Item 1.
Financial Statements
The
information in this report for the three months ended September 30, 2007, is
unaudited but includes all adjustments (consisting only of normal recurring
accruals, unless otherwise indicated) which Molecular Pharmacology (USA) Limited
("
Molecular USA
" or the "
Company
")
considers necessary for a fair presentation of the financial position, results
of operations, changes in stockholders' equity and cash flows for those periods.
The
financial statements should be read in conjunction with Molecular USA's
financial statements and the notes thereto contained in Molecular USA's Audited
Financial Statements for the eight month period ended June 30, 2007, in the Form
10KSB filed with the SEC on October 12, 2007.
Interim results are not necessarily indicative of results for the full fiscal
year.
The
unaudited financial statements start on the next page.
4
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Interim Consolidated Financial
Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
5
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Interim Consolidated Balance
Sheets
(Expressed in U.S. Dollars)
(Unaudited)
|
|
As
at
30 September
200
|
|
As
at
30 June
2007
(audited)
|
|
|
$
|
|
$
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Cash and cash equivalents
|
|
-
|
|
20,994
|
Amounts receivable
|
|
19,515
|
|
21,302
|
|
|
|
|
|
|
|
19,515
|
|
42,296
|
|
|
|
|
|
Property,
plant and equipment
(Note 4)
|
|
4,805
|
|
5,169
|
|
|
|
|
|
|
|
24,320
|
|
47,465
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Bank indebtedness (Note 3)
|
|
34,914
|
|
-
|
Accounts payable and accrued liabilities (Note
5)
|
|
58,695
|
|
66,209
|
|
|
|
|
|
|
|
93,609
|
|
66,209
|
|
|
|
|
|
Due to related parties
(Note 6)
|
|
1,295,674
|
|
1,292,896
|
|
|
|
|
|
|
|
1,389,283
|
|
1,359,105
|
|
|
|
|
|
Stockholders' deficiency
|
|
|
|
|
Capital stock
(Note 7)
|
|
|
|
|
Authorized
|
|
|
|
|
300,000,000 of
common shares, par value $0.001
|
|
|
|
|
Issued and outstanding
|
|
|
|
|
30 September 2007 -
111,553,740 common shares, par value $0.001
|
|
|
|
|
30 June 2007 - 111,553,740 common
shares, par value $0.001
|
|
111,554
|
|
111,554
|
Additional paid-in capital
|
|
106,707
|
|
106,707
|
Cumulative translation adjustment
|
|
(187,368)
|
|
(128,355)
|
Deficit,
accumulated during the development stage
|
|
(1,395,856)
|
|
(1,401,546)
|
|
|
|
|
|
|
|
(1,364,963)
|
|
(1,311,640)
|
|
|
|
|
|
|
|
24,320
|
|
47,465
|
Nature
and Continuance of Operations
(Note 1) and
Commitments
(Note 9)
On behalf
of the Board:
/s/ Jeff Edwards
Director
Jeff Edwards
The
accompanying notes are an integral part of these financial statements.
