference to Exhibit 3.5 to the Company’s Registration
Statement on Form S-1, File No. 333-112865, filed on February 17,
2004)
|
*
|
3.6
|
Certificate
of Elimination of Series A Preferred Stock, dated February 3, 2004
(incorporated by reference to Exhibit 3.6 to the Company’s Registration
Statement on Form S-1, File No. 333-112865, filed on February 17,
2004)
|
*
|
3.7
|
By-Laws
(incorporated by reference to Exhibit 3.4 to Registration Statement on
Form S-1, File No. 333-111101, filed on December 11, 2003)
|
*
|
4.1
|
Form
of Note
|
*
|
4.2
|
Form
of Series A Common Stock Purchase Warrant
|
*
|
4.3
|
Form
of Series B Common Stock Purchase Warrant
|
*
|
10.1
|
1993
Stock Option Plan and Form of Option Agreement (incorporated by reference
to Exhibit 10.10 to Registration Statement on Form SB-2, File No.
33-76950, filed on August 1, 1994)
|
*
|
Exhibit
No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
10.2
|
1997
Stock Option Plan (incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1, File No. 333-111101, filed on December
11, 2003)
|
*
|
10.2.1
|
Amendment
No. 1 to 1997 Stock Option Plan (incorporated by reference to Exhibit
10.2.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.3
|
2004
Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Registration Statement on Form S-1, File No. 333-112865, filed
on February 17, 2004)
|
*
|
10.3.1
|
Amendment
No. 1 to 2004 Stock Incentive Plan (incorporated by reference to Exhibit
10.3.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.4
|
Form
of Subscription Agreement and Warrant Agreement used in Private Placements
completed in February 2000 (incorporated by reference to Exhibit 10.21 to
the Company’s Annual Report on Form 10-K, filed on October 30,
2000)
|
*
|
10.5
|
Form
of Subscription Agreement and Warrant Agreement used in the August and
September 2000 Private Placements (incorporated by reference to Exhibit
10.24 to the Company’s Quarterly Report on Form 10-Q, filed on December
15, 2000)
|
*
|
10.6
|
Form
of Subscription Agreement and Warrant Agreement used in the April 2001
Private Placements (incorporated by reference to Exhibit 10.23 to
Registration Statement on Form S-1, File No. 333-38136, filed on July 30,
2001)
|
*
|
10.7
|
Form
of Convertible Note entered into in April 2001 (incorporated by reference
to Exhibit 10.24 to Registration Statement on Form S-1, File No.
333-38136, filed on July 30, 2001)
|
*
|
10.8
|
Form
of Subscription Agreement and Warrant Agreement used in the July 2001
Private Placements (incorporated by reference to Exhibit 10.25 to
Registration Statement on Form S-1, File No. 333-38136, filed on July 30,
2001)
|
*
|
10.9
|
Form
of Subscription Agreement and Warrant Agreement used in the August and
October 2001 private placement (incorporated by reference to Exhibit 10.26
to Registration Statement on Form S-1, File No. 333-38136, filed on
December 14, 2001)
|
*
|
10.10
|
Form
of Subscription Agreement and Warrant Agreement used in the September
2001, November 2001 and January 2002 private placements (incorporated by
reference to Exhibit 10.27 to Registration Statement on Form S-1, File No.
333-38136, filed on February 21, 2002)
|
*
|
10.11
|
Warrant
issued in the February 2002 private placement (incorporated by reference
to Exhibit 10.28 to Registration Statement on Form S-1, File No.
333-38136, filed on February 21, 2002)
|
*
|
10.12
|
Form
of Subscription Agreement and Warrant Agreement used in the March 2002,
April 2002 and May 2002 private placements (incorporated by reference to
Exhibit 10.29 to Registration Statement on Form S-1, File No. 333-89166,
filed on May 24, 2002)
|
*
|
Exhibit
No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
10.13
|
Form
of Subscription Agreement and Warrant Agreement used in the June 2002 and
October 2002 private placements (incorporated by reference to Exhibit
10.30 to the Post-Effective Amendment to Registration Statement on Form
S-1, File No. 333-38136, filed on March 3, 2003)
|
*
|
10.14
|
Form
of Note Payable and Warrant Certificate entered into April, June, July,
September, November and December 2002 (incorporated by reference to
Exhibit 10.31 to the Post-Effective Amendment to Registration Statement on
Form S-1, File No. 333-38136, filed on March 3, 2003)
|
*
|
10.15
|
Form
of Note Payable and Warrant Certificate entered into November 2001,
January, March and May 2003 (incorporated by reference to Exhibit 10.23 to
the Company’s Annual Report on Form 10-K, filed on October 29,
2003)
|
*
|
10.16
|
Form
of Subscription Agreement and Warrant Agreement used in the February 2003
and April through August 2003 private placements (incorporated by
reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K,
filed on October 29, 2003)
|
*
|
10.17
|
Form
of Amended Notes Payable which amends the November 2001, April 2002, June
2002, July 2002, September 2002, November 2002 December 2002, January
2003, March 2003 and May 2003 notes payable (incorporated by reference to
Exhibit 10.27 to The Company’s Annual Report on Form 10-K, filed on
October 29, 2003)
|
*
|
10.18
|
Securities
Purchase Agreement and Warrant Agreement used in September 2003 private
placement and Form of Warrant Certificate issued on January 16, 2004 and
January 29, 2004 to SF Capital Partners Ltd. (incorporated by reference to
Exhibit 10.25 to the Company’s Annual Report on Form 10-K, filed on
October 29, 2003)
|
*
|
10.19
|
Registration
Rights Agreement used in September 2003 private placement with SF Capital
Partners Ltd. (incorporated by reference to Exhibit 10.26 to the Company’s
Annual Report on Form 10-K, filed on October 29, 2003)
|
*
|
10.20
|
Form
of Securities Purchase Agreement used in May 2004 private placement with
Knoll Capital Fund II, Europa International, Inc. and Clifford and Phyllis
Kalista JTWROS (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-1, File No. 333-112865, filed on May 18,
2004)
|
*
|
10.21
|
Form
of Registration Rights Agreement used in May 2004 private placement with
Knoll Capital Fund II, Europa International, Inc. and Clifford and Phyllis
Kalista JTWROS (incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-1, File No. 333-112865, filed on May 18,
2004)
|
*
|
10.22
|
Form
of Warrant Certificate issued on May 11, 2004 to Knoll Capital Fund II,
Europa International, Inc. and Clifford and Phyllis Kalista JTWROS
(incorporated by reference to Exhibit 4.5 to Registration Statement on
Form S-1, File No. 333-112865, filed on May 18, 2004)
|
*
|
10.23
|
Form
of Stock Option Agreement issued to the Company’s Board of Directors under
the Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit
10.23 to the Company’s quarterly report on Form 10-Q filed on June 9,
2005)
|
*
|
10.24
|
Form
of Stock Option Agreement issued to the Company’s Executive Officers under
the Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit
10.24 to the Company’s quarterly report on Form 10-Q filed on June 9,
2005)
|
*
|
Exhibit
No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
10.25
|
Separation
Agreement and General Release with Andrew Savadelis dated May 26, 2005
(incorporated by reference to Exhibit 10.25 to the Company’s Annual Report
on Form 10-K, filed on October 15, 2005)
|
*
|
10.26
|
Securities
Purchase Agreement used in May 2005 private placement with Jeffrey
D’Onofrio dated May 1, 2006
|
*
|
10.27
|
Form
of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K, filed on July 19, 2006)
|
*
|
10.28
|
Registration
Rights Agreement dated July 17, 2006 (incorporated by reference to Exhibit
4.2 to the Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.29
|
Agreement
to Amend Knoll Warrant dated July 17, 2006 (incorporated by reference to
Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.30
|
Form
of Amended Knoll Warrant (incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K, filed on July 19,
2006)
|
*
|
10.31
|
Agreement
to Amend SF Capital Warrant dated July 17, 2006 (incorporated by reference
to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on July
19, 2006)
|
*
|
10.32
|
Form
of Amended Warrant for SF Capital Partners, Ltd. (incorporated by
reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K,
filed on July 19, 2006)
|
*
|
10.33
|
Securities
Purchase Agreement dated July 17, 2006 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July
19, 2006)
|
*
|
10.34
|
Form
of Stock Option Agreement for Executive Officers under the Company's 2004
Stock Incentive Plan
|
*
|
10.35
|
Offer
letter agreement with Lawrence A. Kenyon dated January 16,
2007
|
*
|
10.36
|
Summary
of the Company's Non-Employee Director Compensation Policy
|
*
|
10.37
|
Royalty
Agreement between the Company and Kuslima Shogen, dated July 24, 1991 and
Amendment to Royalty Agreement, dated April 16, 2001
|
*
|
10.38
|
Office
Lease Agreement, dated March 14, 2007, between I&G Garden State, LLC
and the Company
|
*
|
10.39
|
Form
of Distribution and Marketing Agreement, dated July 25, 2007, between the
Company and USP Pharma Spolka Z.O.O.
|
*^
|
10.40
|
Form
of Securities Purchase Agreement, dated July 25, 2007, between the Company
and Unilab LP.
|
*
|
10.41
|
License
Agreement, dated January 14, 2008, between the Company and Par
Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.41 to the
Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*^
|
10.42
|
Supply
Agreement, dated January 14, 2008, between the Company and Par
Pharmaceutical, Inc. (incorporated by reference to Exhibit 10.42 to the
Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*
|
Exhibit
No.
|
Item Title
|
Filed
Herewith or Incorporated
by
Reference
|
10.43
|
Purchase
and Supply Agreement, dated January 14, 2008, between the Company and
Scientific Protein Laboratories LLC (incorporated by reference to Exhibit
10.43 to the Company’s Quarterly Report on Form 10-Q, filed on March 7,
2008)
|
*
|
10.44
|
Amendment
No. 1 to 1993 Stock Option Plan (incorporated by reference to Exhibit
10.44 to the Company’s Quarterly Report on Form 10-Q, filed on June 9,
2008)
|
*
|
10.45
|
Retirement
Agreement, dated April 25, 2008, between the Company and Kuslima Shogen
(incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K, filed on April 28, 2008)
|
*~
|
10.46
|
Securities
Purchase Agreement dated October 19, 2009 by and among the Company and the
investors named therein
|
*
|
10.47
|
Investors
Rights Agreement dated October 19, 2009 by and among the Company and the
investors named therein
|
*
|
10.48
|
Security
Agreement dated October 19, 2009 by and among the Company, the agent named
therein and the secured parties named therein
|
*
|
10.49
|
Escrow
Agreement by and among the Company and the parties named therein dated
October 19, 2009
|
*
|
10.50
|
Employment
Agreement by and between the Company and Charles Muniz dated October 19,
2009
|
*~
|
10.51
|
Termination
Agreement between the Company and Par Pharmaceutical, Inc.
|
+
|
10.52
|
Amendment
to the Retirement Agreement, dated April 25, 2008, between the Company and
Kuslima Shogen
|
+
|
21.1
|
Subsidiaries
of Registrant
|
*
|
23.1
|
Consent
of J.H. Cohn LLP
|
+
|
23.2
|
Consent
of KPMG LLP
|
+
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
+
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
+
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
+
|
*
|
Previously
filed; incorporated herein by
reference
|
^
|
Portions
of this exhibit have been redacted and filed separately with the SEC
pursuant to a confidential treatment
request.
|
~
|
Management
contract or compensatory plan or
arrangement.
|
SIGNATURE
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.
ALFACELL
CORPORATION
Dated:
November 13, 2009
|
By: /s/
CHARLES MUNIZ
Charles Muniz, Chief Executive
Officer
|
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.
Dated: November
13, 2009
|
/s/
CHARLES MUNIZ
Charles
Muniz, Chief Executive Officer, President,
Chief
Financial Officer (Principal Executive Officer,
Principal
Financial Officer and Principal Accounting
Officer)
and Director
|
Dated: November
13, 2009
|
/s/
DAVID SIDRANSKY
David
Sidransky, M.D., Chairman of the
Board
|
Dated: November
13, 2009
|
/s/
JOHN P. BRANCACCIO
John
P. Brancaccio, Director
|
Dated: November
13, 2009
|
/s/
STEPHEN K. CARTER
Stephen
K. Carter, M.D., Director
|
Dated: November
13, 2009
|
/s/
DONALD R. CONKLIN
Donald
R. Conklin, Director
|
Dated: November
__, 2009
|
_______________________
Kuslima
Shogen, Director
|
Dated: November
13, 2009
|
/s/
PAUL M. WEISS
Paul
M. Weiss, Ph.D., Director
|
Alfacell
Corporation
Index to
Financial Statements
|
Page
|
Audited Financial
Statements:
|
|
|
|
Report
of Independent Registered Public Accounting Firm: J.H. Cohn
LLP
|
F-2
|
|
|
Report
of Independent Registered Public Accounting Firm: KPMG
LLP
|
F-3
|
|
|
Independent
Auditors’ Report of Armus, Harrison & Co.
|
F-5
|
|
|
Balance
Sheets - July 31, 2009 and 2008
|
F-6
|
|
|
Statements
of Operations - Years ended July 31, 2009, 2008,
|
|
and
2007 and the Period from August 24, 1981
|
|
(Date
of Inception) to July 31, 2009
|
F-7
|
|
|
Statement
of Stockholders’ Equity (Deficiency)
|
|
Period
from August 24, 1981
|
|
(Date
of Inception) to July 31, 2009
|
F-8
|
|
|
Statements
of Cash Flows - Years ended July 31, 2009, 2008,
|
|
and
2007 and Period from August 24, 1981
|
|
(Date
of Inception) to July 31, 2009
|
F-15
|
|
|
Notes
to Financial Statements - Years ended July 31, 2009,
|
|
2008
and 2007 and the Period from August 24, 1981
|
|
(Date
of Inception) to July 31, 2009
|
F-18
|
Report of Independent
Registered Public Accounting Firm
The Board
of Directors and Stockholders
Alfacell
Corporation
We have
audited the accompanying balance sheets of Alfacell Corporation (a development
stage company) as of July 31, 2009 and 2008, and the related statements of
operations, stockholders’ equity (deficiency), and cash flows for each of the
years in the three-year period ended July 31, 2009 and for the period from
August 24, 1981 (date of inception) to July 31, 2009. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Alfacell Corporation for the
period from August 24, 1981 to July 31, 2002 were audited by other auditors
whose reports dated November 4, 2002 and December 9, 1992, except for Note 18
which is as of July 19, 1993 and Note 3 which is as of October 28, 1993,
expressed unqualified opinions on those statements with explanatory paragraphs
relating to the Company’s ability to continue as a going concern.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, and as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, based on our audits and, for the effect on the period from August 24,
1981 (date of inception) to July 31, 2009 of the amounts for the period from
August 24, 1981 (date of inception) to July 31, 2002, on the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Alfacell Corporation as of July 31,
2009 and 2008, and the results of its operations and its cash flows for each of
the years in the three-year period ended July 31, 2009 and for the period from
August 24, 1981 (date of inception) to July 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed on Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and negative cash flows from operating activities that raise substantial doubt
about its ability to continue as a going concern. Management’s plans
in regards to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ J.H.
Cohn LLP
Roseland,
New Jersey
November
13, 2009
Report Of Independent
Registered Public Accounting Firm
The
Stockholders and Board of Directors
Alfacell
Corporation:
We have
audited the statements of operations, stockholders' equity (deficiency), and
cash flows for the period from August 24, 1981 (date of inception) to July 31,
2002 (not presented herein) of Alfacell Corporation (a development stage
company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial
statements of Alfacell Corporation for the period from August 24, 1981 to July
31, 1992 were audited by other auditors who have ceased operations and whose
report dated December 9, 1992, except as to note 18 which is July 19, 1993 and
note 3 which is October 28, 1993, expressed an unqualified opinion on those
statements with an explanatory paragraph regarding the Company's ability to
continue as a going concern.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, based on our audit and, for the effect on the period from August 24,
1981 to July 31, 2002 of the amounts for the period from August 24, 1981 to July
31, 1992, on the report of other auditors who have ceased operations, the
financial statements referred to above present fairly, in all material respects,
the results of operations and cash flows for the period from August 24, 1981 to
July 31, 2002 (not presented herein) of Alfacell Corporation in conformity with
U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficit and has limited liquid resources which raise
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG
LLP
Short
Hills, New Jersey
November
4, 2002
On
December 1, 1993, certain shareholders of Armus Harrison & Co. (“AHC”)
terminated their association with AHC (the “AHC termination”), and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on behalf of the Company. In June 1996, AHC
dissolved and ceased all operations. The report of AHC with respect
to the financial statements of the Company from inception to July 31, 1992 is
included herein, although AHC has not consented to the use of such report herein
and will not be available to perform any subsequent review procedures with
respect to such report. Accordingly, investors will be barred from
asserting claims against AHC under Section 11 of the Securities Act of 1933, as
amended (the “Securities Act”) on the basis of the use of such report in any
registration statement of the Company into which such report is incorporated by
reference. In addition, in the event any persons seek to assert a
claim against AHC for false or misleading financial statements and disclosures
in documents previously filed by the Company, such claim will be adversely
affected and possibly barred. Furthermore, as a result of the lack of
a consent from AHC to the use of its audit report herein, or, to its
incorporation by reference into a registration statement or other filings, the
officers and directors of the Company will be unable to rely on the authority of
AHC as experts in auditing and accounting in the event any claim is brought
against such persons under Section 11 of the Securities Act based on alleged
false and misleading financial statements and disclosures attributable to
AHC. The discussion regarding certain effects of the AHC termination
is not meant and should not be construed in any way as legal advice to any party
and any potential purchaser should consult with his, her or its own counsel with
respect to the effect of the AHC termination on a potential investment in the
Common Stock of the Company or otherwise.
Independent Auditors’
Report
Board of
Directors
Alfacell
Corporation
Bloomfield,
New Jersey
We have
audited the balance sheets of Alfacell Corporation (a Development Stage Company)
as of July 31, 1992 and 1991, as restated, and the related statements of
operations, stockholders’ deficiency, and cash flows for the three years ended
July 31, 1992, as restated, and for the period from inception August 24,
1981 to July 31, 1992, as restated. In connection with our audit of
the 1992 and 1991 financial statements, we have also audited the 1992, 1991 and
1990 financial statement schedules as listed in the accompanying
index. These financial statements and financial statement schedules
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our
opinion the financial statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July 31,
1992 and 1991, as restated, and for the three years ended July 31, 1992, as
restated, and for the period from inception August 24, 1981 to July 31, 1992, as
restated, and the results of operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
The
accompanying financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the satisfaction of liability
in the normal course of business. As shown in the statement of
operations, the Company has incurred substantial losses in each year since its
inception. In addition, the Company is a development stage company
and its principal operation for production of income has not
commenced. The Company’s working capital has been reduced
considerably by operating losses, and has a deficit net worth. These
factors, among others, as discussed in Note 2 to the Notes of Financial
Statements, indicates the uncertainties about the Company’s ability to continue
as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts and the amount or classification of liabilities that might be necessary
should the Company be unable to continue its existence.
/s/ Armus, Harrison &
Co.
Armus,
Harrison & Co.