6
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Statements
of Operations
(Expressed in U.S. Dollars)
(Unaudited)
|
|
|
For the period
from the date
of inception on
14 July 2004 to
30 September
2007
|
For the
three
month
period
ended
30 September
2007
|
For the
three
month
period
ended
31 October
2006
|
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
|
|
|
23,739
|
|
-
|
|
251
|
Analysis
|
|
|
|
|
|
33,947
|
|
-
|
|
-
|
Consulting (Note 6)
|
|
|
|
|
|
1,003,958
|
|
32,597
|
|
130,115
|
Depreciation
|
|
|
|
|
|
2,914
|
|
347
|
|
381
|
Office and miscellaneous
|
|
|
|
|
|
100,950
|
|
10,376
|
|
10,645
|
Professional fees
|
|
|
|
|
|
120,473
|
|
13,027
|
|
31,754
|
Public relations
|
|
|
|
|
|
4,221
|
|
565
|
|
-
|
Rent
|
|
|
|
|
|
27,759
|
|
-
|
|
4,140
|
Salaries and benefits
|
|
|
|
|
|
44,464
|
|
-
|
|
50
|
Transfer agent and filing fees
|
|
|
|
|
|
3,243
|
|
50
|
|
-
|
Travel
|
|
|
|
|
|
97,411
|
|
3,813
|
|
14,728
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
before other items
|
|
|
|
|
|
(1,463,079)
|
|
(60,775)
|
|
(192,064)
|
|
|
|
|
|
|
|
|
|
|
|
Other
items
|
|
|
|
|
|
|
|
|
|
|
R&D tax refund
|
|
|
|
|
|
67,223
|
|
66,465
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) for the period
|
|
|
|
|
|
(1,395,856)
|
|
5,690
|
|
(192,049)
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common
share
|
|
|
|
|
|
|
|
0.01
|
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in per share calculations
|
|
|
|
|
|
|
|
111,553,740
|
|
111,553,740
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
|
|
|
|
(1,395,856)
|
|
5,690
|
|
(192,049)
|
Foreign currency translation adjustment
|
|
|
|
|
|
(187,368)
|
|
(59,013)
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss for the period
|
|
|
|
|
|
(1,583,224)
|
|
(53,323)
|
|
(191,627)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss per common share
|
|
|
|
|
|
|
|
(0.01)
|
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
7
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Statements
of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
|
For the
period from
the date of
inception on 14
July 2004
to
30 September
2007
|
For the
three
month
period
ended
30 September
2007
|
For the
three
month
period
ended
31 October
2006
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Cash
flows from (used in) operating activities
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
(1,395,856)
|
|
5,690
|
|
(192,049)
|
Adjustments to
reconcile income (loss) to net cash used by operating activities
|
|
|
|
|
|
|
Depreciation
|
|
2,914
|
|
347
|
|
381
|
Write-down of
intangible assets
|
|
1,278
|
|
-
|
|
-
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
(Increase) decrease
in amounts receivable
|
|
(17,289)
|
|
1,787
|
|
(252)
|
Increase (decrease)
in accounts payable and accrued liabilities
|
|
4,070
|
|
(7,514)
|
|
67,804
|
|
|
|
|
|
|
|
|
|
(1,404,883)
|
|
310
|
|
(124,116)
|
|
|
|
|
|
|
|
Cash
flows from (used in) investing activities
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(7,719)
|
|
17
|
|
(20)
|
Purchase of intangible assets
|
|
(1,278)
|
|
-
|
|
-
|
Cash acquired on the purchase of Molecular
Pharmacology
(USA) Limited (Note 1)
|
|
37,163
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
28,166
|
|
17
|
|
(20)
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
Common shares issued for cash
|
|
234,497
|
|
-
|
|
-
|
Increase in due to related parties
|
|
1,294,674
|
|
2,778
|
|
120,932
|
|
|
|
|
|
|
|
|
|
1,529,171
|
|
2,778
|
|
120,932
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(187,368)
|
|
(59,013)
|
|
422
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
(34,914)
|
|
(55,908)
|
|
(2,782)
|
|
|
|
|
|
|
|
Cash and
cash equivalents, beginning of period
|
|
-
|
|
20,994
|
|
23,104
|
|
|
|
|
|
|
|
Cash and
cash equivalents, end of period
(Note 3)
|
|
(34,914)
|
|
(34,914)
|
|
20,322
|
The accompanying notes are an integral part of
these financial statements.