Mountainside,
New Jersey
December
9, 1992
Except as
to Note 18 which
is
July 19, 1993 and Note 3
which
is October 28, 1993
ALFACELL
CORPORATION
(A
Development Stage Company)
Balance
Sheets
July 31,
2009 and 2008
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
129,194 |
|
|
$ |
4,661,656 |
|
Prepaid
expenses
|
|
|
54,494 |
|
|
|
165,259 |
|
Total
current assets
|
|
|
183,688 |
|
|
|
4,826,915 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation and amortization of
$377,134 in 2009 and $342,031 in 2008
|
|
|
108,018 |
|
|
|
143,121 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
266,280 |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
557,986 |
|
|
$ |
5,320,036 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
407,273 |
|
|
$ |
1,252,478 |
|
Accrued
clinical trial expenses
|
|
|
459,911 |
|
|
|
882,386 |
|
Accrued
professional service fees
|
|
|
350,486 |
|
|
|
511,779 |
|
Accrued
compensation expense
|
|
|
207,245 |
|
|
|
227,803 |
|
Current
portion of obligations under capital lease
|
|
|
4,299 |
|
|
|
3,453 |
|
Other
accrued expenses
|
|
|
2,890 |
|
|
|
4,135 |
|
Total
current liabilities
|
|
|
1,432,104 |
|
|
|
2,882,034 |
|
|
|
|
|
|
|
|
|
|
Other
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, net of current portion
|
|
|
444,223 |
|
|
|
– |
|
Obligations
under capital lease, net of current portion
|
|
|
12,641 |
|
|
|
16,940 |
|
Accrued
retirement benefits
|
|
|
335,250 |
|
|
|
510,000 |
|
Deferred
rent
|
|
|
284,134 |
|
|
|
267,668 |
|
Deferred
revenue
|
|
|
5,200,000 |
|
|
|
5,200,000 |
|
Total
other liabilities
|
|
|
6,276,248 |
|
|
|
5,994,608 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
7,708,352 |
|
|
|
8,876,642 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficiency):
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value. Authorized and unissued, 1,000,000
shares at July 31, 2009 and 2008
|
|
|
– |
|
|
|
– |
|
Common
stock $.001 par value. Authorized 100,000,000 shares at July
31, 2009 and 2008; issued and outstanding 47,313,880 shares and 47,276,880
shares at July 31, 2009 and 2008, respectively
|
|
|
47,314 |
|
|
|
47,277 |
|
Capital
in excess of par value
|
|
|
101,734,572 |
|
|
|
100,788,973 |
|
Deficit
accumulated during development stage
|
|
|
(108,932,252 |
) |
|
|
(104,392,856 |
) |
Total
stockholders’ equity (deficiency)
|
|
|
(7,150,366 |
) |
|
|
(3,556,606 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficiency)
|
|
$ |
557,986 |
|
|
$ |
5,320,036 |
|
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Operations
Years
ended July 31, 2009, 2008 and 2007
and the
Period from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981
(date
of
inception)
to
July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
553,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
336,495 |
|
Research
and development
|
|
|
3,268,348 |
|
|
|
8,503,110 |
|
|
|
5,543,175 |
|
|
|
72,581,880 |
|
General
and administrative
|
|
|
2,431,121 |
|
|
|
5,797,355 |
|
|
|
4,092,990 |
|
|
|
40,963,889 |
|
Total
operating expenses
|
|
|
5,699,469 |
|
|
|
14,300,465 |
|
|
|
9,636,165 |
|
|
|
113,882,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,699,469 |
) |
|
|
(14,300,465 |
) |
|
|
(9,636,165 |
) |
|
|
(113,328,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
25,633 |
|
|
|
227,591 |
|
|
|
370,650 |
|
|
|
2,302,081 |
|
Other
income
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
99,939 |
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
parties
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,147,547 |
) |
Others
|
|
|
(5,427 |
) |
|
|
(3,607 |
) |
|
|
(96 |
) |
|
|
(2,883,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before state tax benefit
|
|
|
(5,679,263 |
) |
|
|
(14,076,481 |
) |
|
|
(9,265,611 |
) |
|
|
(114,957,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
tax benefit
|
|
|
1,139,867 |
|
|
|
1,755,380 |
|
|
|
510,467 |
|
|
|
6,025,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
|
$ |
(108,932,252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per basic and diluted common share
|
|
$ |
(0.10 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic and diluted
|
|
|
47,313,000 |
|
|
|
46,919,000 |
|
|
|
44,958,000 |
|
|
|
|
|
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency)
Period
from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
Issuance
of shares to officers and stockholders for equipment, research and
development, and expense reimbursement
|
|
|
712,500 |
|
|
$ |
713 |
|
|
$ |
212,987 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
213,700 |
|
Issuance
of shares for organizational legal service
|
|
|
50,000 |
|
|
|
50 |
|
|
|
4,950 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,000 |
|
Sale
of shares for cash, net
|
|
|
82,143 |
|
|
|
82 |
|
|
|
108,418 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108,500 |
|
Adjustment
for 3 for 2 stock split declared September 8, 1982
|
|
|
422,321 |
|
|
|
422 |
|
|
|
(422 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(121,486 |
) |
|
|
— |
|
|
|
— |
|
|
|
(121,486 |
) |
Balance
at July 31, 1982
|
|
|
1,266,964 |
|
|
|
1,267 |
|
|
|
325,933 |
|
|
|
— |
|
|
|
(121,486 |
) |
|
|
— |
|
|
|
— |
|
|
|
205,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for equipment
|
|
|
15,000 |
|
|
|
15 |
|
|
|
13,985 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,000 |
|
Sale
of shares to private investors
|
|
|
44,196 |
|
|
|
44 |
|
|
|
41,206 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
41,250 |
|
Sale
of shares in public offering, net
|
|
|
660,000 |
|
|
|
660 |
|
|
|
1,307,786 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,308,446 |
|
Issuance
of shares under stock grant program
|
|
|
20,000 |
|
|
|
20 |
|
|
|
109,980 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110,000 |
|
Exercise
of warrants, net
|
|
|
1,165 |
|
|
|
1 |
|
|
|
3,494 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,495 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(558,694 |
) |
|
|
— |
|
|
|
— |
|
|
|
(558,694 |
) |
Balance
at July 31, 1983
|
|
|
2,007,325 |
|
|
|
2,007 |
|
|
|
1,802,384 |
|
|
|
— |
|
|
|
(680,180 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,124,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants, net
|
|
|
287,566 |
|
|
|
287 |
|
|
|
933,696 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
933,983 |
|
Issuance
of shares under stock grant program
|
|
|
19,750 |
|
|
|
20 |
|
|
|
101,199 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
101,219 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
130,250 |
|
|
|
131 |
|
|
|
385,786 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
385,917 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,421,083 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,421,083 |
) |
Balance
at July 31, 1984
|
|
|
2,444,891 |
|
|
|
2,445 |
|
|
|
3,223,065 |
|
|
|
— |
|
|
|
(2,101,263 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,124,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares under stock grant program
|
|
|
48,332 |
|
|
|
48 |
|
|
|
478,057 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
478,105 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
99,163 |
|
|
|
99 |
|
|
|
879,379 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
879,478 |
|
Shares
canceled
|
|
|
(42,500 |
) |
|
|
(42 |
) |
|
|
(105,783 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(105,825 |
) |
Exercise
of warrants, net
|
|
|
334,957 |
|
|
|
335 |
|
|
|
1,971,012 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,971,347 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,958,846 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,958,846 |
) |
Balance
at July 31, 1985
|
|
|
2,884,843 |
|
|
|
2,885 |
|
|
|
6,445,730 |
|
|
|
— |
|
|
|
(5,060,109 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,388,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares under stock grant program
|
|
|
11,250 |
|
|
|
12 |
|
|
|
107,020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
107,032 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
15,394 |
|
|
|
15 |
|
|
|
215,385 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
215,400 |
|
Exercise
of warrants, net
|
|
|
21,565 |
|
|
|
21 |
|
|
|
80,977 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
80,998 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,138,605 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,138,605 |
) |
Balance
at July 31, 1986 (carried forward)
|
|
|
2,933,052 |
|
|
|
2,933 |
|
|
|
6,849,112 |
|
|
|
— |
|
|
|
(7,198,714 |
) |
|
|
— |
|
|
|
— |
|
|
|
(346,669 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 1986 (brought forward)
|
|
|
2,933,052 |
|
|
$ |
2,933 |
|
|
$ |
6,849,112 |
|
|
$ |
— |
|
|
$ |
(7,198,714 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(346,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants, net
|
|
|
14,745 |
|
|
|
15 |
|
|
|
147,435 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
147,450 |
|
Issuance
of shares under stock bonus plan for directors and
consultants
|
|
|
5,000 |
|
|
|
5 |
|
|
|
74,995 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75,000 |
|
Issuance
of shares for services
|
|
|
250,000 |
|
|
|
250 |
|
|
|
499,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
Sale
of shares to private investors, net
|
|
|
5,000 |
|
|
|
5 |
|
|
|
24,995 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,000 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,604,619 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,604,619 |
) |
Balance
at July 31, 1987
|
|
|
3,207,797 |
|
|
|
3,208 |
|
|
|
7,596,287 |
|
|
|
— |
|
|
|
(9,803,333 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,203,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for legal and consulting services
|
|
|
206,429 |
|
|
|
207 |
|
|
|
724,280 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
724,487 |
|
Issuance
of shares under employment incentive program
|
|
|
700,000 |
|
|
|
700 |
|
|
|
2,449,300 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,450,000 |
) |
|
|
— |
|
Issuance
of shares under stock grant program
|
|
|
19,000 |
|
|
|
19 |
|
|
|
66,481 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66,500 |
|
Exercise
of options, net
|
|
|
170,000 |
|
|
|
170 |
|
|
|
509,830 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
510,000 |
|
Issuance
of shares for litigation settlement
|
|
|
12,500 |
|
|
|
12 |
|
|
|
31,125 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,137 |
|
Exercise
of warrants, net
|
|
|
63,925 |
|
|
|
64 |
|
|
|
451,341 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
451,405 |
|
Sale
of shares to private investors
|
|
|
61,073 |
|
|
|
61 |
|
|
|
178,072 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
178,133 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
449,167 |
|
|
|
449,167 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,272,773 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,272,773 |
) |
Balance
at July 31, 1988
|
|
|
4,440,724 |
|
|
|
4,441 |
|
|
|
12,006,716 |
|
|
|
— |
|
|
|
(13,076,106 |
) |
|
|
— |
|
|
|
(2,000,833 |
) |
|
|
(3,065,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares for litigation settlement
|
|
|
135,000 |
|
|
|
135 |
|
|
|
1,074,703 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,074,838 |
|
Conversion of
debentures, net
|
|
|
133,333 |
|
|
|
133 |
|
|
|
399,867 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
Sale
of shares to private investors
|
|
|
105,840 |
|
|
|
106 |
|
|
|
419,894 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
420,000 |
|
Exercise
of options, net
|
|
|
1,000 |
|
|
|
1 |
|
|
|
3,499 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,500 |
|
Issuance
of shares under employment agreement
|
|
|
750,000 |
|
|
|
750 |
|
|
|
3,749,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,750,000 |
) |
|
|
— |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
30,000 |
|
|
|
30 |
|
|
|
149,970 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,050,756 |
|
|
|
1,050,756 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,952,869 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,952,869 |
) |
Balance
at July 31, 1989
|
|
|
5,595,897 |
|
|
|
5,596 |
|
|
|
17,803,899 |
|
|
|
— |
|
|
|
(16,028,975 |
) |
|
|
— |
|
|
|
(4,850,077 |
) |
|
|
(3,069,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for legal and consulting services
|
|
|
52,463 |
|
|
|
52 |
|
|
|
258,725 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258,777 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
56,000 |
|
|
|
56 |
|
|
|
335,944 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(336,000 |
) |
|
|
— |
|
Sale
of shares for litigation settlement
|
|
|
50,000 |
|
|
|
50 |
|
|
|
351,067 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
351,117 |
|
Exercise
of options at, net
|
|
|
105,989
|
|
|
|
106 |
|
|
|
345,856
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
345,962
|
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors
|
|
|
89,480 |
|
|
$ |
90 |
|
|
$ |
354,990 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
355,080 |
|
Issuance
of shares under employment agreement
|
|
|
750,000 |
|
|
|
750 |
|
|
|
3,749,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,750,000 |
) |
|
|
— |
|
Conversion
of debentures, net
|
|
|
100,000 |
|
|
|
100 |
|
|
|
499,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,015,561 |
|
|
|
3,015,561 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,860,116 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,860,116 |
) |
Balance
at July 31, 1990
|
|
|
6,799,829 |
|
|
|
6,800 |
|
|
|
23,699,631 |
|
|
|
— |
|
|
|
(20,889,091 |
) |
|
|
— |
|
|
|
(5,920,516 |
) |
|
|
(3,103,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options, net
|
|
|
16,720 |
|
|
|
16 |
|
|
|
108,664 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108,680 |
|
Issuance
of shares for legal consulting services
|
|
|
87,000 |
|
|
|
87 |
|
|
|
358,627 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
358,714 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
119,000 |
|
|
|
119 |
|
|
|
475,881 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(476,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,891,561 |
|
|
|
2,891,561 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,202,302 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,202,302 |
) |
Balance
at July 31, 1991
|
|
|
7,022,549 |
|
|
|
7,022 |
|
|
|
24,642,803 |
|
|
|
— |
|
|
|
(26,091,393 |
) |
|
|
— |
|
|
|
(3,504,955 |
) |
|
|
(4,946,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options at, net
|
|
|
1,000 |
|
|
|
1 |
|
|
|
3,499 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,500 |
|
Sale
of shares to private investors
|
|
|
70,731 |
|
|
|
71 |
|
|
|
219,829 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219,900 |
|
Conversion
of debentures, net
|
|
|
94,000 |
|
|
|
94 |
|
|
|
469,906 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
470,000 |
|
Issuance
of shares for services
|
|
|
45,734 |
|
|
|
46 |
|
|
|
156,944 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
156,990 |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
104,000 |
|
|
|
104 |
|
|
|
285,896 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(286,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,046,726 |
|
|
|
3,046,726 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,772,826 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,772,826 |
) |
Balance
at July 31, 1992
|
|
|
7,338,014 |
|
|
|
7,338 |
|
|
|
25,778,877 |
|
|
|
— |
|
|
|
(30,864,219 |
) |
|
|
— |
|
|
|
(744,229 |
) |
|
|
(5,822,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors
|
|
|
352,667 |
|
|
|
353 |
|
|
|
735,147 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
735,500 |
|
Issuance
of shares for legal services
|
|
|
49,600 |
|
|
|
50 |
|
|
|
132,180 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
132,230 |
|
Issuance
of shares for services
|
|
|
5,000 |
|
|
|
5 |
|
|
|
9,995 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
Issuance
of shares under the 1989 Stock Plan
|
|
|
117,000 |
|
|
|
117 |
|
|
|
233,883 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(234,000 |
) |
|
|
— |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
664,729 |
|
|
|
664,729 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,357,350 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,357,350 |
) |
Balance
at July 31, 1993
|
|
|
7,862,281 |
|
|
|
7,863 |
|
|
|
26,890,082 |
|
|
|
— |
|
|
|
(33,221,569 |
) |
|
|
— |
|
|
|
(323,500 |
) |
|
|
(6,647,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debentures, net
|
|
|
425,400 |
|
|
|
425 |
|
|
|
1,701,575 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,702,000 |
|
Sale
of shares to private investors, net
|
|
|
743,000 |
|
|
|
743 |
|
|
|
1,710,048 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,710,791 |
|
Conversion
of short-term borrowings
|
|
|
72,800 |
|
|
|
73 |
|
|
|
181,927 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
182,000 |
|
Issuance
of shares for services
|
|
|
16,200 |
|
|
|
16 |
|
|
|
43,334 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,350 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders’ Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
Issuance
of shares under the 1989 Stock Plan, for services
|
|
|
5,000 |
|
|
$ |
5 |
|
|
$ |
14,995 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,000 |
|
Issuance
of options to related parties upon conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued
interest, payroll and expenses
|
|
|
— |
|
|
|
— |
|
|
|
3,194,969 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,194,969 |
|
Repurchase
of stock options from related party
|
|
|
— |
|
|
|
— |
|
|
|
(198,417 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(198,417 |
) |
Issuance
of options upon conversion of accrued interest
|
|
|
— |
|
|
|
— |
|
|
|
142,441 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
142,441 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
265,000 |
|
|
|
265,000 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,234,428 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,234,428 |
) |
Balance
at July 31, 1994
|
|
|
9,124,681 |
|
|
|
9,125 |
|
|
|
33,680,954 |
|
|
|
50,000 |
|
|
|
(35,455,997 |
) |
|
|
— |
|
|
|
(58,500 |
) |
|
|
(1,774,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
961,000 |
|
|
|
961 |
|
|
|
2,023,241 |
|
|
|
(50,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,974,202 |
|
Conversion
of short-term borrowings
|
|
|
17,600 |
|
|
|
17 |
|
|
|
43,983 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,000 |
|
Issuance
of shares for services
|
|
|
30,906 |
|
|
|
31 |
|
|
|
77,234 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
77,265 |
|
Exercise
of options, net
|
|
|
185,000 |
|
|
|
185 |
|
|
|
437,015 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
437,200 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
339,008 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
339,008 |
|
Common
stock to be issued, for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,800 |
|
Amortization
of deferred compensation, restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,500 |
|
|
|
58,500 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,993,123 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,993,123 |
) |
Balance
at July 31, 1995
|
|
|
10,319,187 |
|
|
|
10,319 |
|
|
|
36,262,427 |
|
|
|
343,808 |
|
|
|
(37,449,120 |
) |
|
|
— |
|
|
|
— |
|
|
|
(832,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
2,953,327 |
|
|
|
2,953 |
|
|
|
8,969,655 |
|
|
|
(339,008 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,633,600 |
|
Issuance
of shares for services
|
|
|
19,995 |
|
|
|
20 |
|
|
|
70,858 |
|
|
|
(4,800 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66,078 |
|
Exercise
of options, net
|
|
|
566,700 |
|
|
|
567 |
|
|
|
1,657,633 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,658,200 |
|
Sale
of warrants
|
|
|
— |
|
|
|
— |
|
|
|
12,084 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,084 |
|
Issuance
of options/warrants for services
|
|
|
— |
|
|
|
— |
|
|
|
50,872 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,872 |
|
Common
stock to be issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258,335 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258,335 |
|
Subscription
receivable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(254,185 |
) |
|
|
— |
|
|
|
(254,185 |
) |
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,942,152 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,942,152 |
) |
Balance
at July 31, 1996
|
|
|
13,859,209 |
|
|
|
13,859 |
|
|
|
47,023,529 |
|
|
|
258,335 |
|
|
|
(40,391,272 |
) |
|
|
(254,185 |
) |
|
|
— |
|
|
|
6,650,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
112,000 |
|
|
|
112 |
|
|
|
503,888 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
504,000 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
76,504 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76,504 |
|
Exercise
of options, net
|
|
|
729,134 |
|
|
|
729 |
|
|
|
2,620,359 |
|
|
|
(258,335 |
) |
|
|
— |
|
|
|
254,185 |
|
|
|
— |
|
|
|
2,616,938 |
|
Exercise
of warrants, net
|
|
|
147,450 |
|
|
|
148 |
|
|
|
737,102 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
737,250 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,018,867 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,018,867 |
) |
Balance
at July 31, 1997 (carried forward)
|
|
|
14,847,793 |
|
|
|
14,848 |
|
|
|
50,961,382 |
|
|
|
— |
|
|
|
(45,410,139 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,566,091 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 1997 (brought forward)
|
|
|
14,847,793 |
|
|
$ |
14,848 |
|
|
$ |
50,961,382 |
|
|
$ |
— |
|
|
$ |
(45,410,139 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,566,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
2,337,150 |
|
|
|
2,337 |
|
|
|
4,199,877 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,202,214 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
199,954 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
199,954 |
|
Exercise
of warrants, net
|
|
|
4,950 |
|
|
|
5 |
|
|
|
11,080 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,085 |
|
Issuance
of shares for services, net
|
|
|
50,000 |
|
|
|
50 |
|
|
|
99,950 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,387,506 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,387,506 |
) |
Balance
at July 31, 1998
|
|
|
17,239,893 |
|
|
|
17,240 |
|
|
|
55,472,243 |
|
|
|
— |
|
|
|
(51,797,645 |
) |
|
|
— |
|
|
|
— |
|
|
|
3,691,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
205,593 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
205,593 |
|
Issuance
of shares for services, net
|
|
|
46,701 |
|
|
|
46 |
|
|
|
16,359 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,405 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,156,636 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,156,636 |
) |
Balance
at July 31, 1999
|
|
|
17,286,594 |
|
|
|
17,286 |
|
|
|
55,694,195 |
|
|
|
— |
|
|
|
(54,954,281 |
) |
|
|
— |
|
|
|
— |
|
|
|
757,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
875,000 |
|
|
|
875 |
|
|
|
547,417 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
548,292 |
|
Exercise
of options, net
|
|
|
95,000 |
|
|
|
95 |
|
|
|
45,755 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45,850 |
|
Issuance
of shares for services, net
|
|
|
174,965 |
|
|
|
175 |
|
|
|
92,009 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
92,184 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
146,912 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
146,912 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,722,298 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,722,298 |
) |
Balance
at July 31, 2000
|
|
|
18,431,559 |
|
|
|
18,431 |
|
|
|
56,526,288 |
|
|
|
— |
|
|
|
(56,676,579 |
) |
|
|
— |
|
|
|
— |
|
|
|
(131,860 |
) |
Sale
of shares to private investors, net
|
|
|
863,331 |
|
|
|
863 |
|
|
|
955,561 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
956,424 |
|
Exercise
of options, net
|
|
|
165,555 |
|
|
|
166 |
|
|
|
83,565 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
83,731 |
|
Issuance
of shares for services, net
|
|
|
11,800 |
|
|
|
12 |
|
|
|
10,018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,030 |
|
Exercise
of convertible debentures, net
|
|
|
330,000 |
|
|
|
330 |
|
|
|
296,670 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
297,000 |
|
Issuance
of warrants with convertible debt
|
|
|
— |
|
|
|
— |
|
|
|
178,807 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
178,807 |
|
Issuance
of options for services
|
|
|
— |
|
|
|
— |
|
|
|
160,426 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,426 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,294,936 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,294,936 |
) |
Balance
at July 31, 2001
|
|
|
19,802,245 |
|
|
|
19,802 |
|
|
|
58,211,335 |
|
|
|
— |
|
|
|
(58,971,515 |
) |
|
|
— |
|
|
|
— |
|
|
|
(740,378 |
) |
Sale
of shares to private investors, net
|
|
|
2,622,122 |
|
|
|
2,623 |
|
|
|
1,047,925 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,050,548 |
|
Exercise
of stock options and warrants
|
|
|
186,000 |
|
|
|
186 |
|
|
|
92,814 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
93,000 |
|
Issuance
of shares for services, net
|
|
|
78,340 |
|
|
|
78 |
|
|
|
64,048 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,126 |
|
Exercise
of convertible debentures, net
|
|
|
72,214 |
|
|
|
72 |
|
|
|
64,921 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,993 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
173,436 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
173,436 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,591,162 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,591,162 |
) |
Balance
at July 31, 2002 (carried forward)
|
|
|
22,760,921 |
|
|
|
22,761 |
|
|
|
59,654,479 |
|
|
|
— |
|
|
|
(61,562,677 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,885,437 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2002 (brought forward)
|
|
|
22,760,921 |
|
|
$ |
22,761 |
|
|
$ |
59,654,479 |
|
|
$ |
— |
|
|
$ |
(61,562,677 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,885,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to private investors, net
|
|
|
1,315,000 |
|
|
|
1,315 |
|
|
|
652,312 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
653,627 |
|
Exercise
of stock options and warrants
|
|
|
764,000 |
|
|
|
764 |
|
|
|
376,896 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
377,660 |
|
Issuance
of shares for payment of accounts payable
|
|
|
186,208 |
|
|
|
186 |
|
|
|
94,037 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
94,223 |
|
Issuance
of options for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
75,521 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75,521 |
|
Vesting
of options previously issued for services
|
|
|
— |
|
|
|
— |
|
|
|
10,038 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,038 |
|
Issuance
of warrants in connection with debt issuances
|
|
|
— |
|
|
|
— |
|
|
|
594,219 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
594,219 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,411,532 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,411,532 |
) |
Balance
at July 31, 2003
|
|
|
25,026,129 |
|
|
|
25,026 |
|
|
|
61,457,502 |
|
|
|
— |
|
|
|
(63,974,209 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,491,681 |
) |
Sale
of shares to private investors, net
|
|
|
3,035,200 |
|
|
|
3,036 |
|
|
|
10,732,942 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,735,978 |
|
Exercise
of stock options and warrants
|
|
|
3,100,160 |
|
|
|
3,100 |
|
|
|
4,155,397 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,158,497 |
|
Issuance
of shares for payment of accounts payable
|
|
|
14,703 |
|
|
|
15 |
|
|
|
52,161 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,176 |
|
Issuance
of shares for conversion of subordinated debentures
|
|
|
3,042,817 |
|
|
|
3,043 |
|
|
|
924,829 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
927,872 |
|
Issuance
of shares for services rendered
|
|
|
128,876 |
|
|
|
128 |
|
|
|
288,372 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
288,500 |
|
Issuance
of options for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
280,612 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
280,612 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,070,307 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,070,307 |
) |
Balance
at July 31, 2004
|
|
|
34,347,885 |
|
|
|
34,348 |
|
|
|
77,891,815 |
|
|
|
— |
|
|
|
(69,044,516 |
) |
|
|
— |
|
|
|
— |
|
|
|
8,881,647 |
|
Exercise
of stock options and warrants, net
|
|
|
438,372 |
|
|
|
438 |
|
|
|
306,717 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
307,155 |
|
Issuance
of shares and warrants for conversion of subordinated
debentures
|
|
|
1,744,978 |
|
|
|
1,745 |
|
|
|
462,754 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
464,499 |
|
Issuance
of shares for services rendered
|
|
|
3,000 |
|
|
|
3 |
|
|
|
13,497 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,500 |
|
Issuance
of options and warrants for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
16,789 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,789 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,461,920 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,461,920 |
) |
Balance
at July 31, 2005
|
|
|
36,534,235 |
|
|
|
36,534 |
|
|
|
78,691,572 |
|
|
|
— |
|
|
|
(75,506,436 |
) |
|
|
— |
|
|
|
— |
|
|
|
3,221,670 |
|
Sale
of shares to private investors, net
|
|
|
6,632,099 |
|
|
|
6,632 |
|
|
|
10,977,288 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,983,920 |
|
Exercise
of stock options and warrants, net
|
|
|
1,122,827 |
|
|
|
1,123 |
|
|
|
1,347,201 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,348,324 |
|
Issuance
of stock options and warrants for services rendered
|
|
|
— |
|
|
|
— |
|
|
|
1,489,264 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,489,264 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,810,175 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,810,175 |
) |
Balance
at July 31, 2006 (carried forward)
|
|
|
44,289,161 |
|
|
|
44,289 |
|
|
|
92,505,325 |
|
|
|
— |
|
|
|
(83,316,611 |
) |
|
|
— |
|
|
|
— |
|
|
|
9,233,003 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statement
of Stockholders' Equity (Deficiency), Continued
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
In
Excess
of par
Value
|
|
|
Common
Stock
to be
Issued
|
|
|
Deficit
Accumulated
During
Development
Stage
|
|
|
Subscription
Receivable
|
|
|
Deferred
compensation, restricted stock
|
|
|
Total
Stockholders’
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2006 (brought forward)
|
|
|
44,289,161 |
|
|
$ |
44,289 |
|
|
$ |
92,505,325 |
|
|
$ |
— |
|
|
$ |
(83,316,611 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,233,003 |
|
Sale
of shares to private investors, net
|
|
|
553,360 |
|
|
|
553 |
|
|
|
1,368,104 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,368,657 |
|
Exercise
of stock options and warrants, net
|
|
|
1,438,359 |
|
|
|
1,439 |
|
|
|
1,504,261 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,505,700 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
2,426,264 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,426,264 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,755,144 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,755,144 |
) |
Balance
at July 31, 2007
|
|
|
46,280,880 |
|
|
|
46,281 |
|
|
|
97,803,954 |
|
|
|
— |
|
|
|
(92,071,755 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,778,480 |
|
Exercise
of stock options and warrants, net
|
|
|
996,000 |
|
|
|
996 |
|
|
|
686,044 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
687,040 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
2,298,975 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,298,975 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,321,101 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,321,101 |
) |
Balance
at July 31, 2008
|
|
|
47,276,880 |
|
|
|
47,277 |
|
|
|
100,788,973 |
|
|
|
— |
|
|
|
(104,392,856 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,556,606 |
) |
Exercise
of stock options and warrants, net
|
|
|
37,000 |
|
|
|
37 |
|
|
|
13,183 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,220 |
|
Stock-based
compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
932,416 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
932,416 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,539,396 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,539,396 |
) |
Balance
at July 31, 2009
|
|
|
47,313,880 |
|
|
$ |
47,314 |
|
|
$ |
101,734,572 |
|
|
$ |
— |
|
|
$ |
(108,932,252 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(7,150,366 |
) |
See
accompanying notes to financial statements.
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows
Years
ended July 31, 2009, 2008 and 2007
and the
Period from August 24, 1981
(Date of
Inception) to July 31, 2009
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981
(date
of inception) to
July
31, 2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
|
$ |
(108,932,252 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of marketable
equity securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(25,963 |
) |
Depreciation and
amortization
|
|
|
35,103 |
|
|
|
51,451 |
|
|
|
39,063 |
|
|
|
1,745,594 |
|
Loss on disposal of property
and equipment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,926 |
|
Loss on lease
termination
|
|
|
-- |
|
|
|
-- |
|
|
|
30,964 |
|
|
|
30,964 |
|
Stock-based
compensation expense
|
|
|
932,416 |
|
|
|
2,298,975 |
|
|
|
2,426,264 |
|
|
|
13,863,932 |
|
Amortization of deferred
rent
|
|
|
16,466 |
|
|
|
155,549 |
|
|
|
14,155 |
|
|
|
186,170 |
|
Amortization of debt
discount
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
594,219 |
|
Amortization of deferred
compensation
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,442,000 |
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid
expenses
|
|
|
110,765 |
|
|
|
(15,052 |
) |
|
|
(83,117 |
) |
|
|
(114,361 |
) |
Decrease (increase) in loans
receivable, related party
|
|
|
-- |
|
|
|
180,397 |
|
|
|
(9,527 |
) |
|
|
96,051 |
|
Decrease (increase) in other
assets
|
|
|
83,720 |
|
|
|
35,000 |
|
|
|
(385,000 |
) |
|
|
(266,280 |
) |
Increase in loans and interest
payable, related party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
744,539 |
|
(Decrease) increase in accounts
payable
|
|
|
(400,982 |
) |
|
|
819,692 |
|
|
|
(853,384 |
) |
|
|
1,358,131 |
|
Increase in accrued payroll and
expenses, related parties
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,348,145 |
|
(Decrease) increase in accrued
retirement benefits
|
|
|
(94,308 |
) |
|
|
612,000 |
|
|
|
-- |
|
|
|
517,692 |
|
(Decrease) increase in accrued
expenses
|
|
|
(686,013 |
) |
|
|
126,988 |
|
|
|
89,859 |
|
|
|
1,556,973 |
|
Increase in deferred
revenue
|
|
|
-- |
|
|
|
5,100,000 |
|
|
|
100,000 |
|
|
|
5,200,000 |
|
Net cash used in operating
activities
|
|
|
(4,542,229 |
) |
|
|
(2,956,101 |
) |
|
|
(7,385,867 |
) |
|
|
(69,635,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable equity
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(290,420 |
) |
Purchase of short-term
investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,993,644 |
) |
Proceeds from sale of
marketable equity securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
316,383 |
|
Proceeds from sale of
short-term investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,993,644 |
|
Capital
expenditures
|
|
|
-- |
|
|
|
(34,070 |
) |
|
|
(38,858 |
) |
|
|
(1,605,066 |
) |
Patent costs
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(97,841 |
) |
Net cash used in investing
activities
|
|
|
-- |
|
|
|
(34,070 |
) |
|
|
(38,858 |
) |
|
|
(1,676,944 |
) |
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows, Continued
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981
(date
of inception) to
July
31, 2009
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term
borrowings
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
874,500 |
|
Payment of short-term
borrowings
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(653,500 |
) |
Increase in loans payable,
related party, net
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,628,868 |
|
Proceeds from bank debt and
other long-term debt, net of deferred debt costs
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,667,460 |
|
Reduction of bank debt and
long-term debt
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,966,568 |
) |
Payment of capital lease
obligation
|
|
|
(3,453 |
) |
|
|
(3,385 |
) |
|
|
-- |
|
|
|
(6,838 |
) |
Proceeds from issuance of common
stock, net
|
|
|
-- |
|
|
|
-- |
|
|
|
1,368,657 |
|
|
|
53,102,893 |
|
Proceeds from exercise of stock
options and warrants, net
|
|
|
13,220 |
|
|
|
687,040 |
|
|
|
1,505,700 |
|
|
|
14,080,850 |
|
Proceeds from issuance of
convertible debentures, related party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
297,000 |
|
Proceeds from issuance of
convertible debentures, unrelated party
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
416,993 |
|
Net cash provided by financing
activities
|
|
|
9,767 |
|
|
|
683,655 |
|
|
|
2,874,357 |
|
|
|
71,441,658 |
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(4,532,462 |
) |
|
|
(2,306,516 |
) |
|
|
(4,550,368 |
) |
|
|
129,194 |
|
Cash
and cash equivalents at beginning of period
|
|
|
4,661,656 |
|
|
|
6,968,172 |
|
|
|
11,518,540 |
|
|
|
-- |
|
Cash
and cash equivalents at end of period
|
|
$ |
129,194 |
|
|
$ |
4,661,656 |
|
|
$ |
6,968,172 |
|
|
$ |
129,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information – interest paid
|
|
$ |
5,427 |
|
|
$ |
3,607 |
|
|
$ |
96 |
|
|
$ |
1,723,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible
subordinated debenture for loan payable to officer
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,725,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock upon the conversion of convertible subordinated
debentures, related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,242,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of short-term borrowings to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
226,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accrued interest,
payroll and expenses by related parties to stock options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,194,969 |
|
Repurchase
of stock options from related party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(198,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of accrued interest to stock options
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
142,441 |
|
Conversions
of accounts payable to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
506,725 |
|
ALFACELL
CORPORATION
(A
Development Stage Company)
Statements
of Cash Flows, Continued
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
August
24, 1981
(date
of inception) to
July
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable, bank and accrued interest to long-term
debt
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,699,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of loans and interest payable, related party and accrued payroll and
expenses, related parties to long-term accrued payroll and other, related
party
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,863,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants upon the conversion of convertible
subordinated debentures and accrued interest, other
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,584,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services rendered
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
incentive allowance
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
67,000 |
|
|
$ |
67,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants with notes payable
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
594,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment through capital lease obligation
|
|
$ |
- |
|
|
$ |
23,778 |
|
|
$ |
- |
|
|
$ |
23,778 |
|
See
accompanying notes to financial statements.
Notes to
Financial Statements
Years
ended July 31, 2009, 2008 and 2007
and the
Period From August 24, 1981
(Date of
Inception) to July 31, 2009
(1)
|
Summary of Significant
Accounting Policies
|
Business
Description
Alfacell
Corporation (the "Company") was incorporated in Delaware on August 24, 1981 for
the purpose of engaging in the discovery, investigation and development of a new
class of anti-cancer drugs and anti-viral agents. The Company is a
development stage company as defined in Statement of Financial Accounting
Standards No. 7. The Company is devoting substantially all of its
present efforts to establishing its business. Its planned principal
operations have not commenced and, accordingly, no significant revenue has been
derived therefrom.
The
Company is engaged in the research, development, and commercialization of drugs
for the treatment of various forms of cancer and other life threatening
diseases. As of July 31, 2009, the Company is pursuing various
available strategic alternatives to raise additional funds. The
Company plans to continue the further development of its drug product
candidates, which requires substantial capital for research, product
development, and market development activities. The Company has not
yet initiated marketing of a commercial drug product. Future product development
will require clinical testing, regulatory approval, and substantial additional
investment prior to commercialization. The future success of the
Company is dependent on its ability to make progress in the development of its
drug product candidates and, ultimately, upon its ability to attain future
profitable operations through the successful manufacturing and marketing of
those drug product candidates. There can be no assurance that the
Company will be able to obtain the necessary financing or regulatory approvals
to be able to successfully develop, manufacture, and market its products, or
attain successful future operations. Accordingly, the Company’s
future success is uncertain.
In
addition, uncertainty exists as to the Company’s ability to protect its rights
to patents and its proprietary information. There can also be no
assurance that research and discoveries by others will not render some or all of
the Company’s technology or drug product candidates noncompetitive or obsolete.
Nor can there be any assurance that unforeseen problems will not develop with
the Company’s technologies or applications, or that the Company will be able to
address successfully technological challenges it encounters in its research and
development programs. While the Company maintains insurance to cover the use of
its drug product candidates in clinical trials, it does not maintain insurance
covering the sale of its products nor is there any assurance that it will be
able to obtain or maintain such insurance on acceptable terms or with adequate
coverage against potential liabilities.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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 revenue and expense during the reporting
period. Actual results could differ from those
estimates.
Cash
Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The carrying value of
these investments approximates their fair market value due to their short
maturity and liquidity. The Company maintains cash deposits with
banks that at times exceed applicable insurance limits.
Property
and Equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the respective
assets. Maintenance and repairs that do not extend the life of assets
are charged to expense when incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in operations for
the period in which the transaction takes place. Total depreciation
and amortization expense for the years ended July 31, 2009, 2008 and 2007, was
$35,103, $51,451, and $39,063, respectively.
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
cash flows expected to be generated by the asset. If the carrying
amount exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount exceeds the fair value of
the asset.
Other
Assets
Other
assets consist of the following:
|
|
2009
|
|
|
2008
|
|
Lease
security deposit held by a bank as collateral for a standby letter of
credit in favor of the Company. The cash held by the bank is
restricted as to use for the term of the standby letter of
credit.
|
|
$ |
266,280 |
|
|
$ |
350,000 |
|
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities 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 operating loss and tax credit
carryforwards. 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 effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Management provides valuation allowances against the
deferred tax assets for amounts which are not considered “more likely than not”
to be realized.
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 104, “Revenue Recognition” issued by the staff of the SEC. Under
SAB No. 104, revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred and/or services have been rendered, the sales
price is fixed or determinable, and collectibility is reasonably
assured.
The
Company enters into marketing and distribution agreements, which contain
multiple deliverables. Under the provisions of Emerging Issues Task
Force (“EITF”) No. 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables”, the Company evaluates whether these deliverables
constitute separate units of accounting to which total arrangement consideration
is allocated. A deliverable qualifies as a separate unit of
accounting when the item delivered to the customer has standalone value, there
is objective and reliable evidence of fair value of items that have not been
delivered to the customer, and, if there is a general right of return for the
items delivered to the customer, delivery or performance of the undelivered
items is considered probable and substantially in the control of the
Company. Arrangement consideration is allocated to units of
accounting on a relative fair-value basis or the residual method if the Company
is unable to determine the fair value of all deliverables in the arrangement.
Consideration allocated to a unit of accounting is limited to the amount that is
not contingent upon future performance by the Company. Upon
determination of separate units of accounting and allocated consideration, the
general criteria for revenue recognition are applied to each unit of
accounting.
The
Company has entered into an agreement with USP Pharma Spolka Z.O.O. (USP) to
market, sell and distribute ONCONASE® in
Poland and other countries in Eastern Europe. The Company received a
$0.1 million upfront nonrefundable fee in July 2007 and is entitled to receive
future additional fees, milestone payments and royalties. USP is
responsible for all commercial costs in the territory. The Company
has agreed to provide or arrange for contract manufacture of a commercial supply
of ONCONASE® upon
receipt of marketing approval in the territory. The up-front
nonrefundable fee received by the Company will be recognized ratably as revenue
once the general criteria for revenue recognition has been met for the unit of
accounting to which the fee has been allocated.
In
January 2008, the Company entered into a marketing and distribution agreement
with BL&H Co. Ltd. for the commercialization of ONCONASE® in
Korea, Taiwan and Hong Kong. Under the agreement, the Company received a $0.1
million up-front fee and are eligible to receive additional cash milestones and
50% of net sales in the territory. The Company will be responsible for the
manufacture and supply of ONCONASE® to
BL&H, while BL&H will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
In
January 2008, the Company entered into a U.S. License Agreement for
ONCONASE® with
Par Pharmaceutical, Inc. (“Par”). Under the terms of the License
Agreement, Strativa Pharmaceuticals (“Strativa”), the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. The
Company retained all rights and obligations for product manufacturing, clinical
development and obtaining regulatory approvals, as well as all rights for those
non-U.S. jurisdictions in which the Company has not currently granted any such
rights or obligations to third parties. The Company received a cash
payment of $5 million upon the signing of the License Agreement and would have
been entitled to additional development and sales milestone payments and
double-digit royalties on net sales of ONCONASE®.
On
September 8, 2009, the Company and Par entered into a Termination and Mutual
Release Agreement (the “Termination Agreement”) pursuant to which the Company’s
License Agreement and Supply Agreement with Par were terminated. The License
Agreement was terminated and all rights under the license granted to Par revert
back to the Company under the Termination Agreement. Under the Supply
Agreement, the Company had agreed to supply all
of Par’s requirements for ONCONASE®. Pursuant to the
Termination Agreement, Par will be entitled to a royalty of 2% of net sales of
ONCONASE® or
any other ranpirnase product developed by the Company for use in the treatment
of cancer in the United States and its territories commencing with the first
sale of such product and terminating upon the later to occur of the 12th
anniversary of the first sale and the date of expiration of the last valid claim
of a pending application or issued patent owned or controlled by the Company
with respect to such product.
Research
and Development
Research
and development costs are expensed as incurred. These costs include,
among other things, consulting fees and costs related to the conduct of human
clinical trials. The Company also allocates indirect costs,
consisting primarily of operational costs for administering research and
development activities, to research and development expenses.
Share-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 123(R) (revised 2004), “Share-Based
Payment” (“SFAS 123(R)”), which amends SFAS 123. The new standard
requires all share-based payments, including stock option grants to employees,
to be recognized as an operating expense in the statement of
operations. The expense is recognized over the requisite service
period based on fair values measured on the date of grant. The
Company adopted SFAS 123(R) effective August 1, 2005 using the modified
prospective method and, accordingly, prior period amounts have not been
restated. Under the modified prospective method, the fair value of
all new stock options issued after July 31, 2005 and the unamortized fair value
of unvested outstanding stock options at August 1, 2005 are recognized as
expense as services are rendered.
Accounting
For Warrants Issued With Convertible Debt
The
Company accounts for the intrinsic value of beneficial conversion rights arising
from the issuance of convertible debt instruments with non-detachable conversion
rights that are in-the-money at the commitment date pursuant to the consensuses
of EITF Issue No. 98-5 and EITF Issue No. 00-27. Such value is
allocated to additional paid–in capital and the resulting debt discount is
charged to interest expense over the terms of the notes payable. Such
value is determined after first allocating an appropriate portion of the
proceeds received to warrants or any other detachable instruments included in
the exchange.
With
respect to its operating leases, the Company applies the provisions of FASB SFAS
No. 13 “Accounting for Leases” and FASB Technical Bulletin (“FTB”) 88-1 “Issues
Relating to Accounting for Leases”, recognizing rent expense on a straight-line
basis over the lease term due to escalating lease payments and landlord
incentives.
Contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Recoveries from other parties are recorded when realized.
Fair
Value of Financial Instruments
Financial
instruments consist primarily of cash and cash equivalents, accounts receivable,
and accounts payable. The carrying value of these financial
instruments approximates fair value due to the relative short term nature of
these investments.
Recent
Accounting Pronouncements
In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with Statement No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a company’s tax
return. The Company adopted FIN 48 and determined that it did not
have a material impact on its reported financial results.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
value. The Company adopted SFAS 159 as of August 1, 2008, and
determined that it did not have a material impact on its reported financial
results.
In June
2007, the FASB issued EITF Issue No. 07-03, “Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities,” (“EITF 07-03”). EITF 07-03 addresses the
diversity that exists with respect to the accounting for the nonrefundable
portion of a payment made by a research and development entity for future
research and development activities. The EITF concluded that an
entity must defer and capitalize nonrefundable advance payments made for
research and development activities and expense these amounts as the related
goods are delivered or the related services are performed. EITF 07-03
will be effective for interim or annual reporting periods in fiscal years
beginning after December 15, 2007. The Company adopted EITF
07-03 as of August 1, 2008, and determined that it did not have a material
impact on its reported financial results.