8
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Interim Consolidated Statements
of Changes in Stockholders' Deficiency
(Expressed in U.S. Dollars)
(Unaudited)
|
Number of
common shares
issued
|
Capital
stock
|
Additional
paid-in
capital
|
Deficit,
accumulated
during the
development
stage
|
Cumulative
translation
adjustment
|
Stockholders'
deficiency
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
Balance at 14 July 2004 (inception)
|
|
294
|
|
-
|
|
1
|
|
-
|
|
-
|
|
1
|
Net loss
for the period
|
|
-
|
|
-
|
|
-
|
|
(128,488)
|
|
-
|
|
(128,488)
|
Cumulative
translation adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(6,536)
|
|
(6,536)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 October 2004
|
|
294
|
|
-
|
|
1
|
|
(128,488)
|
|
(6,536)
|
|
(135,023)
|
Common
shares issued for cash - January 2005
|
|
87,999,706
|
|
88,000
|
|
146,496
|
|
-
|
|
-
|
|
234,496
|
Net loss
for the year
|
|
-
|
|
-
|
|
-
|
|
(387,667)
|
|
-
|
|
(387,667)
|
Cumulative
translation adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(161)
|
|
(161)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 October 2005
|
|
88,000,000
|
|
88,000
|
|
146,497
|
|
(516,155)
|
|
(6,697)
|
|
(288,355)
|
Acquisition of Molecular Pharmacology (USA) Limited - Recapitalization May
2006
|
|
43,553,740
|
|
43,554
|
|
(59,790)
|
|
-
|
|
-
|
|
(16,236)
|
Cancellation of common shares - July 2006
|
|
(20,000,000)
|
|
(20,000)
|
|
20,000
|
|
-
|
|
-
|
|
-
|
Net loss
for the year
|
|
-
|
|
-
|
|
-
|
|
(508,260)
|
|
-
|
|
(508,260)
|
Cumulative translation adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(16,222)
|
|
(16,222)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 October 2006
|
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,024,415)
|
|
(22,919)
|
|
(829,073)
|
Net loss for the period
|
|
-
|
|
-
|
|
-
|
|
(377,131)
|
|
-
|
|
(377,131)
|
Cumulative translation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(105,436)
|
|
(105,436)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 June 2007
|
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,401,546)
|
|
(128,355)
|
|
(1,311,640)
|
Net income for the period
|
|
-
|
|
-
|
|
-
|
|
5,690
|
|
-
|
|
5,690
|
Cumulative translationn
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(59,013)
|
|
(59,013)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 September
2007
|
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,395,856)
|
|
(187,368)
|
|
(1,364,963)
|
The
accompanying notes are an integral part of these financial statements.
9
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
1.
Nature and Continuance of Operations
Molecular
Pharmacology (USA) Limited (the "Company") was incorporated in the state of
Nevada on 1 May 2002 under the name Blue Hawk Ventures, Inc. The Company
changed its name to Molecular Pharmacology (USA) Limited on 29 August 2005.
At the same time, the Company completed a four for one forward split of its
issued and outstanding share capital and altered its share capital to
200,000,000 shares of common stock with a par value of $0.001 per share; and
100,000,000 shares of preferred stock with a par value of $0.001 per share.
The Company is a
development stage enterprise, as defined in Statements of Financial Accounting
Standards ("SFAS") No. 7, "
Accounting and
Reporting by Development Stage Enterprises
". The Company is devoting
all of its present efforts to securing and establishing a new business and its
current planned principle operations have not commenced. Accordingly, no
revenue has been derived during the organization period.
Up until the fall of
2005, the Company was in the business of mineral exploration and development of
a mineral property. The Company allowed the option on its mineral claim to
lapse in the fall of 2005.
On 13 October 2005,
the Company entered into a distribution and supply agreement (the "Distribution
Agreement") with Molecular Pharmacology Limited ("MPLA"). MPLA is
incorporated under the laws of Australia and is a wholly owned subsidiary
company of PharmaNet Group Limited ("PharmaNet"), an Australian company listed
on the Australian Stock Exchange. Under the terms of the distribution and
supply agreement, the Company has the exclusive distribution rights to
distribute, market, promote, detail, advertise and sell certain "Licensed
Products", as defined in the agreement (Note 9).
Since signing the
Distribution Agreement with MPLA, the Company has engaged in organizational and
start up activities, including developing a new business plan, recruiting new
directors, scientific advisors and key scientists, making arrangements for
laboratory facilities and office space and raising additional capital. The
Company has generated no revenue from product sales. The Company does not
have any pharmaceutical products currently available for sale, and none are
expected to be commercially available for some time, if at all. The
Licensed Products must first undergo pre-clinical and human clinical testing in
the United States before they may be sold commercially.