In
December 2007, the FASB issued SFAS No. 141(R) "Business Combinations" (“SFAS
141(R)”). This Statement establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective as of the beginning of a
company's fiscal year beginning after December 15, 2008. The Company
believes that this new pronouncement will not have a material impact on its
financial statements in future periods.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 does not require new fair value
measurements. The Company adopted SFAS 157 as of August 1, 2008, and
determined that it did not have a material impact on its reported financial
results.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-1,
“Application of FASB Statement No. 157 to SFAS Statement No. 13 and Other
Accounting Pronouncements that Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13”, (“FSP
157-1”). FSP 157-1 amends SFAS 157 to exclude SFAS 13 and other
accounting pronouncements that address fair value measurements for purposes of
lease classifications under SFAS 13. However, this scope exception
does not apply to assets acquired and liabilities assumed in a business
combination that are required to be measured at fair value under FASB Statement
No. 141, “Business Combinations”, or SFAS 141(R), regardless of whether those
assets and liabilities are related to leases. FSP 157-1 is effective
upon initial adoption of SFAS 157. The Company adopted SFAS 157 as of
August 1, 2008, and determined that it did not have a material impact on its
reported financial results.
In
February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date of FASB SFAS
No. 157”, (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS
157 for non financial assets and non financial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis at least annually. This delay is intended to allow
the FASB and constituents additional time to consider the effect of various
implementation issues that have arisen from the application of SFAS
157. The Company has reviewed FSP 157-2 and will wait to hear for
additional positions taken by the FASB before proceeding further.
In
October 2008 the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset when the Market for that Asset is not Active” (“FSP
157-3”). FSP 157-3 clarifies the application of FASB No. 157 in a
market that is not active and provides key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. This FSP shall become effective upon issuance. The Company
believes that this new pronouncement will not have a material impact on its
financial statements in future periods.
In May
2008, the FASB issued SFAS No. 162 “Hierarchy of GAAP”. This
statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with GAAP in the
United States. This statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with
GAAP”. The Company adopted SFAS 162 in November 2008 and determined
that it did not have a material impact on its reported financial
results.
In June
2008, the FASB issued EITF No. 07-05 “Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity’s Own Stock”, (“EITF
07-05”). EITF 07-05 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities.” EITF
07-05 is effective for fiscal years beginning after December 15, 2008 and early
adoption for an existing instrument is not permitted. The Company
does not expect that the adoption of EITF 07-05 will have a material impact on
its financial statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 establishes standards for reporting events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. It sets forth the period after the
balance sheet date during which a reporting entity’s management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in
its financial statements and the disclosures an entity should make about events
or transactions that occurred after the balance sheet date. This
statement is effective for interim and annual periods ending after June 15, 2009
and will be applied prospectively. The Company adopted the provisions
of SFAS 165 for the fiscal year ended July 31, 2009 and determined that it did
not have a material impact on its reported financial results. The
Company evaluated all events or transactions that occurred after July 31, 2009
up through November 13, 2009, the date the Company issued these financial
statements. Please see Note 13 - Subsequent Events for
disclosures required by SFAS 165.
In June
2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles - A Replacement of
FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB
Accounting Standards Codification (“Codification”) as the single source of
authoritative generally accepted accounting principles in the United States of
America (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. SFAS 168 and the Codification are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. When effective, all non-SEC accounting and
reporting standards will be superseded. All other non-grandfathered
non-SEC accounting literature not included in the Codification will become
non-authoritative. After SFAS 168, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates,
which will serve only to: (a) update the Codification; (b) provide background
information about the guidance; and (c) provide the bases for conclusions on the
change(s) in the Codification. The Company does not expect that the
adoption of SFAS 168 will have a material impact on its financial
statements.
The
Company has reported net losses of $4,539,000, $12,321,000, and $8,755,000 and
negative cash flows from operating activities of $4,542,000, $2,956,000 and
$7,386,000 for the fiscal years ended July 31, 2009, 2008 and 2007,
respectively. As of July 31, 2009, the Company had net working
capital deficit of $1,248,000, and cash and cash equivalents of
$129,000. The loss from date of inception, August 24, 1981, to July
31, 2009 amounts to $108,932,000. Until and unless the Company’s
operations generate significant revenues and cash flow, the Company will attempt
to continue to fund operations from cash on hand and through the sources of
capital described below. The Company’s long-term continued operations
will depend on its ability to raise additional funds through various potential
sources such as equity and debt financing, convertible debentures, collaborative
agreements, strategic alliances, sale of tax benefits, revenues from the
commercial sale of ONCONASE®,
licensing of its proprietary RNase technology and its ability to realize
revenues from its technology and its drug candidates via out-licensing
agreements with other companies. The Company is also pursuing
available strategic alternatives which focuses on, but not be limited to,
strategic partnership transactions, and could include a possible sale of the
Company. Such additional funds and various alternatives may not
become available as the Company may need them or be available on terms
acceptable to the Company. Insufficient funds could require the
Company to delay, scale back, or eliminate one or more of its research and
development programs or to license third parties to commercialize drug product
candidates or technologies that the Company would otherwise seek to develop
without relinquishing its rights thereto. The Company expects that
its cash balances as of July 31, 2009, after taking into consideration the cash
infusion received in October 2009 (see Note 13 – Subsequent Events),
will be sufficient to support its activities into the fourth quarter of its
fiscal year 2010, based on its reduced level of operations. There can
be no assurance that the Company will be able to raise the capital it needs on
terms which are acceptable, if at all. The Company may also obtain
additional capital through the exercise of outstanding options and warrants and
the sale of its tax benefit, although it cannot provide any assurance of such
exercises or sale or the amount of capital it will receive, if any.
The
Company’s audited financial statements for the fiscal year ended July 31, 2009,
were prepared under the assumption that the Company will continue its operations
as a going concern. Continued operations are dependent on the
Company’s ability to raise various sources of capital described
above. Such capital formation activities may not be available or may
not be available on reasonable terms. The Company’s financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.
(3)
|
Net Loss Per Common
Share
|
The
following table sets forth the computation of basic and diluted net loss per
common share:
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,539,396 |
) |
|
$ |
(12,321,101 |
) |
|
$ |
(8,755,144 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
shares
outstanding
|
|
|
47,313,000 |
|
|
|
46,919,000 |
|
|
|
44,958,000 |
|
Loss
per common share - basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Potentially
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
8,495,650 |
|
|
|
14,862,534 |
|
|
|
16,070,748 |
|
Stock
options
|
|
|
4,771,650 |
|
|
|
6,353,067 |
|
|
|
4,867,039 |
|
Total
potentially dilutive securities
|
|
|
13,267,300 |
|
|
|
21,215,601 |
|
|
|
20,937,787 |
|
As the
Company has incurred a net loss for all periods presented, basic and diluted per
common share amounts are the same, since the inclusion of all potentially
dilutive securities would be anti-dilutive.
(4)
|
Property and
Equipment
|
Property
and equipment, at cost, consists of the following at July 31:
|
|
2009
|
|
|
2008
|
|
Laboratory
equipment
|
|
$ |
276,202 |
|
|
$ |
276,202 |
|
Office
equipment
|
|
|
118,172 |
|
|
|
118,172 |
|
Leasehold
improvements
|
|
|
90,778 |
|
|
|
90,778 |
|
Less
accumulated depreciation and amortization
|
|
|
(377,134 |
) |
|
|
(342,031 |
) |
Property
and equipment, net
|
|
$ |
108,018 |
|
|
$ |
143,121 |
|
During
the fiscal year ended July 31, 2007, the Company wrote off the following fully
depreciated and unusable property and equipment:
|
|
Amount
|
|
|
Accumulated
Depreciation
|
|
Laboratory
equipment
|
|
$ |
505,869 |
|
|
$ |
505,869 |
|
Office
equipment
|
|
|
235,495 |
|
|
|
235,495 |
|
Leasehold
improvements
|
|
|
97,833 |
|
|
|
97,833 |
|
Total
|
|
$ |
839,197 |
|
|
$ |
839,197 |
|
On
September 1, 1981, the Company issued 712,500 shares of common stock (1,068,750
shares adjusted for the stock split on September 8, 1982) to officers and
stockholders in exchange for equipment, research and development services, stock
registration costs, reimbursement of expenses and other miscellaneous
services. The common stock issued for services was recorded at the
estimated fair value of services rendered based upon the Board of Directors'
determination and ratification of the value of services. Equipment
received in exchange for common stock was recorded at the transferor's
cost. Common stock issued for reimbursement of expenses was recorded
based upon expenses incurred. All values assigned for expenses and
services rendered were charged to operations except for stock registration
costs, which were charged against proceeds.
On July
30, 1982, the Company sold 82,143 shares of common stock (123,214 shares
adjusted to reflect the stock split on September 8, 1982) to a private investor
at a price of $1.40 per share, resulting in net proceeds to the Company of
approximately $108,500.
On
September 8, 1982, the Company declared a 3-for-2 stock split. Shares
previously issued by the Company were restated in accordance with the stock
split.
On
September 8, 1982, the Company issued 15,000 shares of common stock to an
officer and stockholder in exchange for equipment. The equipment
received in exchange for the common stock was recorded at the transferor's
cost.
On
November 1, 1982 and January 3, 1983, the Company sold 28,125 and 16,071 shares
of common stock, respectively, to private investors at $.93 per share, resulting
in net proceeds to the Company of approximately $41,250.
On
January 17, 1983, the Company sold 660,000 shares of its common stock and
330,000 common stock purchase warrants in a public offering at a price of $2.50
per share, resulting in net proceeds to the Company of approximately
$1,308,446. The warrants were to expire 12 months after issuance;
however, the Company extended the expiration date to July 16,
1984. During the fiscal years ended July 31, 1983 and 1984, the net
proceeds to the Company from the exercise of the warrants amounted to
$934,000. Each common stock purchase warrant was not detachable from
its common stock or exercisable until six months after the issuance date of
January 17, 1983. Each warrant entitled the holder to purchase one
share of common stock at an exercise price of $3.00 after six months and prior
to nine months after issuance. The exercise price increased to $3.50
after nine months and prior to 12 months after issuance.
In
connection with the public offering, the Company sold 60,000 five-year purchase
warrants to the underwriters at a price of $.001 per warrant. Each
warrant entitled the holder to purchase one share of common stock at an exercise
price of $3.00. Pursuant to the antidilution provisions of the
warrants, the underwriters received warrants to purchase 67,415 shares at an
exercise price of $2.67 per share. By July 31, 1986, all such
warrants were exercised and the Company received proceeds of approximately
$180,000.
On
February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants, each to purchase an aggregate of 330,000 shares (hereinafter referred
to as one-year warrants and two-year warrants). The one-year warrants
had an exercise price of $6.50 per share and expired July 17,
1985. The two-year warrants had an exercise price of $10.00 per share
and were to expire July 17, 1986. However, the Company extended the
expiration date to August 31, 1987. The one-year warrants and
two-year warrants were issued as of July 17, 1984 on a one-for-one basis to
those public offering warrant holders who exercised their original warrants,
with the right to oversubscribe to any of the warrants not
exercised. During the fiscal years ended July 31, 1985, 1986, 1987
and 1988, the Company received net proceeds of approximately $2,471,000 as a
result of the exercise of the warrants.
On
January 2, 1987, the Company issued 250,000 shares of common stock to officers
and stockholders, including the President and Chief Executive Officer, in
recognition of services performed for the Company. The fair value of
such shares was recorded as compensation expense.
On
February 3, 1987, the Company sold 5,000 shares of common stock to a private
investor for $5.00 per share, resulting in net proceeds to the Company of
approximately $25,000.
On
September 1, 1987, the Board of Directors approved new wage contracts for three
officers. The contracts provided for the issuance of 700,000 shares
of common stock as an inducement for signing. The fair value of these
shares was recorded as deferred compensation and was amortized over the term of
the employment agreements. The contracts also provided for the
issuance of 1,500,000 shares of common stock in 750,000 increments upon the
occurrence of certain events. These shares were issued during the
fiscal years ended July 31, 1989 and 1990 and the fair value of such shares was
recorded as deferred compensation and was amortized over the remaining term of
the employment agreements. The contracts also provided for five-year
options to purchase 750,000 shares of common stock at $3.00 per share; options
for the purchase of 170,000 shares were exercised on June 16, 1988 and the
remaining options for the purchase of 580,000 shares expired on September 2,
1992.
During
the fiscal year ended July 31, 1988, the Company issued 206,429 shares of common
stock for payment of legal and consulting services. The Company also
issued 12,500 shares of common stock in connection with the settlement of
certain litigation. The fair value of such shares was charged to
operations.
During
the fiscal year ended July 31, 1988, the Company sold 61,073 shares of common
stock to private investors at $2.92 per share resulting in net proceeds to the
Company of approximately $178,133.
On
September 21, 1988, the Company entered into a stipulation of settlement arising
from a lawsuit wherein it agreed to pay a total of $250,000 in 12 monthly
installments. Under the agreement, the Company authorized the
issuance on September 7, 1988 and October 18, 1988 of 85,000 and 50,000 shares,
respectively, to an escrow account to secure payment of the $250,000 due under
the stipulation of settlement. During the fiscal year ended July 31,
1989, the Company issued and sold the 135,000 shares of common stock for
$1,074,838. On February 14, 1989, the Board of Directors authorized
the issuance of an additional 50,000 shares. During the year ended
July 31, 1990, the shares were sold for $351,117. The proceeds from
the above transactions were used to pay the settlement and related legal costs,
reduce loans from and interest due to the Company's Chief Executive Officer, and
for working capital.
During
the fiscal year ended July 31, 1989, the Company sold 105,840 shares of common
stock to private investors at $3.97 per share resulting in net proceeds to the
Company of approximately $420,000.
During
the fiscal year ended July 31, 1990, the Company issued 52,463 shares of common
stock for payment of legal and consulting services and 50,000 shares of common
stock in connection with the settlement of certain litigation. The
fair value of the common stock was charged to operations.
During
the fiscal year ended July 31, 1990, the Company sold 89,480 shares of common
stock to private investors at $3.97 per share resulting in net proceeds to the
Company of approximately $355,080.
During
the fiscal year ended July 31, 1991, the Company issued 87,000 shares of common
stock for payment of legal and consulting services. The fair value of
the common stock was charged to operations.
During
the fiscal year ended July 31, 1992, the Company sold 70,731 shares of common
stock to private investors at $2.75 to $3.50 per share resulting in net proceeds
to the Company of approximately $219,900.
During
the fiscal year ended July 31, 1992, the Company issued 45,734 shares of common
stock as payment for services rendered to the Company. The fair value
of the common stock was charged to operations.
During
the fiscal years ended July 31, 1992 and 1990, 94,000 and 50,000 shares of
common stock, respectively, were issued to the Company's Chief Executive Officer
upon the conversion of outstanding debentures.
During
the fiscal year ended July 31, 1993, the Company sold 352,667 shares of common
stock to private investors at prices ranging from $2.00 to $3.00 per share
resulting in net proceeds to the Company of approximately
$735,500. In addition, the private investors were granted options to
purchase common stock totaling 587,167 shares at prices ranging from $3.00 to
$7.00. During the fiscal years ended July 31, 1995 and 1996, 322,500
and 228,833 options expired, respectively. A total of 42,167 options
due to expire on July 31, 1995 were extended to July 31, 1996 and their exercise
price was reduced to $2.50. During the fiscal year ended July 31,
1996, 35,834 options were exercised resulting in net proceeds to the Company of
approximately $89,600.
During
the fiscal year ended July 31, 1993, the Company issued 54,600 shares of common
stock as payment for legal and other services performed for the
Company. The fair value of 49,600 shares was charged to
operations. The remaining 5,000 shares were recorded as deferred
compensation and were amortized over a one-year period, beginning in February
1993, in accordance with the agreement entered into with the
recipient.
During
the fiscal year ended July 31, 1994, the Company issued 7,000 shares of common
stock as payment for services performed for the Company. The fair
value of the common stock was charged to operations.
During
the fiscal year ended July 31, 1994, the Company sold 25,000 shares of common
stock to a private investor at $2.00 per share resulting in net proceeds to the
Company of $50,000. In addition, the private investor was granted
options to purchase common stock totaling 25,000 shares at $4.00 per common
share. These options were exercised in September 1996 resulting in
net proceeds to the Company of $100,000.
During
the fiscal year ended July 31, 1994, the Company sold 800,000 shares of common
stock to private investors at $2.50 per share resulting in net proceeds to the
Company of $1,865,791. In addition, the private investors were
granted warrants to purchase common stock totaling 800,000 shares at $5.00 per
common share. Warrants for the purchase of 147,450 shares were exercised during
fiscal 1997 resulting in net proceeds to the Company of $737,250. The
remaining 652,550 warrants expired during fiscal 1997.
During
the fiscal year ended July 31, 1994, 400,000 shares of common stock were issued
to the Company's Chief Executive Officer upon the conversion of outstanding
debentures.
During
the fiscal year ended July 31, 1994, 25,400 shares of common stock were issued
upon the conversion of other outstanding debentures.
In
September 1994, the Company completed a private placement resulting in the
issuance of 288,506 shares of common stock and three-year warrants to purchase
288,506 shares of common stock at an exercise price of $5.50 per
share. The warrants expired during fiscal 1998. The common
stock and warrants were sold in units consisting of 20,000 shares of common
stock and warrants to purchase 20,000 shares of common stock. The
price per unit was $50,000. The Company received proceeds of
approximately $545,000, net of costs associated with the placement of
approximately $55,000 and the conversion of certain debt by creditors of
$121,265 into equivalent private placement units of 17,600 shares for conversion
of short-term borrowings and 30,906 shares issued for services
rendered. In October 1994, an additional two units at $50,000 per
unit were sold to a private investor under the same terms as the September 1994
private placement resulting in the issuance of 40,000 shares of common stock and
warrants to purchase 40,000 shares of common stock. The warrants
expired during fiscal 1998.
During
the fiscal year ended July 31, 1995, 185,000 shares of common stock were issued
upon the exercise of stock options by unrelated parties, resulting in net
proceeds to the Company of $437,200. The exercise prices of the
options ranged from $2.27 to $2.50, which had been reduced from $3.50 and $5.00,
respectively, during fiscal 1995.
During
the fiscal year ended July 31, 1995, the Company sold 681,000 shares of common
stock to private investors resulting in net proceeds to the Company of
approximately $1,379,000. The shares were sold at prices ranging from
$2.00 to $2.25.
During
the fiscal year ended July 31, 1995, the Company sold 139,080 shares of common
stock and 47,405 three-year warrants to purchase shares of common stock at an
exercise price of $4.00 per share to private investors. The stock and
warrants were sold at prices ranging from $2.25 to $2.73 per share and resulted
in net proceeds to the Company of $343,808, of which $4,800 was for services
rendered. The common shares were issued to the investors subsequent
to July 31, 1995.
On August
4, 1995, the Company issued 6,060 shares of common stock as payment for services
rendered to the Company. The fair value of the common stock was
charged to operations.
On
September 29, 1995, the Company completed a private placement resulting in the
issuance of 1,925,616 shares of common stock and three-year warrants to purchase
an aggregate of 55,945 shares of common stock at an exercise price of $4.00 per
share. Of these shares 1,935 were issued for services rendered to the
Company. The common stock was sold alone at per share prices ranging
from $2.00 to $3.70, and in combination with warrants at per unit prices ranging
from $4.96 to $10.92, which related to the number of warrants contained in the
unit. The Company received proceeds of approximately $4.1 million,
including $1,723,000 for approximately 820,000 shares received during the fiscal
year ended July 31, 1995. The warrants expired in October
1998.
As
consideration for the extension of the Company's term loan agreement with its
bank, the Company granted the bank a warrant to purchase 10,000 shares of common
stock at an exercise price of $4.19. The warrants were issued as of
October 1, 1995 and expired on August 31, 1997.
In June
1996, the Company sold in a private placement 1,515,330 shares of common stock
and three-year warrants to purchase 313,800 shares of common stock at an
exercise price of $7.50 per share. Of these shares, 12,000 were
issued for services rendered to the Company. The common stock was
sold alone at a per share price of $3.70, in combination with warrants at a per
unit price of $12.52 and warrants were sold alone at a per warrant price of
$1.42. Each unit consisted of three shares of common stock and one
warrant. The Company received proceeds of approximately $5.7
million. The warrants expired during the fiscal year
2000.
In June
1996, the Company issued 10,000 five-year stock options as payment for services
rendered. The options vested immediately and had an exercise price of
$4.95 per share. The Company recorded research and development
expense of $28,260, which was the fair value of the stock options on the date of
issuance. The options expired during the fiscal year ended July 31,
2001.
During
the fiscal year ended July 31, 1996, 207,316 shares of common stock were sold
from October 1995 to April 1996 at per share prices ranging from $3.60 to $4.24
resulting in proceeds of approximately $808,000.
During
the fiscal year ended July 31, 1996, 656,334 stock options were exercised by
both related and unrelated parties resulting in net proceeds of approximately
$1.9 million to the Company. Of these shares, 89,634 were issued
subsequent to July 31, 1996. The exercise prices of the options
ranged from $2.50 to $3.87 per share.
In August
1996, the Company issued 10,000 stock options with an exercise price of $4.69
per share exercisable for five years as payment for services to be
rendered. An equal portion of these options vested monthly for one
year commencing September 1, 1996. The Company recorded general and
administrative expense of $27,900, which was the fair value of the stock options
on the date of issuance. The options expired during the fiscal year
ended July 31, 2002.
In March
1997, the Company issued 112,000 shares of common stock at $4.50 per share in a
private placement to an investor resulting in net proceeds of $504,000 to the
Company.
In May
1997, the Company issued 100,000 stock options to Dr. Stephen Carter, a
director, with an exercise price of $5.20 per share as payment for serving as
Chairman of the Scientific Advisory Board (the “SAB”). These options
vested as follows: 10,000 vested immediately, 10,000 after one full calendar
year, 10,000 annually for each of the following three years and 50,000 on May
13, 2002. The Company recorded a total research and development
expense of $353,400, which was the fair value
on the date of issuance of that portion of the stock options that had vested as
of July 31, 2002. Of these options, 40,000 expired as of the fiscal
year ended July 31, 2005.
During
the fiscal year ended July 31, 1997, 639,500 stock options were exercised by
both related and unrelated parties resulting in net proceeds of approximately
$2.6 million to the Company. The exercise prices of the options
ranged from $2.45 to $4.00 per share.
During
the fiscal year ended July 31, 1997, 147,450 warrants were exercised by both
related and unrelated parties resulting in net proceeds of approximately
$737,250 to the Company. The exercise price of the warrants was $5.00
per share.
In
October 1997, the Company issued 75,000 stock options to a director with an
exercise price of $3.66 per share as payment for non-board related services to
be rendered. These options vested as follows: 10,000
vested immediately; 10,000 after one full calendar year; 10,000 annually for
each of the following three years; and 25,000 on October 31,
2002. A total general and administrative expense of $185,600
was amortized on a straight –line basis over a five-year period, which commenced
in October 1997. Of these options, 30,000 expired as of the fiscal
year ended July 31, 2005.
In
October 1997, the Company issued 12,000 five-year stock options to a consultant
with an exercise price of $3.91 per share as payment for services to be
rendered. An equal portion of these options vested monthly and were
amortized over a one-year period which commenced in October 1997. In
May 1998, the Company terminated the services of the consultant, which resulted
in the cancellation of 5,000 options. The Company recorded a total
research and development expense for the remaining 7,000 options in the amount
of $15,800, based upon the fair value of such options on the date of issuance,
amortized on a straight-line basis over the vesting period of the
grant. These options expired during the fiscal year ended July 31,
2003.
On
December 9, 1997, the stockholders authorized the amendment of the Company’s
Certificate of Incorporation to increase the number of authorized shares of
common stock, par value $.001 from 25,000,000 shares to 40,000,000
shares.
On
December 9, 1997, the stockholders approved the 1997 Stock Option Plan (the
“1997 Plan”). The total number of shares of common stock authorized
for issuance upon exercise of options granted under the 1997 Plan was
2,000,000. Options are granted at fair market value on the date of
the grant and generally are exercisable in 20% increments annually over five
years starting one year after the date of grant and terminate five years from
their initial exercise date.
On
January 23, 1998, the SEC declared effective a registration statement on Form
S-3 for the offer and sale by certain stockholders of up to 3,734,541 shares of
common stock. Of these shares (i) an aggregate of 2,737,480 shares
were issued to private placement investors in private placement
transactions which were completed during the period from March 1994 through
March 1997 (the “Earlier Private Placements”), (ii) an aggregate of 409,745
shares were issuable upon exercise of warrants which were issued to private
placement investors in the Earlier Private Placements and (iii) an aggregate of
587,316 shares may be issued, or have been issued, upon exercise of options
which were issued to option holders in certain other private
transactions. As a result of the delisting of the Company’s Common
Stock from the Nasdaq SmallCap Market, the Company no longer qualified for the
use of a Form S-3 registration statement for this offering when it filed its
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 and thus,
this registration statement was no longer effective. The Company filed a
registration statement on Form S-1 to register these shares, which was declared
effective in February 2002.
In
February 1998, the Company completed a Private Placement primarily to
institutional investors, which resulted in the issuance of 1,168,575 units at a
unit price of $4.00. Each unit consisted of two (2) shares of the
Company’s common stock, par value $.001 per share and one (1) three-year warrant
to purchase one (1) share of common stock at an exercise price of $2.50 per
share. The Company received net proceeds of approximately
$4,202,000. The placement agent received warrants to purchase an
additional 116,858 units comprised of the same securities sold to investors at
an exercise price of $4.40 per unit as part of its compensation. In
May 2001, the expiration date of these warrants was extended from May 19, 2001
to August 17, 2001. The warrants expired on August 17,
2001.
In March
1998, the Company converted an outstanding payable into 50,000 shares of the
Company’s Common Stock. The fair value of the Common Stock
approximated the outstanding payable amount of $100,000.
In March
1998, the Company issued 75,000 stock options to a director with an exercise
price of $2.80 per share as payment for non-board related services
rendered. These options vested as follows: 10,000 vested immediately;
10,000 after one full calendar year; 10,000 annually for each of the following
three years; and 25,000 on March 24, 2003. A total general and
administrative expense of $138,100 was amortized on a straight-line basis over a
five-year period, which commenced in March 1998. As of July 31, 2003,
the expense was fully amortized and recorded, based upon the fair value of such
75,000 options on the date of issuance, amortized on a straight-line basis over
the vesting period of the grant. Of these options, 10,000 expired
during the fiscal year ended July 31, 2003 and 65,000 were exercised during the
fiscal year ended July 31, 2004.
On April
20, 1998 the SEC declared effective a registration statement on Form S-3 for the
offer and sale by certain stockholders of up to 3,918,299 shares of common
stock. Of these shares (i) an aggregate of 2,337,150 shares of common
stock were issued to the private placement investors in the February 1998
Private Placement, (ii) an aggregate of 1,168,575 shares may be issued upon
exercise of the Warrants which were issued to the private placement investors in
the February 1998 Private Placement, (iii) 350,574 shares may be issued upon the
exercise of the Placement Agent Warrant which was issued to the placement agent
in the February 1998 Private Placement and the Warrants issuable upon exercise
of the Placement Agent Warrant, (iv) 50,000 shares of common stock were issued
to a Supplier in connection with conversion of an outstanding accounts payable,
and (v) 12,000 shares may be issued upon the exercise of options which were
issued as payment for services to be rendered. As a result of the
delisting of the Company’s common stock from the Nasdaq SmallCap Market, the
Company no longer qualified for the use of a Form S-3 registration statement for
this offering when it filed its Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 and thus, this registration statement was no longer
effective. The Company filed a registration statement on Form S-1 to register
these shares, which was declared effective in February 2002.
During
the fiscal year ended July 31, 1998, the Company issued 833 three-year stock
options as payment for services rendered in August 1997. The options
vested thirty days from the issuance date and had an exercise price of $4.47 per
share. The total general and administrative expense recorded for
these options was $1,700, based upon the fair value of such options on the date
of issuance. These options expired in August 2000.
During
the fiscal year ended July 31, 1998, the Company issued 15,000 three-year stock
options with an exercise price of $4.15 per share as payment for
services. An equal portion of these options vested monthly and a
total general and administrative expense of $30,000 was amortized over a
one-year period which commenced September 1997. The Company also
issued 5,000 three-year stock options with an exercise price of $4.15 per share
as payment for services. Of these options, 833 vested monthly for
five months commencing September 30, 1997 and 835 vested on the last day of the
sixth month. Total general and administrative expense of $9,700 was
amortized over a six-month period which commenced September 1997. As
of July 31, 1998, the Company recorded general and administrative expense of
$37,100, based upon the fair value of the 20,000 stock options on the date of
the issuance, amortized on a straight-line basis over the vesting periods of the
grants. These options expired three years after they
vested.
During
the fiscal year ended July 31, 1998, 4,950 shares of common stock were issued
upon the exercise of warrants by unrelated parties, resulting in net proceeds of
approximately $11,100 to the Company. The exercise prices of the
warrants ranged from $2.20 to $2.50 per share.
On
October 1, 1998 (the “Effective Date”), the Company entered into an agreement
with a consultant (the “Agreement”), resulting in the issuance of 200,000
five-year stock options with an exercise price of $1.00 per share as payment for
services to be rendered. These options vested as follows: an
aggregate of 20,000 vested on October 1, 1999; an aggregate of 2,500 of such
options vested on the last day of each month over the first twelve months after
the Effective Date of the Agreement; the remaining 150,000 options vested on the
third anniversary of the Effective Date of the Agreement. The Company recorded
approximately $49,300 of general and administrative expense based upon the fair
value of the vested options through July 31, 2000. During the
fiscal year ended July 31, 2000, the Agreement was terminated which resulted in
the cancellation of 150,000 options. The remaining 50,000 options
were exercised during the fiscal year ended July 31, 2004, which resulted in
gross proceeds of $50,000 to the Company.
During
the fiscal year ended July 31, 1999, the Company issued 5,000 three-year stock
options as payment for services rendered. The total general and
administrative expense recorded for these options was $4,200, based upon the
fair value of such options on the date of issuance. These options
were exercised during the fiscal year ended July 31, 2000, which resulted in
gross proceeds of $7,150 to the Company.
During
the fiscal year ended July 31, 1999, the Company issued 40,701 shares of common
stock for payment of legal services. The fair value of the common
stock in the amount of $16,631 was charged to operations.
During
the fiscal year ended July 31, 1999, the Company issued 6,000 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $2,460 was charged to operations.
During
the fiscal year ended July 31, 2000, the Company issued 174,965 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $92,184 was charged to operations.
During
the fiscal year ended July 31, 2000, the Company issued 95,000 shares of common
stock upon the exercise of stock options by unrelated parties, which resulted in
gross proceeds of $45,850 to the Company. The exercise prices of the
options ranged from $0.43 to $1.43.
During
the fiscal year ended July 31, 2000, the Company sold an aggregate of 875,000
shares of common stock to private investors at prices ranging from $0.50 to
$1.00 per share resulting in net proceeds of $548,300 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 875,000 shares of common stock, inclusive of additional
warrants issued so that all investors in the private placements received
substantially the same securities, at per share exercise prices ranging from
$1.03 to $4.55. These warrants expired in May 2003 and May
2005.
During
the fiscal year ended July 31, 2001, the Company issued 11,800 shares of common
stock for payment of services rendered. The fair value of the common
stock in the amount of $10,030 was charged to operations.
During
the fiscal year ended July 31, 2001, the Company sold an aggregate of 863,331
shares of common stock to private investors at prices ranging from $0.90 to
$1.50 per share resulting in net proceeds of $956,000 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 696,665 shares of common stock at per share exercise
prices ranging from $1.50 to $3.00. The warrants will expire during
the period commencing July 2004 and ending in October 2006. Of these
warrants, 418,887 expired and 277,778 were exercised.
During
the fiscal year ended July 31, 2001, the Company issued 165,555 shares of common
stock upon the exercise of stock options by related parties, which resulted in
gross proceeds of $83,700 to the Company. The per share exercise
prices of the options ranged from $0.29 to $0.85.
During
the fiscal year ended July 31, 2001, the Company issued 50,000 five-year stock
options to a director as payment for non-board related
services. These options vested immediately and had an exercise price
of $0.90 per share. The Company recorded general and administrative
expense of $31,600, which was the fair market value of the options using the
Black-Scholes options-pricing model on the date of issuance. These
options were exercised during the fiscal year ended July 31, 2004.
During
the fiscal year ended July 31, 2001, the Company issued 330,000 shares of common
stock upon the conversion of convertible notes from related parties at $0.90 per
share. In addition, upon conversion, the related parties were granted
three-year warrants to purchase an aggregate of 330,000 shares of common stock
at an exercise price of $2.50 per share. The estimated value of these
warrants in the amount of $108,900 was recorded by the Company as interest
expense during the fiscal year ended July 31, 2001. In October 2001,
the board of directors approved a change of the 330,000 warrants from three-year
warrants to five-year warrants and the exercise price from $2.50 per share to
$1.50 per share to conform with private placements to unrelated
parties. These warrants were exercised as of July 31,
2006.
During
the fiscal year ended July 31, 2002, the Company issued 72,214 shares of common
stock upon the conversion of convertible notes from unrelated parties at $0.90
per share. In addition, upon conversion, the unrelated parties were
granted five-year warrants to purchase an aggregate of 72,214 shares of common
stock at an exercise price of $1.50 per share. The estimated value of
these warrants in the amount of $32,200 was recorded by the Company as interest
expense during the fiscal year ended July 31, 2002. These options
were exercised during the fiscals years ended July 31, 2007 and
2006.
During
the fiscal year ended July 31, 2002, the Company issued 78,340 shares of common
stock in settlement of accounts payable in the amount of $64,126. In
addition, one of the vendors was granted five-year warrants to purchase 55,556
shares of common stock at an exercise price of $1.50 per share. The
settled accounts payable amount was credited to equity as the value of the
common stock and warrants.
During
the fiscal year ended July 31, 2002, the Company issued an aggregate of 85,221
five-year stock options as payment for services rendered. The options
vested immediately and had a per share exercise prices of $0.75 as to 70,000
stock options and $0.94 as to 15,221 stock options. The Company
recorded an aggregate total of $40,747 non-cash expenses for these options,
based upon the fair value on the date of the issuance as estimated by the
Black-Scholes options-pricing model. These options were exercised as
of July 31, 2005.
During
the fiscal year ended July 31, 2002, the Company sold an aggregate of 2,622,122
shares of common stock to private investors at prices ranging from $0.35 to
$0.90 per share resulting in net proceeds of $1,050,000 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 2,673,422 shares of common stock at per share exercise
prices ranging from $0.75 to $1.50. The warrants will expire during
the period commencing August 2006 and ending in September
2007. As of July 31, 2008, 1,733,638 of these warrants were
exercised and 939,784 warrants expired.
During
the fiscal year ended July 31, 2002, the Company issued warrants to purchase
1,500,000 shares of common stock to Roan Meyers Associates L.P. for an aggregate
warrant purchase price of $1,500 in connection with the engagement of Roan
Meyers to render advisory services. Of these warrants, 250,000 were
exercisable at $.50 per share, 650,000 were exercisable at $1.00 per share and
600,000 were exercisable at $1.50 per share. In February 2002, the
Company recorded an expense equal to the fair market value of the first 500,000
warrants which vested immediately, based upon the fair value of such warrants as
estimated by Black-Scholes pricing model ($153,300), less the $1,500 received
from the sale of the warrants. The remaining 1,000,000 warrants were
to become exercisable if Roan Meyers was successful in helping the Company raise
capital. However, Roan Meyers was not successful in
raising additional capital from a third party. During the fiscal year
ended July 31, 2002, Roan Meyers exercised warrants to purchase an aggregate of
186,000 shares of common stock, at an exercise price of $0.50 per share,
resulting in aggregate gross proceeds of $93,000 to the
Company. During the fiscal year ended July 31, 2003, the vesting of
the 600,000 warrants was amended to vest immediately and the exercise price was
amended from $1.50 to $0.50 per share due to the price change of the Company’s
common stock. Roan Meyers exercised these warrants and was issued
600,000 shares of common stock. The Company also issued 40,000 shares
of common stock upon the exercise of warrants by Roan Meyers at an exercise
price of $.50 per share. The Company realized aggregate gross
proceeds of $320,000 from these capital raising transactions. During
the fiscal year ended July 31, 2004, the exercise price of 250,000 warrants was
amended from $1.00 to $0.50 per share due to the price change of the Company’s
common stock and the vesting of the 400,000 warrants was amended to vest
immediately. Roan Meyers exercised the remaining 674,000 warrants
which resulted in the issuance of 674,000 shares of common stock by the
Company. The Company realized gross proceeds of $537,000 in this
capital raising transaction.
During
the fiscal year ended July 31, 2002, the Company issued an aggregate of 75,000
five-year stock options to unrelated parties as an incentive for lending the
Company an aggregate of $75,000, which was repaid during the
quarter. The options vested immediately and have an exercise price of
$1.50 per share. The total non-cash interest expense recorded for
these options was $25,615, based upon the fair value of such option on the date
of issuance as estimated by the Black-Scholes options-pricing
model. Of these options, 25,000 were exercised and 50,000
expired.
During
the fiscal year ended July 31, 2002, the Company issued a note payable to an
unrelated party in an aggregate amount of $300,000. The note was due
in thirty days bearing interest at 8% per annum. In addition, the
lender received warrants to purchase 300,000 shares of common stock at an
exercise price of $0.60 per share. The total non-cash interest
expense recorded for these warrants was $40,690, based upon the fair value of
such option on the date of issuance as estimated by the Black-Scholes
options-pricing model. The notes were extended for eighteen months at
a conversion price of $0.40 per share plus a five-year warrant for each share of
the Company’s common stock issued upon conversion at an exercise price of $1.00
per share. These notes were converted into shares of the Company’s
common stock and warrants in fiscal year 2004.
During
the fiscal year ended July 31, 2003, the Company issued an aggregate of 764,000
shares of common stock upon the exercise of warrants and stock options by
unrelated parties which resulted in gross proceeds of approximately $378,000 to
the Company.
During
the fiscal year ended July 31, 2003, the Company issued an aggregate 186,208
shares of common stock in settlement of accounts payable in the aggregate amount
of $94,223. In addition, one of the vendors was granted five-year
options to purchase 50,000 shares of common stock at an exercise price of $1.25
per share. The Company recorded $17,581 non-cash research and
development expenses for these options, based upon the fair value on the date of
the issuance as estimated by the Black-Scholes options-pricing
model. The settled accounts payable amount was credited to equity as
the value of the common stock and options.
During
the fiscal year ended July 31, 2003, the Company issued 25,000 five-year stock
options to an unrelated party as an incentive for lending the Company an
aggregate of $25,000, which was fully paid as of April 30, 2003. The
stock options vested immediately and have an exercise price of $0.23 per
share. The total non-cash interest expense recorded for these stock
options was $2,503. In addition, the Company issued 140,000 five-year
stock options for services rendered. These stock options vested
immediately and have exercise prices of $0.84 and $1.25 per
share. The total non-cash charge relating to these options was
$55,437. The total value of these options was based upon the fair
value of such options on the date of issuance as estimated by the Black-Scholes
options-pricing model. Of these options, 20,000 were exercised during
the fiscal year ended July 31, 2004.
During
the fiscal year ended July 31, 2003, the Company issued 8% convertible notes
payable to unrelated parties with principal balances totaling an aggregate of
$915,000. These notes payable were due to mature on various dates
from April 2004 through May 2005 and were convertible into the Company’s common
stock at conversion prices ranging from $0.20 to $0.50 per share and an equal
number of five year warrants with an exercise price of $1.00 per
share. With the issuance of the notes payable, the Company issued to
the unrelated parties five year warrants to purchase an aggregate of 665,000
shares of the Company’s common stock, at an exercise price of $0.60 per
share. In addition, the Company issued on the due date of the notes
payable five year warrants to purchase an aggregate of 915,000 shares of the
Company’s common stock at per share exercise prices of $1.00 and
$1.10. The Company valued these warrants at a total of $219,259 based
on the fair value determined by using the Black-Scholes method relative to the
fair value of the notes payable. At the issuance dates of the notes
payable, the fair market values of the Company’s shares exceeded the effective
conversion prices. Accordingly, the Company initially increased
additional paid-in capital by $219,259 for the relative fair value of the
warrants and reduced the carrying value of the notes payable for the same amount
for the debt discount attributable to the fair value of the warrants. The
Company also increased its additional paid-in capital and debt discount by
$374,960 for beneficial conversion rights issued in connection with the
issuances of these notes.
During
the fiscal year ended July 31, 2003, the Company sold an aggregate of 1,315,000
shares of common stock to private investors at prices ranging from $0.20 to
$0.73 per share resulting in net proceeds of $653,627 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 1,315,000 shares of common stock at per share exercise
prices ranging from $1.00 to $1.50. The warrants will expire during
the period commencing January 2008 and ending in October 2008. As of
July 31, 2008, 965,000 of these warrants were exercised and 150,000
expired.
On
January 14, 2004, at the Company’s annual meeting of stockholders, the Company’s
stockholders approved an amendment to the Company’s Certificate of
Incorporation, as amended, to increase the number of shares of common stock
authorized from 40,000,000 to 100,000,000. Since no notes payable had
been converted as of such date, the terms of the Company’s notes payable
relating to conversion and exercise which were amended to authorize conversion
to Series A Preferred Stock because there were an insufficient number of
authorized shares of common stock available for issuance upon conversion,
reverted to their original terms so that they were again convertible into shares
of common stock, rather than shares of Series A Preferred Stock.
On
January 14, 2004, at the Company’s annual meeting of stockholders, the Company’s
stockholders approved the 2004 Stock Incentive Plan (the “2004
Plan”). The total number of shares of common stock authorized for
issuance under the 2004 Plan is 8,500,000.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 120,000
shares of common stock to private investors resulting in aggregate gross
proceeds of $60,000 to the Company. In addition, the private
investors were granted five-year warrants to purchase 120,000 shares of common
stock at an exercise price of $1.25 per share.
During
the fiscal year ended July 31, 2004, the Company issued 3,996 five-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have a per share exercise price of $0.60. The
Company recorded a total of $5,235 of non-cash expenses for these options, based
upon the fair value on the date of the issuance as estimated by the
Black-Scholes options pricing model. These options were exercised
during the fiscal year ended July 31, 2004 resulting in gross proceeds of $2,398
to the Company.