The Company completed
a share purchase agreement on 8 May 2006 with PharmaNet. Under the terms
of the agreement the Company acquired 100% of the issued and outstanding shares
of MPLA (the "Purchase Agreement"). The Company, in exchange for 100% of
the issued and outstanding shares of MPLA, issued PharmaNet an aggregate total
of 88,000,000 shares of its common shares of the Company on the closing of the
transaction. The issuance of 88,000,000 common shares of the Company
constituted an acquisition of control of the Company by PharmaNet. The
transaction has been accounted for as a recapitalization of the Company.
MPLA was incorporated
on 14 July 2004 under the laws of Australia. The accompanying financial
statements are the historical financial statements of MPLA.
10
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
On 15 March 2007, the
Board of Directors approved a change in the Company's financial year end from 31
October to 30 June. The decision to change the fiscal year end was intended to
assist the financial community in its analysis of the business and in comparing
the Company's financial results to others in the industry, and to synchronize
the Company's fiscal reporting with MPLA.
The Company's financial statements as at 30
September 2007 and for the three month period then ended have been prepared on a
going concern basis, which contemplates the realization of assets and settlement
of liabilities and commitments in the normal course of business. The
Company has income of $5,690 for the three month period ended 30 September 2007
(31 October 2006 - loss of $192,049) and has a working capital deficiency
o$74,094 at 30 September 2007.
Management cannot
provide assurance that the Company will ultimately achieve profitable operations
or become cash flow positive, or raise additional debt and/or equity capital.
Management believes that the Company's capital resources should be adequate to
continue operating and maintaining its business strategy during the fiscal year
ending 30 June 2008. However, if the Company is unable to raise additional
capital in the near future, due to the Company's liquidity problems, management
expects that the Company will need to curtail operations, liquidate assets, seek
additional capital on less favorable terms and/or pursue other remedial
measures. These financial statements do not include any adjustments
related to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
At 30 September 2007,
the Company has suffered losses from development stage activities to date.
Although management is currently attempting to implement its business plan, and
is seeking additional sources of equity or debt financing, there is no assurance
these activities will be successful. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
2.
Significant Accounting Policies
The following is a
summary of significant accounting policies used in the preparation of these
financial statements.
Basis of
presentation
These interim
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP") applicable for a developmental stage company for interim financial
information and are expressed in U.S. dollars.
Basis of consolidation
These interim
consolidated financial statements include the accounts of MPLA since its
incorporation on 14 July 2004 and MPLA USA since the reverse acquisition on 8
May 2006 (Note 1). All intercompany balances and transactions have been
eliminated.
11
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
Cash and cash equivalents
Cash and cash
equivalents include highly liquid investments with original maturities of three
months or less.
Financial
instruments
The carrying value of
cash, accounts payable and accrued liabilities and due to related parties
approximates their fair value because of the short maturity of these
instruments. The Company's operations are in Australia and virtually all
of its assets and liabilities give rise to significant exposure to market risks
from changes in foreign currency rates. The Company's financial risk is
the risk that arises from fluctuations in foreign exchange rates and the degree
of volatility of these rates. Currently, the Company does not use
derivative instruments to reduce its exposure to foreign currency risk.
Foreign currency translation
The financial
statements of the Company are translated to U.S. dollars in accordance with SFAS
No. 52, "
Foreign Currency Translation
".
Assets and liabilities denominated in foreign currencies are translated using
the exchange rate prevailing at the balance sheet date. Revenue and
expenses are translated at average rates of exchange prevailing during the year.
Translation adjustments resulting from this process are charged or credited to
Other Comprehensive Income
.
The Company has
not, to the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency fluctuations.
Derivative financial instruments
The Company has not,
to the date of these financial statements, entered into derivative instruments
to offset the impact of foreign currency fluctuations.