During
the fiscal year ended July 31, 2004, the Company entered into a two-part
financing agreement with SF Capital Partners, Ltd. for the private placement of
1,704,546 shares of common stock and warrants to purchase 852,273 shares of
common stock, at an exercise price of $1.50 per share. As
consideration, the Company received $1,500,000. In addition, the
Company granted SF Capital Partners, Ltd. a warrant to invest an additional
$1,500,000 to purchase the Company’s common stock at an exercise price based
upon a 20-day trailing average of the closing price per share of the Company’s
common stock (the “Additional Warrants”). During the fiscal year
ended July 31, 2004, SF Capital Partners, Ltd. exercised the Additional Warrants
at a 20-day trailing average exercise price of $3.96 which resulted in gross
proceeds of $1,500,000 and the issuance of 379,170 shares of common stock and an
Exercise Warrant to purchase an additional 189,585 shares of common stock at a
per share exercise price of $4.75. The Company also issued an
aggregate of 53,876 shares of restricted common stock to a third party as
finder’s fee. During the fiscal year ended July 31, 2006, the
exercise price of the Exercise Warrant to purchase an additional 189,585 shares
of common stock was reduced from $4.75 to $2.88 per share. As of July
31, 2007, none of these options were exercised.
During
the fiscal year ended July 31, 2004, the Company issued 25,000 five-year stock
options to a board member as payment for non-board related services and 110,000
five-year stock options to various consultants for services
rendered. The options vested immediately and have a per share
exercise price of $3.46. The Company recorded a total of $275,377
non-cash expenses for these options, based upon the fair value on the date of
the issuance as estimated by the Black-Scholes options pricing
model. As of July 31, 2007, 5,000 of these options were
exercised.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 14,703
restricted shares of common stock as payment of accounts payable in the amount
of $52,176.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of 75,000
restricted shares of common stock as payment for services rendered in an
aggregate amount of $288,500.
During
the fiscal year ended July 31, 2004, the Company issued 1,210,654 shares of
common stock to an existing institutional investor, resulting in gross proceeds
of $10,000,000 to the Company. In addition, the institutional
investor was granted five-year warrants to purchase 1,210,654 shares of Common
Stock at an exercise price of $12.39 per share. The Company paid a 5%
finder’s fee to a third party in connection with the private placement, which
included a five-year warrant to purchase 60,533 shares of common stock at an
exercise price of $12.39 per share. During the fiscal year ended July 31, 2006,
the exercise price of the warrants to purchase an aggregate of 1,185,000 shares
of common stock was reduced from $12.39 to $2.88 per share.
During
the fiscal year ended July 31, 2004, the Company increased its outstanding
shares by 40,000 shares of common stock for replacement of previously issued
stock.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of
3,042,817 shares of restricted common stock and five-year warrants to purchase
3,733,839 shares of common stock with exercise prices ranging from $1.00 to
$1.10 per share upon the conversion of notes payable and accrued interest in the
amount of approximately $927,872.
During
the fiscal year ended July 31, 2004, the Company issued an aggregate of
2,676,994 shares of common stock upon the exercise of warrants by unrelated
parties and stock options by unrelated parties, employees, a director and former
director at per share exercise prices ranging from $0.26 to
$4.74. The Company realized aggregate gross proceeds of $2,656,099
from these exercises.
During
the fiscal year ended July 31, 2004, the Company incurred an aggregate of
$824,022 of costs relating to various private placements.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of
1,744,978 shares of common stock and five-year warrants to purchase an aggregate
of 2,044,978 shares of common stock with an exercise price of $1.00 per share
upon the conversion of notes payable and its accrued interest in an aggregate
amount of $464,499.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of 438,372
shares of common stock upon the exercise of stock options and warrants by
unrelated parties, employees and a director at per share exercise prices ranging
from $0.26 to $1.91. The Company realized aggregate net proceeds of
$307,155 from these exercises.
During
the fiscal year ended July 31, 2005, the Company issued 3,000 shares of
restricted common stock as payment for services rendered. A non-cash
expense of $13,500 was recorded by the Company for these shares, based upon the
fair value of the common stock at the date of issuance.
During
the fiscal year ended July 31, 2005, the Company issued 12,500 warrants to a
vendor in consideration for services to be rendered. 5,000 of these
warrants which vested immediately have an exercise price of $2.50 per share and
7,500 warrants which vested on the 91st day
from the grant date have an exercise price of $3.50 per share. These
warrants will expire 24 months from the date the registration statement
registering the shares underlying the warrants is declared effective or 36
months from the date of grant, whichever comes first. These warrants
expired during the fiscal year ended July 31, 2008. The Company
recorded a total of $13,552 of non-cash expense for these warrants, based upon
the fair value at July 31, 2005 as estimated by the Black-Scholes option pricing
model.
During
the fiscal year ended July 31, 2005, the Company issued an aggregate of 20,000
ten-year stock options to consultants as payment for continuing
services. The options will vest 25% each year starting on the first
anniversary of the commencement of the services of the consultants provided they
remain as consultants on the relevant vesting dates. The stock
options have an exercise price of $2.05 per share. The Company
recorded a total of $3,237 of non-cash expense for these options, based upon the
fair value at July 31, 2005 as estimated by the Black-Scholes option pricing
model. During the fiscal year ended July 31, 2006, the Company
recorded under EITF 96-18, a total of $15,066 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued an aggregate of
1,122,827 shares of common stock upon the exercise of warrants and stock options
by unrelated parties, consultants, employees, directors and an executive officer
at per share exercise prices ranging from $0.26 to $3.46. The Company
realized aggregate gross proceeds of $1,348,324 from these
exercises.
During
the fiscal year ended July 31, 2006, the Company issued 25,000 ten-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have an exercise price of $1.32 per share. The
Company recorded a total of $23,166 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued 25,000 ten-year stock
options to a consultant as payment for services rendered. The options
vested immediately and have an exercise price of $3.37 per share. The
Company recorded a total of $58,387 of non-cash expense for these
options.
During
the fiscal year ended July 31, 2006, the Company issued 50,000 five-year stock
options to a consultant as payment for services to be rendered. These
options vest over a one year period, 50% of which vested immediately and 12.5%
will vest equally for the next four quarters following the grant
date. The stock options have an exercise price of $2.04 per share and
are subject to variable accounting under EITF 96-18. The fair value
of these options is being expensed over the service period. During
the fiscal year ended July 31, 2006, the Company recorded a total of $74,253 of
non-cash expense for these options.
During
the fiscal year ended July 31, 2006, the Company issued 174,927 shares of
restricted common stock to a private investor resulting in gross proceeds of
$600,000 to the Company for a purchase price of $3.43 per share.
During
the fiscal year ended July 31, 2006, the Company completed a private placement
to various institutional investors which resulted in the issuance of an
aggregate of 6,457,172 shares of restricted common stock for a purchase price of
$1.75 per share. The institutional investors also received warrants
to purchase up to an additional 6,457,172 shares of common stock of the
Company. The fair value of the warrants at the grant date was
approximately $12,962,000 as estimated using the Black-Scholes options pricing
model. The warrants have a term of five years and were issued in two
separate series. The first series of warrants (to purchase 3,228,590
shares of common stock) are exercisable beginning on January 19, 2007, and the
second series of warrants (to purchase 3,228,582 shares of common stock) are
also exercisable beginning on January 19, 2007. Both sets of warrants
have an exercise price equal to $2.88 per share. If the Company
enters into a strategic corporate collaboration as outlined in the second series
of warrants by December 31, 2006, the second series of warrants will be
cancelled upon notification by the Company to the holders of the warrants that
it has entered into such an agreement prior to such date. The Company
did not enter in such agreement by the specified time therefore, the second
series of warrants were not canceled. The Company received net
proceeds of approximately $10,384,000 from this private
placement. The Company filed a registration statement on Form S-3 to
register the resale of the shares and the shares issuable upon exercise of the
warrants, which was declared effective in August 2006. If the Company
had failed to file the registration statement, request effectiveness of the
registration statement, respond to comments of the Securities and Exchange
Commission, or cause the registration statement to be declared effective in a
timely manner in accordance with the provisions of the registration rights
agreement between the Company and the investors, or if the registration
statement ceases to remain effective, or the investors are otherwise not
permitted to utilize the prospectus in the registration statement to resell the
securities for more than 15 consecutive calendar days or more than an aggregate
of 25 calendar days during any 12-month period (which need not be consecutive
calendar days), then the Company must pay to each investor an amount, in cash,
as partial liquidated damages and not as a penalty, equal to 2% of the aggregate
purchase price paid by such investor for any securities registered on the
registration statement that are then held by such investor monthly until the
failure is cured. However, the Company shall not be required to pay
partial liquidated damages to the investor in excess of 10% of the purchase
price such investor paid for the registered securities. If the
Company fails to pay any partial liquidated damages in full within seven days
after the date payable, the Company will pay interest thereon to the investor at
a rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law), accruing daily from the date such partial liquidated
damages are due until such amounts, plus all such interest thereon, are paid in
full.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of 295,800
shares of its common stock upon the exercise of stock options by an officer,
employees and unrelated parties at per share exercise prices ranging from $0.23
to $2.16. The Company realized aggregate gross proceeds of $352,256
from these exercises.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of
1,142,559 shares of its common stock upon the exercise of warrants by related
and unrelated parties at per share exercise prices ranging from $0.60 to
$2.88. The Company realized aggregate gross proceeds of $1,153,444
from these exercises.
During
the fiscal year ended July 31, 2007, the Company issued an aggregate of 130,000
ten-year stock options to various consultants for services
rendered. The options vested immediately and have an exercise price
of $1.71 per share. The Company recorded the total fair value of
$176,800 of non-cash expense for these options upon issuance.
During
the fiscal year ended July 31, 2007, the Company issued 10,000 ten-year stock
options to a consultant for serving in the Scientific Advisory
Board. The options vested immediately and have an exercise price of
$1.49 per share. The Company recorded the total fair value of $11,660
of non-cash expense for these options upon issuance.
In July
2007, the Company and USP Pharma Spolka Z.O.O. ("USP") entered into a
Distribution and Marketing Agreement (the "Agreement"). The Agreement
appoints USP as the Company’s exclusive distributor in Poland, Lithuania,
Estonia, Latvia, Belarus and the Ukraine in the field of
Oncology. Included in the Agreement is an up-front fee as
consideration for the appointment of USP as the Company’s distributor in the
defined territory. Based upon its review of SAB No. 101, “Revenue
Recognition in Financial Statements”, and SAB No. 104, “Revenue Recognition”,
the Company has determined that the up-front fee is to be recognized on a
straight line basis over the term of the Agreement. The term of the
Agreement is defined as the earlier of ten (10) years after the first commercial
sale or the expiration of the patents covering the Company’s product in the
defined territory. The Agreement also includes multiple milestone
payments and the payment of royalties. The milestone payments are to
be paid to the Company upon the attainment of those milestones as defined in the
Agreement. The royalty payments by USP to the Company are based on a
fixed percentage of net sales. No revenue has been recognized for the
up-front fee, milestone achievements and royalties in the accompanying financial
statements. In connection with the Distribution Agreement, the
Company and Unilab LP, an affiliate of US Pharmacia, entered into a Securities
Purchase Agreement, (the "Purchase Agreement"), pursuant to which the Company
issued an aggregate of 553,360 shares of its restricted common stock for
purchase price of $2.53 per share. The Company realized gross
proceeds of $1,400,000. The securities sold pursuant to the Purchase
Agreement have not been registered under the Securities Act of 1933, as amended,
and may not be offered or sold in the United States in the absence of an
effective registration statement or exemption from registration
requirements.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 760,000
shares of its common stock upon the exercise of warrants by unrelated parties at
per share exercise prices ranging from $0.60 to $1.25. The Company
realized aggregate gross proceeds of $541,500 from these exercises.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 236,000
shares of its common stock upon the exercise of stock options by an officer and
employees at per share exercise prices ranging from $0.26 to
$1.58. The Company realized aggregate gross proceeds of $145,540 from
these exercises.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 265,000
stock options to the independent members of its board of directors with an
exercise price of $1.72 per share and a six-year exercise term. The
aggregate grant date fair market value of these options, $275,865, is being
amortized over the one-year vesting period. The Company recognized an
aggregate compensation expense of $154,705 and $121,160 for the fiscal years
ended July 31, 2008 and 2009, respectively.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 40,000
stock options to various non-employee consultants for services
rendered. The options vested immediately, have an exercise price of
$1.75 per share and a ten-year exercise term. The aggregate grant
date fair market value of these options, $52,840, was recognized as an expense
by the Company during the fiscal year ended July 31, 2008.
During
the fiscal year ended July 31, 2008, the Company issued an aggregate of 330,000
stock options to various non-employee consultants for serving as the Company’s
scientific advisors and research collaborators and for contributions made on
behalf of the Company’s pre-clinical and clinical research
programs. Of these options, 110,000 vested immediately, 50% of the
balance will vest after one year and the remaining 50% of the balance will vest
after two years. The options have an exercise price of $1.75 per
share and a ten-year term. Under the variable accounting provisions
of EITF 96-18, the aggregate grant date fair market value of these options,
$456,730, is being amortized over the vesting period and is being re-measured as
of each reporting period. The aggregate re-measured fair market value
of these options was estimated to be $189,872 and $174,153, for the fiscal years
ended July 31, 2008 and 2009, respectively.
During
the fiscal year ended July 31, 2008, the Company issued 250,000 stock options to
its CEO, Kuslima Shogen, with an exercise price of $2.18 per share and a
ten-year exercise term. The options, which were granted as a bonus
for entering into an agreement for the marketing rights to ONCONASE® in
the U.S., vested immediately and have a grant date fair market value of $405,000
which was recognized as an expense by the Company during the fiscal year ended
July 31, 2008.
During
the fiscal year ended July 31, 2008, the Company entered into a retirement
agreement (see Note 12) with Kuslima Shogen, its CEO. Under the terms
of the agreement, the Company issued 1,000,000 stock options with an exercise
price of $2.00 per share. The options have a ten-year contractual
term and will become exercisable only upon the approval of an ONCONASE® NDA
by the United States Food and Drug Administration (“FDA”) for the treatment of
malignant mesothelioma. The grant date fair market value of these
options, $1,900,000, is being amortized over the estimated vesting
period. The Company recognized compensation expense of $429,762 and
$619,762 for the fiscal years ended July 31, 2008 and 2009,
respectively.
During
the fiscal year ended July 31, 2009, the Company issued an aggregate of 37,000
shares of its common stock upon the exercise of stock options by various
employees at per share exercise prices ranging from $0.26 to
$0.54. The Company realized aggregate gross proceeds of $13,220 from
these exercises.
During
the fiscal year ended July 31, 2009, the Company issued an aggregate of 265,000
stock options to the independent members of its board of directors with an
exercise price of $0.24 per share and a six-year exercise term. The
aggregate grant date fair market value of these options, $42,400, is being
amortized over the one-year vesting period. Of these options, 35,000
shares were forfeited as of July 31, 2009. The Company recognized an
aggregate compensation expense of $21,128 for the fiscal year ended July 31,
2009.
(6)
|
Common Stock
Warrants
|
During
the fiscal years 1988 and 1991, the Board of Directors granted stock purchase
warrants to acquire a maximum of 400,000 shares of common stock at $5.00 per
share which were not exercised and have since expired.
The
following table summarizes the activity of common stock warrants issued in
connection with the private placements and conversion of notes payable completed
in fiscal years 1994 through 2006:
|
Warrants
|
|
Exercise Price
|
|
Expiration
|
Sold
in March 1994 Private Placement
|
800,000
|
|
$5.00
|
|
3/21/97
to 6/21/97
|
Outstanding
at July 31, 1994
|
800,000
|
|
5.00
|
|
3/21/97
to 6/21/97
|
Sold
in September 1994 Private Placement
|
288,506
|
|
5.50
|
|
12/9/97
to 12/14/97
|
Sold
in October 1994 Private Placement
|
40,000
|
|
5.50
|
|
1/21/98
|
Sold
in September 1995 Private Placement
|
47,405
|
|
4.00
|
|
10/1/98
|
Outstanding
and exercisable at July 31, 1995
|
1,175,911
|
|
4.00
- 5.50
|
|
3/21/97
to 10/1/98
|
Issued
to bank in connection with an amendment to the Company's term
loan
|
10,000
|
|
4.19
|
|
8/31/97
|
Sold
in September 1995 Private Placement
|
8,540
|
|
4.00
|
|
10/1/98
|
Sold
in June 1996 Private Placement
|
313,800
|
|
7.50
|
|
8/29/99
to 9/10/99
|
Outstanding
and exercisable at July 31, 1996
|
1,508,251
|
|
4.00
– 7.50
|
|
3/21/97
to 9/10/99
|
Exercised
|
(147,450)
|
|
5.00
|
|
3/21/97
to 6/21/97
|
Expired
|
(652,550)
|
|
5.00
|
|
3/21/97
to 6/21/97
|
Outstanding
and exercisable at July 31, 1997
|
708,251
|
|
4.00
- 7.50
|
|
12/9/97
to 9/10/99
|
Sold
in February 1998 Private Placement
|
1,168,575
|
|
2.50
|
|
8/17/01
|
Issued
to the Placement Agent in connection with the February 1998 Private
placement
|
350,574
|
|
2.20
– 2.50
|
|
8/17/01
|
Exercised
|
(4,950)
|
|
2.20
- 2.50
|
|
5/19/01
|
Expired
|
(338,506)
|
|
4.19
- 5.50
|
|
8/31/97
to 1/21/98
|
Outstanding
and exercisable at July 31, 1998
|
1,883,944
|
|
2.20
- 7.50
|
|
10/1/98
to 8/17/01
|
Expired
|
(55,945)
|
|
4.00
|
|
10/1/98
|
Sold
in February 2000 Private Placement
|
875,000
|
|
1.03
- 4.55
|
|
5/28/03
to 5/28/05
|
Expired
|
(313,800)
|
|
7.50
|
|
8/30/99
to 9/11/99
|
Outstanding
and exercisable at July 31, 2000
|
2,389,199
|
|
1.03
- 4.55
|
|
5/19/01
to 5/28/05
|
Sold
in various private placements
|
696,665
|
|
1.50
– 3.00
|
|
7/07/04
to 10/30/06
|
Issued
to related parties upon conversion of note payable
|
330,000
|
|
1.50
|
|
7/07/06
|
Outstanding
and exercisable at July 31, 2001
|
3,415,864
|
|
1.03
- 4.55
|
|
8/17/01
to 10/30/06
|
Expired
|
(1,514,199)
|
|
2.20
- 2.50
|
|
8/17/01
|
Sold
in various private placements
|
2,673,422
|
|
0.75
- 1.50
|
|
11/03/06
to 9/10/07
|
Issued
to vendor upon settlement of accounts payable
|
55,556
|
|
1.50
|
|
8/15/06
|
Issued
to unrelated party for advisory services
|
1,500,000
|
|
0.50
- 1.50
|
|
2/6/07
|
Exercised
|
(186,000)
|
|
0.50
|
|
2/6/07
|
Issued
to unrelated parties upon conversion of notes payable
|
72,214
|
|
1.50
|
|
10/31/06
|
Issued
to unrelated parties in connection with notes payable
|
300,000
|
|
0.60
|
|
11/13/06
to 7/29/07
|
|
Warrants
|
|
Exercise Price
|
|
Expiration
|
Outstanding
and exercisable at July 31, 2002
|
6,316,857
|
|
0.50
- 4.55
|
|
5/28/03
to 9/10/07
|
Expired
|
(437,500)
|
|
1.03
- 3.25
|
|
5/28/03
|
Sold
in various private placements
|
1,315,000
|
|
1.00
- 1.50
|
|
1/24/08
to 10/31/08
|
Exercised
|
(640,000)
|
|
0.50
|
|
2/6/07
|
Issued
to unrelated parties in connection with notes payable
|
665,000
|
|
0.60
|
|
9/6/07
to 3/14/08
|
Outstanding
and exercisable at July 31, 2003
|
7,219,357
|
|
0.50
- 4.55
|
|
5/28/05
to 10/31/08
|
Sold
in various private placements
|
2,372,512
|
|
1.25
- 12.39
|
|
9/3/08
to 5/9/09
|
Exercised
|
(2,014,273)
|
|
0.50
– 1.50
|
|
2/6/07
to 10/31/08
|
Issued
to third party as finder’s fee
|
60,533
|
|
12.39
|
|
5/9/09
|
Issued
to unrelated parties in connection with conversion of
notes payable
|
3,733,839
|
|
1.00
- 1.10
|
|
12/4/08
to 7/15/09
|
Outstanding
and exercisable at July 31, 2004
|
11,371,968
|
|
0.60
- 12.39
|
|
5/28/05
to 7/15/09
|
Exercised
|
(247,272)
|
|
0.75
– 1.25
|
|
7/16/07
to 8/5/08
|
Expired
|
(437,500)
|
|
2.50
– 4.55
|
|
5/28/05
|
Issued
to unrelated parties in connection with conversion of notes
payable
|
2,044,978
|
|
1.00
|
|
9/14/09
to 5/6/10
|
Issued
to a vendor in connection with
services rendered
|
12,500
|
|
2.50
– 3.50
|
|
4/25/08
|
Outstanding
and exercisable at July 31, 2005
|
12,744,674
|
|
0.60
- 12.39
|
|
11/29/05
to 5/6/10
|
Exercised
|
(915,582)
|
|
0.75
– 1.50
|
|
7/7/06
to 9/2/08
|
Expired
|
(166,666)
|
|
3.00
|
|
11/29/05
– 12/21/05
|
Sold
in a private placement
|
6,457,172
|
|
2.88
|
|
7/17/11
|
Outstanding
at July 31, 2006
|
18,119,598
|
|
0.60
- 12.39
|
|
10/7/06
to 7/17/11
|
Exercised
|
(1,142,559)
|
|
0.60
– 2.88
|
|
10/7/06
to 7/17/11
|
Expired
|
(906,291)
|
|
1.50
|
|
10/12/06
– 4/9/07
|
Outstanding
at July 31, 2007
|
16,070,748
|
|
0.60
- 12.39
|
|
9/6/07
to 7/17/11
|
Exercisable
at July 31, 2007
|
16,070,748
|
|
0.60
- 12.39
|
|
9/6/07
to 7/17/11
|
Exercised
|
(760,000)
|
|
0.60
– 1.25
|
|
9/6/07
to 5/10/08
|
Expired
|
(448,214)
|
|
1.00
– 3.50
|
|
9/10/07
– 7/9/08
|
Outstanding
at July 31, 2008
|
14,862,534
|
|
$1.00
- $12.39
|
|
8/13/08
to 7/17/11
|
Exercisable
at July 31, 2008
|
14,862,534
|
|
$1.00
- $12.39
|
|
8/13/08
to 7/17/11
|
Expired
|
(6,366,884)
|
|
1.00
– 12.39
|
|
8/13/08
– 7/15/09
|
Outstanding
at July 31, 2009
|
8,495,650
|
|
$1.00 - $2.88
|
|
9/14/09 to 7/17/11
|
Exercisable
at July 31, 2009
|
8,495,650
|
|
$1.00 - $2.88
|
|
9/14/09 to
7/17/11
|
2004 Stock Incentive
Plan
The
Company's stockholders approved the 2004 Stock Incentive Plan (the “2004 Plan”)
for the issuance of up to 8,500,000 shares, which provides that common stock and
stock options may be granted to employees, directors and
consultants. The 2004 Plan provides for the granting of stock
options, stock appreciation rights, restricted shares, or other share based
awards to eligible employees and directors, as defined in the 2004
Plan. Options granted under the 2004 Plan will have an exercise price
equal to the market value of the Company’s common stock on the date of the
grant. The term, vesting period and time and method of exercise of options
granted under the 2004 Plan are fixed by the Board of Directors or a committee
thereof.