Property, plant
and equipment
Property, plant and equipment are recorded at cost and depreciation is provided
over their estimated economic lives at the following rates:
Office
equipment
|
15% declining balance
|
12
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
Income taxes
Deferred income taxes
are reported for timing differences between items of income or expense reported
in the financial statements and those reported for income tax purposes in
accordance with SFAS No. 109, "
Accounting
for Income Taxes
", which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for tax loss and credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company provides
for deferred taxes for the estimated future tax effects attributable to
temporary differences and carry-forwards when realization is more likely than
not.
Comprehensive loss
SFAS No. 130, "
Reporting
Comprehensive Income
", establishes standards for the reporting and display
of comprehensive loss and its components in the financial statements. As
at 30 September 2007, the Company has items that represent a comprehensive loss
and, therefore, has included a schedule of comprehensive loss in the financial
statements.
Basic and diluted net loss per share
The Company computes
net loss per share in accordance with SFAS No. 128, "
Earnings
per Share
". SFAS No. 128 requires presentation of both basic and
diluted earnings per share ("EPS") on the face of the income statement.
Basic EPS is computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all potentially dilutive
common shares outstanding during the period using the treasury stock method and
convertible preferred stock using the if-converted method. In computing
diluted EPS, the average stock price for the period is used in determining the
number of shares assumed to be purchased from the exercise of stock options or
warrants. Diluted EPS excludes all potentially dilutive shares if their
effect is anti-dilutive.
13
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
Stock-based compensation
Effective 1
February 2006, the Company adopted the provisions of SFAS No. 123(R), "
Share-Based
Payment
", which establishes accounting for equity instruments exchanged for
employee services. Under the provisions of SFAS 123(R), stock-based
compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employees'
requisite service period (generally the vesting period of the equity grant).
Before 1 February 2006, the Company accounted for stock-based compensation to
employees in accordance with Accounting Principles Board Opinion No. 25, "
Accounting
for Stock Issued to Employees
", and complied with the disclosure
requirements of SFAS No. 123, "
Accounting
for Stock-Based Compensation
". The Company adopted FAS 123(R) using
the modified prospective method, which requires the Company to record
compensation expense over the vesting period for all awards granted after the
date of adoption, and for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. Accordingly, financial
statements for the periods prior to 1 February 2006 have not been restated to
reflect the fair value method of expensing share-based compensation.
Adoption of SFAS No. 123(R) does not change the way the Company accounts for
share-based payments to non-employees, with guidance provided by SFAS 123 (as
originally issued) and Emerging Issues Task Force 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
".
Recent accounting
pronouncements
In February 2007, the
Financial Accounting Standards Board (the "FASB") issued SFAS No. 159, "
The
Fair Value Option for Financial Assets and Financial Liabilities
" ("SFAS
159"). SFAS 159 allows the company to choose to measure many financial
assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been elected are reported in
earnings. SFAS 159 is effective for fiscal years beginning after 15
November 2007. The Company is currently evaluating the requirements of
SFAS 159 and the potential impact on the Company's financial statements.
In
September 2006, the FASB issued SFAS No. 158, "
Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
" (SFAS 158"). SFAS 158 requires an
employer that sponsors one or more single-employer defined benefit plans to (a)
recognize the overfunded or underfunded status of a benefit plan in its
statement of financial position, (b) recognize as a component of other
comprehensive income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net
periodic benefit cost pursuant to SFAS 87, "Employers' Accounting for Pensions",
or SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", (c) measure defined benefit plan assets and obligations as of the
date of the employer's fiscal year-end, and (d) disclose in the notes to
financial statements additional information about certain effects on net
periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and
transition asset or obligation. SFAS 158 is effective for the Company's fiscal
year ending October 31, 2007.
The adoption of SFAS No. 158 is not
expected to have a material impact on the Company's financial position, results
of operations or cash flows.
14
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
In
September 2006, the FASB issued SFAS No. 157, "
Fair Value Measurement
"
("SFAS 157"). The Statement provides guidance for using fair value to measure
assets and liabilities. The Statement also expands disclosures about the extent
to which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurement on
earnings. This Statement applies under other accounting pronouncements that
require or permit fair value measurements. This Statement does not expand the
use of fair value measurements in any new circumstances. Under this Statement,
fair value refers to the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants in
the market in which the entity transacts. SFAS 157 is effective for the Company
for fair value measurements and disclosures made by the Company in its fiscal
year beginning on November 1, 2008. The Company is currently reviewing the
impact of this statement.
In July 2006, the FASB issued FIN No.
48, "
Accounting for Uncertainty in Income Taxes (an interpretation of FASB
Statement No. 109
)"
("FIN 48") which is effective for fiscal
years beginning after 15 December 2006. This interpretation was
issued to clarify the accounting for uncertainty in income taxes recognized in
the financial statements by prescribing 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 tax return. The adoption of FIN No.
48 is not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
In
March 2006, the FASB issued SFAS No. 156, "
Accounting for Servicing of
Financial Assets
", which amends SFAS Statement No. 140. SFAS No. 156 may be
adopted as early as 1 January 2006, for calendar year-end entities, provided
that no interim financial statements have been issued. Those not choosing to
early adopt are required to apply the provisions as of the beginning of the
first fiscal year that begins after 15 September 2006 (e.g., 1 January 2007, for
calendar year-end entities). The intention of the new statement is to
simplify accounting for separately recognized servicing assets and liabilities,
such as those common with mortgage securitization activities, as well as to
simplify efforts to obtain hedge-like accounting. Specifically, the FASB
said SFAS No. 156 permits a servicer using derivative financial instruments to
report both the derivative financial instrument and related servicing asset or
liability by using a consistent measurement attribute, or fair value.
The adoption of SFAS No. 156 is not expected to have a material impact on
the Company's financial position, results of operations or cash flows.
In
February 2006, the FASB issued SFAS No. 155, "
Accounting for Certain Hybrid
Financial Instruments
", which amends SFAS No. 133, "
Accounting for
Derivative Instruments and Hedging Activities
" and SFAS No. 140, "
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
"
.
SFAS No. 155 permits fair value measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
The
adoption of SFAS No. 155 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
3.
Bank indebtedness
This amount consists of cash in trust of $2,939 and bank indebtedness
of $31,975. The bank indebtedness bears interest at prime plus 1% per annum.
15
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
4.
Property, Plant and Equipment
|
|
|
Accumulated
depreciation
|
|
Net Book
Value
|
|
|
Cost
|
|
As at
30 September
2007
|
|
As at
30 June
2007
(audited)
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
7,726
|
|
2,921
|
|
4,805
|
|
5,169
|
5.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities are non-interest bearing, unsecured and have
settlement dates within one year.
6.
Due to Related Parties and Related Party Transactions
As at 30 September 2007, the
amount due to related parties includes $1,000 payable to a director of the
Company (30 June 2007
-
$1,000). This balance
is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 30 September 2007, the
amount due to related parties includes $110,885 payable to a director of the
Company or an officer of PharmaNet (30 June 2007
-
$152,953). This balance is non-interest bearing, unsecured and has no
fixed terms of repayment.
As at 30 September 2007, the
amount due to related parties includes $1,183,789 payable to PharmaNet (30 June
2007
-
$1,138,943). This balance is
non-interest bearing, unsecured and has no fixed terms of repayment.
During the three month
period ended 30 September 2007, a director of the Company or an officer of
PharmaNet, and their controlled entities were paid or accrued consulting fees of
$27,877 by the Company and were paid or accrued travel expense reimbursements on
behalf of the Company of $3,813.
During the three month
period ended 30 September 2007, director of the Company or an officer of
Pharmanet, and their controlled entities were paid or accrued rental fees of
$Nil by the Company (for the eight month period ended 30 June 2007
-
$12,987, cumulative
-
$16,672).