1997 Stock Option
Plan
The
Company’s stockholders approved the 1997 stock option plan for the issuance of
options for up to 2,000,000 shares, which provides that options may be granted
to employees, directors and consultants. Options are granted at
market value on the date of the grant and generally are exercisable in 20%
increments annually over five years starting one year after the date of grant
and terminate five years from their initial exercise date. This plan
expired in May 2007 except to the extent there are outstanding
options.
1993 Stock Option
Plan
The
Company's stockholders approved the 1993 stock option plan for the issuance of
options for up to 3,000,000 shares, which provides that options may be granted
to employees, directors and consultants. Options are granted at
market value on the date of the grant and generally are exercisable in 20%
increments annually over five years starting one year after the date of grant
and terminate five years from their initial exercise date. This plan
expired in November 2003 except to the extent there are outstanding
options. As of July 31, 1994, 1,703,159 options were granted and
outstanding under the 1993 stock option plan.
The
Company recorded the following stock-based compensation expense for employees
under SFAS 123(R) based on the fair value of stock options.
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Research
and development
|
|
$ |
364,149 |
|
|
$ |
717,059 |
|
|
$ |
794,262 |
|
General
and administrative
|
|
|
585,159 |
|
|
|
1,346,820 |
|
|
|
1,427,859 |
|
Total
stock-based compensation expense
|
|
$ |
949,308 |
|
|
$ |
2,063,879 |
|
|
$ |
2,222,121 |
|
Basic
and diluted loss per common share
|
|
$ |
0.02 |
|
|
$ |
.04 |
|
|
$ |
0.05 |
|
At July
31, 2008, the Company reversed a total of $1,225,112 compensation expense
related to 1,072,489 performance stock options issued to employees in May
2007. The Company assessed that the performance condition tied to
these stock options is deemed improbable; therefore, no compensation expense
should be recognized in accordance to the guidance of SFAS123R.
The fair
value of the stock options at the grant date was estimated using the
Black-Scholes option pricing model based on the weighted-average assumptions as
noted in the following table. The risk-free interest rate for periods
approximating the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant. The expected stock price
volatility is based on historical volatility of the Company’s stock
price. For post July 31, 2005 grants, the expected term until
exercise is derived using the “simplified” method as allowed under the
provisions of the SEC’s SAB No. 110, “Disclosures about Fair Value of Financial
Instruments” and represents the period of time that options granted are expected
to be outstanding.
|
2009
|
|
2008
|
|
2007
|
Expected
dividend yield
|
0%
|
|
0%
|
|
0%
|
Risk-free
interest rate
|
1.00%
|
|
3.45%
|
|
4.78%
|
Expected
volatility
|
102.13%
|
|
108.2%
|
|
107.7%
|
Expected
term (years)
|
3.5
|
|
7.53
|
|
5.36
|
Weighted
average fair value of options at grant date
|
$
0.16
|
|
$
1.64
|
|
$
1.46
|
Weighted
average fair value exercise price
|
$
0.16
|
|
$
1.94
|
|
$
1.80
|
As of
July 31, 2009, there was approximately $882,000 of total unrecognized
compensation expense related to unvested options granted to employees that is
expected to be recognized over a weighted average period of 2.33
years.
Shares,
warrants and options issued to non-employees for services are accounted for in
accordance with SFAS 123(R) and EITF Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or In
Conjunction with Selling Goods or Services” (“EITF 96-18”). The fair
value of such securities is recorded as an expense and additional paid-in
capital in stockholders’ equity over the applicable service periods using
variable accounting through the vesting date based on the fair value of the
securities at the end of each period or the vesting date. During the
fiscal year ended July 31, 2009, under the variable accounting provisions of
EITF 96-18, the Company reduced an aggregate total of $16,892 of non-cash
expense for options issued to non-employees.
Option
Activity
The
following table summarizes stock option activity for the period August 1, 1994
to July 31, 2009:
|
|
Shares
Available
for Grant
|
|
|
Options
Outstanding
|
|
|
Weighted
Average Exercise Price Per
Share
|
|
|
Weighted
Average Remaining Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance
August 1, 1994
|
|
|
1,926,841 |
|
|
|
5,935,337 |
|
|
|
$3.76 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(818,850 |
) |
|
|
818,850 |
|
|
|
2.60 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(185,000 |
) |
|
|
2.36 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
-- |
|
|
|
(1,897,500 |
) |
|
|
4.30 |
|
|
|
|
|
|
|
|
|
|
Balance
August 1, 1995
|
|
|
1,107,991 |
|
|
|
4,671,687 |
|
|
|
3.39 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(296,205 |
) |
|
|
296,205 |
|
|
|
3.99 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(656,334 |
) |
|
|
2.92 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
6,500 |
|
|
|
(235,333 |
) |
|
|
4.89 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 1996
|
|
|
818,286 |
|
|
|
4,076,225 |
|
|
|
3.43 |
|
|
|
|
|
|
|
|
|
|
Authorized
by 1997 Plan
|
|
|
2,000,000 |
|
|
|
-- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(932,500 |
) |
|
|
932,500 |
|
|
|
4.90 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(639,500 |
) |
|
|
3.82 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
484,845 |
|
|
|
(484,845 |
) |
|
|
4.70 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 1997
|
|
|
2,370,631 |
|
|
|
3,884,380 |
|
|
|
3.56 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(234,333 |
) |
|
|
234,333 |
|
|
|
3.31 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
91,100 |
|
|
|
(91,100 |
) |
|
|
3.81 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 1998
|
|
|
2,227,398 |
|
|
|
4,027,613 |
|
|
|
3.54 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(595,000 |
) |
|
|
595,000 |
|
|
|
0.62 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
443,934 |
|
|
|
(555,737 |
) |
|
|
3.97 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 1999
|
|
|
2,076,332 |
|
|
|
4,066,876 |
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(827,000 |
) |
|
|
827,000 |
|
|
|
0.52 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(95,000 |
) |
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
638,395 |
|
|
|
(1,031,880 |
) |
|
|
2.73 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2000
|
|
|
1,887,727 |
|
|
|
3,766,996 |
|
|
|
2.65 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(447,000 |
) |
|
|
447,000 |
|
|
|
0.85 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(165,555 |
) |
|
|
0.51 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
774,315 |
|
|
|
(1,018,557 |
) |
|
|
3.42 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2001
|
|
|
2,215,042 |
|
|
|
3,029,884 |
|
|
|
2.24 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(544,221 |
) |
|
|
544,221 |
|
|
|
0.69 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
655,840 |
|
|
|
(900,081 |
) |
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2002
|
|
|
2,326,661 |
|
|
|
2,674,024 |
|
|
|
1.90 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(630,000 |
) |
|
|
630,000 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(124,000 |
) |
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
485,118 |
|
|
|
(736,358 |
) |
|
|
3.09 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2003
|
|
|
2,181,779 |
|
|
|
2,443,666 |
|
|
|
1.26 |
|
|
|
|
|
|
|
|
|
|
Authorized
by 2004 Stock Incentive Plan
|
|
|
8,500,000 |
|
|
|
-- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,388,996 |
) |
|
|
1,388,996 |
|
|
|
5.03 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(666,717 |
) |
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
(262,783 |
) |
|
|
(208,500 |
) |
|
|
3.20 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2004
|
|
|
9,030,000 |
|
|
|
2,957,445 |
|
|
|
2.95 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,073,000 |
) |
|
|
1,073,000 |
|
|
|
4.36 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Available
for Grant
|
|
|
Options
Outstanding
|
|
|
Weighted
Average Exercise Price Per
Share
|
|
|
Weighted
Average Remaining Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Exercised
|
|
|
-- |
|
|
|
(191,100 |
) |
|
|
0.75 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
290,500 |
|
|
|
(341,500 |
) |
|
|
4.57 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2005
|
|
|
8,247,500 |
|
|
|
3,497,845 |
|
|
|
3.35 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(745,000 |
) |
|
|
745,000 |
|
|
|
1.76 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(207,245 |
) |
|
|
0.90 |
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
171,250 |
|
|
|
(205,250 |
) |
|
|
4.67 |
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2006
|
|
|
7,673,750 |
|
|
|
3,830,350 |
|
|
|
3.10 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(2,187,489 |
) |
|
|
2,187,489 |
|
|
|
1.80 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(295,800 |
) |
|
|
1.19 |
|
|
|
|
|
|
|
|
332,936 |
|
|
Cancelled/Expired
|
|
|
(26,250 |
) |
|
|
(125,000 |
) |
|
|
3.07 |
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
325,000 |
|
|
|
(730,000 |
) |
|
|
1.69 |
|
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2007
|
|
|
5,785,011 |
|
|
|
4,867,039 |
|
|
|
2.85 |
|
|
|
|
6.28 |
|
|
|
|
2,277,048 |
|
|
Granted
|
|
|
(1,885,000 |
) |
|
|
1,885,000 |
|
|
|
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(236,000 |
) |
|
|
0.62 |
|
|
|
|
|
|
|
|
|
392,430 |
|
|
Cancelled/Expired
|
|
|
1,000 |
|
|
|
(137,000 |
) |
|
|
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
25,972 |
|
|
|
(25,972 |
) |
|
|
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2008
|
|
|
3,926,983 |
|
|
|
6,353,067 |
|
|
|
$2.69 |
|
|
|
|
6.72 |
|
|
|
|
$84,115 |
|
|
Granted
|
|
|
(265,000 |
) |
|
|
265,000 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
(37,000 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
8,126 |
|
|
Cancelled/Expired
|
|
|
1,058,005 |
|
|
|
(1,512,905 |
) |
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
292,512 |
|
|
|
(296,512 |
) |
|
|
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
July 31, 2009
|
|
|
5,012,500 |
|
|
|
4,771,650 |
|
|
|
$2.64 |
|
|
|
|
3.84 |
|
|
|
|
$12,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at July 31, 2007
|
|
|
|
|
|
|
2,616,333 |
|
|
|
$
3.25 |
|
|
|
|
4.22 |
|
|
|
|
$1,627,756 |
|
|
Exercisable
at July 31, 2008
|
|
|
|
|
|
|
3,326,816 |
|
|
|
$
3.33 |
|
|
|
|
4.88 |
|
|
|
|
$84,115 |
|
|
Exercisable
at July 31, 2009
|
|
|
|
|
|
|
3,415,650 |
|
|
|
$
3.02 |
|
|
|
|
2.14 |
|
|
|
|
$3,030 |
|
|
Stock
option activity prior to adoption of SFAS 123 (see Note 1) is as
follows:
1981 Non-Qualified Stock
Option Plan
In 1981,
the Board of Directors adopted a non-qualified stock option plan and had
reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not
exercised within five years. Option grants of 60,000 shares expired unexercised
by July 31, 1991.
Non-Qualified Stock
Options
The Board
of Directors issued non-qualified stock options which were not part of the 1981
non-qualified stock option plan or the 1989 Stock Plan as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted
|
|
|
1,782,000 |
|
|
|
$3.00-3.87 |
|
Exercised
|
|
|
(276,989 |
) |
|
|
3.00-3.50 |
|
Canceled
|
|
|
(106,000 |
) |
|
|
3.00-3.50 |
|
Expired
|
|
|
(649,011 |
) |
|
|
3.00-3.50 |
|
Granted
pursuant to conversion of certain liabilities:
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
1,324,014 |
|
|
|
3.20 |
|
Unrelated
party
|
|
|
73,804 |
|
|
|
3.20 |
|
Repurchased
stock options
|
|
|
(102,807 |
) |
|
|
3.20 |
|
Balance
at July 31, 1994
|
|
|
2,045,011 |
|
|
|
$3.20-3.87 |
|
In
connection with certain private placements, the Board of Directors had included
in the agreements, options to purchase additional shares of the Company's common
stock as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted
(42,167 options were repriced and extended)
|
|
|
894,887 |
|
|
|
$2.50-7.00 |
|
Exercised
|
|
|
(81,000 |
) |
|
|
3.97-6.50 |
|
Expired
|
|
|
(201,720 |
) |
|
|
3.97-6.50 |
|
Balance
at July 31, 1994
|
|
|
612,167 |
|
|
|
$2.50-7.00 |
|
All of
the above options expired as of July 31, 2001.
1989 Stock
Plan
On
February 14, 1989, the Company adopted the Alfacell Corporation 1989 Stock Plan
(the "1989 Stock Plan"), pursuant to which the Board of Directors could issue
awards, options and grants.
No more
options are being granted pursuant to this plan. The per share option
exercise price was determined by the Board of Directors. All options
and shares issued upon exercise were nontransferable and forfeitable in the
event employment was terminated within two years of the date of
hire. In the event the option was exercised and said shares were
forfeited, the Company would return to the optionee the lesser of the current
market value of the securities or the exercise price paid.
The stock
option activity is as follows:
|
|
Shares
|
|
|
Price Range
|
|
Granted,
February 14, 1989
|
|
|
3,460,000 |
|
|
|
$
3.50-5.00 |
|
Options
issued in connection with share purchase
|
|
|
36,365 |
|
|
|
2.75 |
|
Expired
|
|
|
(1,911,365 |
) |
|
|
2.75-5.00 |
|
Canceled
|
|
|
(10,000 |
) |
|
|
5.00 |
|
Balance
at July 31, 1994
|
|
|
1,575,000 |
|
|
|
$3.50-5.00 |
|
(8)
|
Stock Grant and
Compensation Plans
|
The
Company had adopted a stock grant program effective September 1, 1981, and
pursuant to said program, had reserved 375,000 shares of its common stock for
issuance to key employees. The stock grant program was superseded by
the 1989 Stock Plan, and no further grants will be given pursuant to the grant
plan. The following stock transactions occurred under the Company's
stock grant program:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1983
|
|
|
20,000 |
|
|
|
|
$5.50 |
|
|
|
$110,000 |
|
|
1984
|
|
|
19,750 |
|
|
|
|
5.125 |
|
|
|
101,219 |
|
|
1985
|
|
|
48,332 |
|
|
|
|
5.125-15.00 |
|
|
|
478,105 |
|
|
1986
|
|
|
11,250 |
|
|
|
|
5.125-15.00 |
|
|
|
107,032 |
|
|
1988
|
|
|
19,000 |
|
|
|
|
3.50 |
|
|
|
6,500 |
|
|
On
January 26, 1984, the Company adopted a stock bonus plan for directors and
consultants. The plan was amended on October 6, 1986 to reserve
500,000 shares for issuance under the plan and to clarify a requirement that
stock issued under the Plan could not be transferred until three years after the
date of the grant. The stock bonus plan for directors and consultants
was superseded by the 1989 Stock Plan and no further grants will be given
pursuant to the stock bonus plan for directors and consultants. The
following stock transactions occurred under the Company's stock bonus
plan:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1984
|
|
|
130,250 |
|
|
|
|
$2.50-3.88 |
|
|
|
$385,917 |
|
|
1985
|
|
|
99,163 |
|
|
|
|
3.50-15.00 |
|
|
|
879,478 |
|
|
1985
|
|
|
(42,500 |
) |
|
|
|
2.50 |
|
|
|
(105,825 |
)* |
|
1986
|
|
|
15,394 |
|
|
|
|
9.65-15.00 |
|
|
|
215,400 |
|
|
1987
|
|
|
5,000 |
|
|
|
|
15.00 |
|
|
|
75,000 |
|
|
* Shares
granted in 1984 were renegotiated in 1985 and canceled as a result of the
recipient's termination.
1989 Stock
Plan
Under the
1989 Stock Plan, one million shares of the Company's common stock were reserved
for issuance as awards to employees. The 1989 Stock Plan also
provided for the granting of options to purchase common stock of the
Company. In addition, the 1989 Stock Plan provided for the issuance
of 1,000,000 shares of the Company's common stock as grants. To be
eligible for a grant, grantees must have made substantial contributions and
shown loyal dedication to the Company.
Awards
and grants were authorized under the 1989 Stock Plan during the following fiscal
years:
Year
ended
July 31,
|
|
Shares
|
|
|
Fair
Value
|
|
|
Amount
of
Compensation
|
|
1989
|
|
|
30,000 |
|
|
|
|
$5.00 |
|
|
|
$150,000 |
|
|
1990
|
|
|
56,000 |
|
|
|
|
6.00 |
|
|
|
336,000 |
|
|
1991
|
|
|
119,000 |
|
|
|
|
4.00 |
|
|
|
476,000 |
|
|
1992
|
|
|
104,000 |
|
|
|
|
2.75 |
|
|
|
286,000 |
|
|
1993
|
|
|
117,000 |
|
|
|
|
2.00 |
|
|
|
234,000 |
|
|
1994
|
|
|
5,000 |
|
|
|
|
3.00 |
|
|
|
15,000 |
|
|
Compensation
expense was recorded for the fair value of all stock awards and grants over the
vesting period. The 1994 stock award was immediately
vested. There were no stock awards in fiscal year ended 1999 and the
plan expired in 1999.
The
Company accounts for income taxes under the provisions of SFAS
109. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect for all years in which the temporary differences are expected to
reverse.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain state tax benefits. For
the state fiscal year 2009 (July 1, 2008 to June 30, 2009), the Company had
approximately $1,274,000 of total available state tax benefit that was
saleable. On December 1, 2008, the Company received approximately
$1,140,000 from the sale of its total available state tax benefit, which was
recognized as state tax benefit in the fiscal year ended July 31,
2009.
For the
state fiscal year 2008 (July 1, 2007 to June 30, 2008), the Company had
approximately $2,496,000 of total available state tax benefits that were
saleable, of which New Jersey permitted the Company to sell approximately
$1,969,000. In December 2007, the Company received approximately
$1,755,000 from the sale of the $1,969,000 of state tax benefits, which was
recognized as a state tax benefit for the fiscal year ended July 31,
2008.
For the
state fiscal year 2007 (July 1, 2006 to June 30, 2007), the Company had
approximately $2,338,000 of total available state tax benefits that were
saleable, of which New Jersey permitted the Company to sell approximately
$574,000. In December 2006, the Company received approximately
$510,000 from the sale of the $574,000 of state tax benefits, which was
recognized as a state tax benefit for the fiscal year ended July 31,
2007.
If still
available under New Jersey law, the Company will attempt to qualify and sell its
new state tax benefit between July 1, 2008 and June 30, 2009 (state fiscal year
2009) in the amount of approximately $722,000. This amount represents
the net losses and research and development credits during the state fiscal year
2009. The Company cannot estimate, however, what percentage of its
saleable state tax benefit New Jersey will permit it to sell, how much money
will be received in connection with the sale, if any, if the Company will be
able to qualify and find a buyer for its state tax benefit or if such funds will
be available in a timely manner.
At July
31, 2009 and 2008, the tax effects of temporary differences that give rise to
the deferred tax assets are as follows:
Deferred
tax assets:
|
|
2009
|
|
|
2008
|
|
Excess
of book over tax depreciation and amortization
|
|
$ |
(2,867 |
) |
|
$ |
4,581 |
|
Stock
options
|
|
|
2,628,892 |
|
|
|
2,350,272 |
|
Deferred
revenue
|
|
|
2,080,000 |
|
|
|
2,080,000 |
|
Temporary
differences
|
|
|
479,020 |
|
|
|
521,403 |
|
Federal
and state net operating loss carryforwards
|
|
|
23,641,138 |
* |
|
|
23,033,058 |
* |
Research
and experimentation credit carryforwards
|
|
|
2,578,601 |
* |
|
|
3,067,618 |
* |
Total
gross deferred tax assets
|
|
|
31,404,784 |
|
|
|
31,056,932 |
|
Valuation
allowance
|
|
|
(31,404,784 |
) |
|
|
(31,056,932 |
) |
Net
deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
* Net
of amount sold pursuant to New Jersey state tax legislation.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
tax benefit assumed using the federal statutory tax rate of 34% has been reduced
to the actual benefits reflected on the statements of operations due principally
to the aforementioned valuation allowance. In 2009, 2008 and 2007 the
valuation allowance increased by $348,000, $3,877,000, and $3,074,000,
respectively.
At July
31, 2009, the Company has federal net operating loss carryforwards of
approximately $67,955,000 that expire in the years 2010 to 2029 (approximately
$18,927,000 expires
in the years 2010 to 2014) and state net operating loss carryforwards of
approximately $8,942,000 that expire in years 2017 to 2018. The
Company also has federal research and experimentation tax credit carryforwards
of approximately $2,217,000 that expire in the years 2010 to 2029 (approximately
$490,000 expires in the years 2010 to 2014) and state research and
experimentation tax credits of approximately $361,000 that expire in the years
2023 to 2024. Ultimate utilization/availability of such net operating
losses and credits is dependent upon the Company’s ability to generate taxable
income in future periods and may be significantly curtailed if a significant
change in ownership occurs in accordance with the provisions of the Tax Reform
Act of 1986.
Effective
August 1, 2007, the Company adopted FIN 48 which clarifies the accounting and
disclosure for uncertainty in income taxes. The adoption of this
interpretation did not have any material impact on the Company’s financial
statements, as there were no unrecognized tax benefits as of August 1, 2007 or
during the fiscal year ended July 31, 2009 and 2008.
The
Company files income tax returns in the U.S. federal jurisdiction and New
Jersey. For federal income tax purposes, fiscal 2006 through 2009 tax
years generally remain open for examination by the tax authorities under the
normal three-year statute of limitations. For New Jersey tax
purposes, fiscal 2005 through 2009 tax years generally remain open for
examination under a four-year statute of limitations.
(10)
|
Related Party
Transactions
|
In March
2008 and September 2008, the Company engaged Champions Biotechnology, Inc. to
provide certain services for approximately $12,300 and $81,200,
respectively. The Company’s non-executive Chairman of the Board of
Directors, Dr. David Sidransky, is also the chairman of the board of directors
as well as a principal stockholder of Champions Biotechnology,
Inc. As of July 31, 2009, the agreed amount was paid in
full.
On
October 19, 2009, Charles Muniz, the Company’s President, Chief Executive
Officer and Chief Financial Officer, was a party to the Securities Purchase
Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow
Agreement. The Company’s entry into an employment agreement with Mr.
Muniz upon terms reasonably acceptable to the investors in the Offering was a
condition to the Closing. See Note 13 – Subsequent
Events.
Employment
and Retirement Agreements
On April
28, 2008, the Company entered into a retirement agreement (the “Retirement
Agreement”) with Ms. Shogen. Under the terms of the Retirement
Agreement, Ms. Shogen will be entitled to receive her current annual salary of
$300,000 and participate in all benefit plans available for the Company’s
executives through her retirement date, which will occur on or before March 31,
2009 (the “Termination Date”). Ms. Shogen will receive retirement
payments of $300,000 for each of the two years after the Termination
Date. During the fiscal year ended July 31, 2008, the Company accrued
these benefits in the amount of $612,000.
On
September 14, 2009, the Company entered into an amendment (the “Amendment”) to
the Retirement Agreement amending certain terms. Pursuant to the
Amendment, effective as of September 14, 2009, periodic payments owed to Ms.
Shogen under the Retirement Agreement during the two year period commencing
April 1, 2008 will be paid at the rate of $150,000 per year, rather than at the
rate of $300,000 per year as originally provided in the Retirement
Agreement. Under the Retirement Agreement, Ms. Shogen was entitled to
receive continuing payments equal to 15% of any royalties received by Alfacell
pursuant to any and all license agreements entered into by Alfacell for the
marketing and distribution of Licensed Products. Under the Amendment, the amount
of such royalties related to net sales of Licensed Products to be received by
Ms. Shogen has been reduced to 5%. Under the Retirement Agreement,
Ms. Shogen was entitled to receive continuing payments equal to 5% of net sales
of Licensed Products booked by Alfacell on its financial
statements. Under the Amendment the amount of such net sales booked
by Alfacell has been reduced to 2%. Under the Amendment, in the event Alfacell
obtains marketing approval for ONCONASE® from
the Food and Drug Administration or the European Medicines Agency, Ms. Shogen
will be entitled to receive an additional payment equal to the difference
between the periodic payments actually paid to Ms. Shogen during the two
year period commencing April 1, 2008 and $600,000, the original amount
of periodic payments to which Ms. Shogen was entitled under the Retirement
Agreement. Such additional payment may be made by Alfacell, at its
option, in cash, Alfacell common stock or a combination of both. The
Amendment is binding on the parties as of September 14, 2009 provided that the
changes in payments to Ms. Shogen under the Retirement Agreement described above
do not go into effect unless and until Alfacell obtains additional equity or
debt financing. Except as specifically amended in the Amendment, all
terms and conditions of the Retirement Agreement remain in full force and
effect.
On
October 19, 2009, the Company entered into an Employment Agreement (the
“Employment Agreement”) with Mr. Muniz. Pursuant to the Employment
Agreement, Mr. Muniz shall serve as the Company’s President, Chief
Executive Officer and Chief Financial Officer. Mr. Muniz will receive an
annual base salary of $300,000 and is entitled to receive cash incentive
compensation or annual stock option awards as determined by the Board or the
Compensation Committee of the Board from time to time. In addition,
Mr. Muniz is entitled to participate in any and all employee benefit plans
established and maintained by the Company for executive officers of the Company.
Pursuant to the Employment Agreement, Mr. Muniz will receive an option (the
“Option”), granted under and in accordance with the Company’s 2004 Stock
Incentive Plan, to purchase an aggregate of 500,000 shares of Common Stock
exercisable for ten years from the date the Option is granted. The Option shall
vest in equal amounts on each of the first, second and third year anniversary of
the grant so long as Mr. Muniz remains employed by the Company. The exercise
price of the Option will equal the fair market value of the Common Stock on the
date of grant.
The
Employment Agreement continues in effect for two years following the date of the
agreement and automatically renews for successive one-year periods, unless Mr.
Muniz’s employment is terminated by him or by the Company. In the event that
Mr. Muniz’s employment is terminated by the Company for any reason, then
Mr. Muniz is entitled to receive his earned but unpaid base salary and
incentive compensation, unpaid expense reimbursements, accrued but unused
vacation and any vested benefits under any employee benefit plan of the Company.
In the event that Mr. Muniz’s employment is terminated by the Company without
“cause” or by Mr. Muniz for “good reason” (as such terms are defined in the
Employment Agreement), then in addition to the above mentioned payments and
benefits, Mr. Muniz is entitled to receive an amount equal to his then current
annual base salary, payable in equal installments over 12 months in accordance
with the Company’s payroll practice and all medical and health benefits for 18
months following the termination date. Mr. Muniz’s Employment Agreement
requires him to refrain from competing with the Company and from hiring our
employees and soliciting our customers for a period of one year following the
termination of his employment with the Company for any reason.
Mr. Muniz
is an investor in the Company’s Offering and is party to the Securities Purchase
Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow
Agreement.
Lease
Commitments
In
November 2007, the Company entered into a capital lease agreement for its
building security system for the term of five years with a payment of $635 per
month. The lease agreement also gives the Company the right to
purchase the leased equipment at the end of the lease term for $1.00 plus
applicable taxes.
On March
14, 2007 the Company entered into an operating lease agreement for a period of
ten years to lease space to relocate its corporate headquarters and laboratories
to a new location in Somerset, New Jersey. This lease expires on the
tenth anniversary plus 150 days after the commencement date of the lease which
expiration date is expected to be November 2017. The first rental
payment occurred on July 3, 2007 which is the lease commencement
date. The lease may be renewed at the option of the Company for a
period of two additional terms of 60 months each. In addition, the
Company has received an incentive allowance of $205,000 with an option to
receive an additional incentive allowance of $105,000. As of July 31,
2007 the Company has not exercised the additional incentive allowance of
$105,000. Both allowances must be used for the cost of leasehold
improvements made to the premises. If all or any portion of the
remaining allowance is not used by the end of the original lease
term of ten years any remaining balance may not be applied to the
balance of any rent due at the conclusion of the initial lease
term. As part of the operating lease agreement signed on March 14,
2007 the Company agreed to enter into an irrevocable letter of credit in the
amount of $350,000 as security for such operating lease. This
irrevocable letter of credit is collateralized by $350,000 in cash which is
recorded in “Other Assets” in fiscal year ended July 31, 2008. If no
event of default occurs under the operating lease the Company may reduce its
security deposit under the operating lease to $250,000 on July 1, 2011, the
fourth anniversary of the lease commencement date. In the event of no
default as of July 1, 2012, the fifth anniversary of the lease commencement
date, the irrevocable letter of credit may be reduced to $150,000 until the
initial term of the lease expires in 2017. As of July 31, 2009, the
irrevocable letter of credit was reduced by $83,720 for payment of
rent. Rent expense charged to operations was approximately $308,000
and $300,000 for fiscal year ended July 31, 2009 and 2008,
respectively.
Prior to
July 2007, the Company leased its facility on a month-to-month
basis. Rent expense charged to operations was approximately $160,000,
and $136,000 in each of fiscal years ended July 31, 2007 and 2006,
respectively.
In June
2007, the Company entered into an operating lease agreement for its office
equipment for the term of five years with a payment of approximately $1,600 per
month. As part of the lease agreement, the Company agreed to
terminate its existing office equipment lease. As a result of the
early termination of the existing lease, the Company recognized an expense of
approximately $31,000 which will be amortized using straight-line method over
the term of the lease and will be charged as a reduction from the equipment
rental expense. The new lease did not commence until August
2007. Rent expense charged to operations was approximately $12,000
for fiscal years ended July 31, 2009 and 2008. Under the previous
lease agreement, equipment rental expense charged to operations was $16,000 and
$12,000 in each of fiscal years ended July 31, 2007 and 2006,
respectively.
Future
minimum lease payments under noncancelable operating leases (with initial or
remaining terms in excess of one year) as of July 31, 2009:
|
|
|
|
|
Payments
Due in Fiscal Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and Thereafter
|
|
Building
lease
|
|
$ |
2,750,685 |
|
|
$ |
302,036 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
317,446 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Equipment
lease
|
|
|
83,612 |
|
|
|
31,024 |
|
|
|
25,976 |
|
|
|
25,976 |
|
|
|
636 |
|
|
|
- - |
|
|
|
- |
|
Total
contractual cash obligations
|
|
$ |
2,834,297 |
|
|
$ |
333,060 |
|
|
$ |
343,422 |
|
|
$ |
343,422 |
|
|
$ |
318,082 |
|
|
$ |
332,856 |
|
|
$ |
1,163,455 |
|
Defined
Contribution Retirement Plan (401(k) Plan)
Effective
October 1, 1998, the Company adopted a 401(k) Savings Plan (the
“Plan”). Qualified employees may participate by contributing to the
Plan subject to certain Internal Revenue Service restrictions. The
Company will match an amount equal to 50% of the first 6% of each participant’s
contribution. The Company’s contribution is subject to a vesting
schedule of 0%, 25%, 50%, 75% and 100% for employment of less than one year, one
year, two years, three years and four years, respectively, except for existing
employees which vesting schedule was based from the date the Plan was
adopted. In April 2009, the Plan was amended to suspend the Company’s
matching contribution. For the fiscal years ended July 31, 2009, 2008
and 2007, the Company's contributions to the Plan amounted to $17,252, $46,921,
and $34,080, respectively.
The
Company has product liability insurance coverage for clinical trials in the U.S.
and in other countries where it conducts its clinical trials. No
product liability claims have been filed against the Company. If a
claim arises and the Company is found liable in an amount that significantly
exceeds the policy limits, it may have a material adverse effect upon the
financial condition and results of operations of the Company.
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the
Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case
vigorously.
Premier
Research Group filed and served a lawsuit against the Company in the Superior
Court of New Jersey, Law Division, Essex County, on or about July 26, 2009,
seeking the recovery of professional fees that arose from clinical trials
purportedly performed in Europe by Premier Research Group as signee of a
contract between Alfacell Corporation and IMFORM GmbH dated October 27,
2005. An Answer with Separate Defenses and Counterclaim was filed on
or about July 30, 2009. This case remains in the early stages of
discovery.
I & G
Garden State, LLC (“Landlord”) filed and served a complaint against the Company
in the Superior Court of New Jersey Law Division, Special Civil Part
Landlord-Tenant Section, Somerset County, on or about October 30, 2009, for
non-payment of rent and failure to maintain security deposit. The
complaint seeks to have the Company vacate the property. Although
Landlord filed this complaint, Landlord has been drawing funds from the
Company’s secured irrevocable letter of credit which was placed in March 2007 in
the amount of $350,000.
On
September 8, 2009, the Company and Par entered into a Termination and Mutual
Release Agreement (the “Termination Agreement”) pursuant to which the License
Agreement and Supply Agreement, each dated January 14, 2008 between Alfacell and
Par, were terminated. See Note 1 – Summary of Significant
Accounting Policies – Revenue
Recognition.
On
September 14, 2009, the Company entered into an amendment (the “Amendment”) to
the Retirement Agreement between the Company and Kuslima Shogen, the Company’s
former CEO and scientific founder. See Note 11 – Commitments – Employment and Retirement
Agreements.
On
October 19, 2009, the Company entered into an Employment Agreement (the
“Employment Agreement”) with Mr. Muniz the Company’s President, Chief Executive
Officer and Chief Financial Officer. See Note 11 – Commitments – Employment and Retirement
Agreements.
On
October 19, 2009, the Company completed a sale of 65 units (the “Units”) in a
private placement (the “Offering”) to certain investors pursuant to a securities
purchase agreement (the “Securities Purchase Agreement”) entered into on October
19, 2009. Each Unit consists of (i) $50,000 principal amount of
5% Senior Secured Convertible Promissory Notes (collectively, the “Notes”)
convertible into shares of the Company’s common stock, par value $.001 per share
(“Common Stock”), (ii) Series A Common Stock Purchase Warrants (the “Series
A Warrants”) to purchase in the aggregate that number of shares of Common Stock
initially issuable upon conversion of the aggregate amount of Notes issued as
part of the Unit, at an exercise price of $0.15 per share with a three year term
and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants”,
together with the Series A Warrants, the “Warrants”) to purchase in the
aggregate that number of shares of Common Stock initially issuable upon
conversion of the aggregate amount of Notes issued as part of the Unit, at an
exercise price of $0.25 per share with a five year term. The closing of the
Offering occurred on October 19, 2009 (the “Closing”) and the Company received
an aggregate of $3,250,000 in gross proceeds.
The Notes
mature on the earlier of (i) October 19, 2012; (ii) the closing of a public or
private offering of the Company’s debt or equity securities subsequent to the
date of issuance resulting in gross proceeds of at least $8,125,000 other than a
transaction involving a stockholder who holds 5% or more of the Company’s
outstanding capital stock as of the date of issuance; or (iii) on the demand of
the holder of the Note upon the Company’s consummation of a merger, sale of
substantially all of its assets, or the acquisition by any entity, person or
group of 50% or more of the voting power of the Company. Interest accrues on the
principal amount outstanding under the Notes at a rate of 5% per annum, and is
due upon maturity. Upon an event of default under the Notes, the interest rate
shall increase to 7%, provided that if the Company is unable to obtain
stockholder approval by April 1, 2010 to amend its certificate of incorporation
to increase its authorized capital stock, the interest rate shall increase to
15% and such failure will be an Event of Default under the Notes. The Notes are
convertible into Common Stock at the option of the holder of the Note at a price
of $0.15 per share at any time prior to the date on which the Company makes
payment in full of all amounts outstanding under the Note. The Notes are not
prepayable for a period of one year following the issuance
thereof. The Notes are secured by a senior security interest and lien
on all of the Company’s right, title and interest to all of the assets owned by
the Company as of the Closing or thereafter acquired pursuant to the terms of a
security agreement (the “Security Agreement”) entered into the by the Company
with each of the investors. The Warrants are exercisable immediately following
the Closing.
Pursuant
to the terms of the Securities Purchase Agreement, certain investors party
thereto are permitted to appoint a designee to the Company’s Board of Directors
(the “Board”) within a reasonable period of time following the
Closing. In addition, as a condition to Closing, each member of the
Board other than David Sidransky, Chairman of the Board, and Mr. Muniz agreed to
resign from the Board upon the request of Dr. Sidransky made at any time
following the Closing and December 31, 2009.
In
connection with the Offering, the Company entered into an investor rights
agreement (the “Investor Rights Agreement”) with each of the investors.
The Investor Rights Agreement provides that the Company will file a “resale”
registration statement (the “Initial Registration Statement”) covering all of
the shares issuable upon conversion of the Notes (the “Note Shares”) and the
shares issuable upon exercise of the Warrants (the “Warrant Shares”, together
with the Note Shares, the “Securities”), up to the maximum number of shares able
to be registered pursuant to applicable Securities and Exchange Commission
(“SEC”) regulations, within 120 days of the Closing. If any Securities are
unable to be included on the Initial Registration Statement, the Company has
agreed to file subsequent registration statements until all the Securities have
been registered. Under the terms of the Investor Rights Agreement, the
Company is obligated to maintain the effectiveness of the “resale” registration
statement until all securities therein are sold or are otherwise can be sold
pursuant to Rule 144, without any restrictions. A cash penalty at the
rate of 1% per month will be triggered in the event the Company fails to file or
obtain the effectiveness of a registration statement prior to the deadlines set
forth in the Investor Rights Agreement or if the Company ceases to be current in
filing its periodic reports with the SEC. The aggregate penalty accrued with
respect to each investor may not exceed 6% of the original purchase price paid
by that investor, or 12% if the only effectiveness failure is the Company’s
failure to be current in its periodic reports with the SEC.
In
connection with the Offering, the Company also entered into an escrow agreement
(the “Escrow Agreement”) whereby certain investors placed $1,600,000 of the
proceeds paid for their Units in an escrow account pursuant to the terms of the
Securities Purchase Agreement. Such amounts can be disbursed from the
escrow account only to satisfy obligations of the Company owed to clinical
research organizations, hospitals, doctors and other vendors and service
providers associated with the clinical trials which the Company intends to
conduct for its ONCONASE®
product. The Escrow Agreement shall terminate on the earlier of the date that
all funds have been disbursed from the escrow account and April 19, 2011, at
which time any remaining funds will be disbursed to the
Company.
Charles
Muniz, the Company’s President, Chief Executive Officer and Chief Financial
Officer, subscribed for 20 Units, certain trusts and individuals related to
James O. McCash, a beneficial owner of more than five percent of the Company’s
voting securities, subscribed for an aggregate of 20 Units, Europa International
Inc., a beneficial owner of more than five percent of the Company’s voting
securities, subscribed for 15 Units and Unilab LP, an affiliate of US Pharmacia,
an affiliate of the Company’s distributor for ONCONASE® in
Eastern Europe and a current stockholder, subscribed for 10 units. These
investors are party to the Securities Purchase Agreement, the Investor Rights
Agreement, the Security Agreement and the Escrow Agreement. The Company’s entry
into an employment agreement with Mr. Muniz upon terms reasonably acceptable to
the investors in the Offering was a condition to the Closing.
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the
Company and certain of its current and former directors in the United States
District Court, District of New Jersey, asserting violations of federal and
state securities laws, direct and derivative common law claims for fraud and
breach of fiduciary duty, and a direct claim for negligent misrepresentation in
connection with the Company’s Phase IIIb clinical trial for ONCONASE®. The
Complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
(14)
|
Unaudited Quarterly
Financial Data
|
The
following table is the quarterly data for the two years ended July 31, 2009 and
2008:
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Totals
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Totals
|
|
Investment income
|
|
$ |
19 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
|
1 |
|
|
$ |
26 |
|
|
$ |
61 |
|
|
$ |
66 |
|
|
$ |
67 |
|
|
|
34 |
|
|
$ |
228 |
|
Operating
loss
|
|
|
(2,821 |
) |
|
|
(1,798 |
) |
|
|
(696 |
) |
|
|
(384 |
) |
|
|
(5,699 |
) |
|
|
(2,787 |
) |
|
|
(3,507 |
) |
|
|
(5,092 |
) |
|
|
(2,915 |
) |
|
|
(14,301 |
) |
Net
loss
(a)
|
|
|
(2,803 |
) |
|
|
(654 |
) |
|
|
(696 |
) |
|
|
(386 |
) |
|
|
(4,539 |
) |
|
|
(2,727 |
) |
|
|
(1,687 |
) |
|
|
(5,026 |
) |
|
|
(2,881 |
) |
|
|
(12,321 |
) |
Loss
per share – basic and diluted
|
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.26 |
) |
|
(a)
|
The
net loss of $654 for the second quarter of 2009 and $1,687 for the second
quarter of 2008 is net of state tax benefits of $1,140 and $1,755,
respectively, related to the sale of certain state tax operating loss
carryforwards.
|
F-50