16
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
Transactions comprising the amount due to PharmaNet are as follows:
|
|
For
the
three
month
period
ended
30 September 2007
|
|
For
the
eight
month
period
ended
30 June
2007
(audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Opening balance
|
|
1,138,943
|
|
725,817
|
Funds transferred to the Company by PharmaNet
|
|
(8,474)
|
|
347,316
|
Expenses paid by PharmaNet on behalf of the
Company
|
|
567
|
|
2,730
|
Foreign currency translation adjustment
|
|
52,753
|
|
63,080
|
|
|
|
|
|
Balance as at 30 September 2007 and 30 June 2007
|
|
1,183,789
|
|
1,138,943
|
The
average amount due to PharmaNet for the three month period ended 30 September
2007 was $1,148,511 (for the eight month period ended 30 June 2007
-
$895,415).
7.
Capital Stock
Authorized
The total authorized
capital is 300,000,000 common shares with a par value of $0.001 per common
share.
On 29 August 2005,
the Company altered its authorized capital by increasing authorized common
shares with a par value of $0.001 from 25,000,000 to 300,000,000 common shares.
Issued and outstanding
The total issued and
outstanding capital stock is 111,553,740 common shares with a par value of
$0.001 per common share.
i. On
10 November 2005, the Company completed a private placement of 1,500,000 units
were for proceeds of $150,000. Each unit consists of one common share and
two share purchase warrants. Each share purchase warrant entitles the
holder to purchase one additional common share of the Company for $0.50 per
share anytime on or before two years from the date of the acquisition of the
units.
ii. On 21
July 2006 a former director of the Company returned 20,000,000 common shares of
the Company to treasury. These common shares were cancelled on 21 July
2006.
17
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
Warrants
The following share
purchase warrants were outstanding at 30 September 2007:
|
|
Exercise
price
|
|
Number
of warrants
|
|
Remaining
contractual life (years)
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
0.50
|
|
3,000,000
|
|
0.11
|
All of the above
purchase warrants were issued during the year ended 31 October 2006 and expire
on 10 November 2007.
Each offering was
made in reliance on an exemption from registration of a trade in the United
States under Rule 504 of Regulation D of the United States Securities Act of
1933, as amended.
8.
Income Taxes
The Company has
losses carried forward for income tax purposes to 30 September 2007. There
are no current or deferred tax expenses for the period ended 30 September 2007
due to the Company's loss position. The Company has fully reserved for any
benefits of these losses. The deferred tax consequences of temporary
differences in reporting items for financial statement and income tax purposes
are recognized, as appropriate. Realization of the future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating loss
carryforward period. Management has considered these factors in reaching
its conclusion as to the valuation allowance for financial reporting purposes.
The provision for
refundable federal income tax consists of the following:
|
|
For
the
three
month
period
ended
30 September
2007
|
|
For
the
eight
month
period
ended
30 June
2007
(audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Deferred tax asset attributable to:
|
|
|
|
|
Current operations
|
|
(1,022)
|
|
118,703
|
Less: Change in valuation allowance
|
|
1,022
|
|
(118,703)
|
|
|
|
|
|
Net refundable amount
|
|
-
|
|
-
|
18
Molecular Pharmacology (USA)
Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
The composition of
the Company's deferred tax assets as at 30 September 2007 and 30 June 2007 are
as follows:
|
|
As
at
30 September
2007
|
|
As
at
30 June
2007
(audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Net income tax operating loss carryforward
|
|
1,395,856
|
|
1,401,546
|
|
|
|
|
|
Deferred tax asset
|
|
432,814
|
|
433,836
|
Less:
Valuation allowance
|
|
(432,814)
|
|
(433,836)
|
|
|
|
|
|
Net deferred tax asset
|
|
-
|
|
-
|
The potential income
tax benefit of these losses has been offset by a full valuation allowance.
The items accounting
for the difference between income taxes computed at the federal statutory rate
and the provision for income taxes were as follows:
|
|
For
the
period from
the date of
inception on
14 July 2004
to
30 September
2007
|
|
For
the
three
month
period
ended
30 September
2007
|
|
For
the
three
month
period
ended
31 October
2006
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
34.0%
|
|
34.0%
|
|
34.0%
|
Foreign earnings taxed at lower rates
|
|
(3.0)%
|
|
(2.5)%
|
|
(3.2)%
|
|
|
|
|
|
|
|
Effective rate
|
|
31.0%
|
|
31.5%
|
|
30.8%
|
As at 30 September
2007, the Company has an unused net operating loss carryforward balance in the
United States and Australia of approximately $1,395,856, which is available to
offset future taxable income. This unused net operating loss carryforward
balance for income tax purposes expires through 2006 to 2027.
9.
Commitments
On 13 October 2005,
t
he Company entered into a distribution and supply agreement with MPLA,
(the "Distribution Agreement") (Note 1).
19
Molecular
Pharmacology (USA) Limited
(A
Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
The basic
terms of the Distribution Agreement are as follows:
i.
MPLA has granted exclusive distribution rights to the Company to distribute,
market, promote, detail, advertise and sell certain "Licensed Products", as
defined in the Distribution Agreement, with metallo-polypeptide analgesic as an
active ingredient, in the United States (excluding its territories and
possessions);
ii.
the
Company paid MPLA $1,000 upon the date of execution of the Distribution
Agreement and is required to pay $100,000 six months from the date of execution
of the Distribution Agreement or the date that any Licensed Product is available
and ready for distribution and sale in commercial quantities in the United
States under the terms of the Distribution Agreement (the "Commencement Date"),
whichever occurs first;
iii.
the
Company is also required to pay MPLA a royalty of 5% as set out in the
Distribution Agreement;
iv.
MPLA will
supply all Licensed Products to the Company under the Distribution Agreement;
v.
MPLA
is responsible for obtaining all necessary regulatory approvals for the licensed
product in the United States; and
vi.
the
Distribution Agreement is for a one year term from the "Commencement Date" and
may be automatically extended by successive one-year periods, unless at least
three months prior to the renewal date, as defined in the Distribution
Agreement, either party advises the other party that it elects not to permit the
extension of the term.
The $100,000 payment to MLPA
according to the terms of the Distribution Agreement has not yet been made.
20
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated
Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2007
10.
Supplemental Disclosures with Respect to Cash Flows
|
For the
period
from the date
of inception on
14 July
2004
to
30 September
2007
|
|
For the
three
month
period
ended
30 September
2007
|
|
For the
three
month
period
ended
31 October
2006
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
Cash paid during the year for interest
|
-
|
|
-
|
|
-
|
Cash paid during the year for income taxes
|
-
|
|
-
|
|
-
|
Common shares issued on acquisition of MPLA
|
16,236
|
|
-
|
|
-
|
Amounts receivable acquired on recapitalization
of the Company
|
2,226
|
|
-
|
|
-
|
Accounts payable assumed on recapitalization of
the Company
|
54,624
|
|
-
|
|
-
|
Due to related party assumed on recapitalization
of the Company
|
1,000
|
|
-
|
|
-
|
21
Item 2. Management's Discussion and Analysis or Plan of Operations.
THE
FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
MOLECULAR USA FOR THE FIRST QUARTER PERIOD ENDED SEPTEMBER 30, 2007 AND SHOULD
BE READ IN CONJUNCTION WITH MOLECULAR USA'S FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO CONTAINED ELSEWHERE IN THE FORM 10-QSB.
Our
consolidated financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
Overview
We were
incorporated in the state of Nevada on May 01, 2002. Up until the fall of 2005,
Molecular USA was in the business of mineral exploration and development of a
mineral property.
On October 13, 2005, Molecular USA entered into a
distribution and supply agreement with Molecular Pharmacology Limited ("
MPLA
").
MPLA is incorporated under the laws of Australia and at the time was a wholly
owned subsidiary company of Pharmanet Group Limited, an Australian company
listed on the Australian Stock Exchange. Under the terms of the
distribution and supply agreement, Molecular USA received the exclusive
distribution rights to distribute, market, promote, detail, advertise and sell
certain "
Licensed Products
", as
defined in the agreement, with metallo-polypeptide analgesic as an active
ingredient, in the United States (excluding its territories and possessions).
On May 9,
2006, Molecular USA announced that it has acquired 100% of the issued and
outstanding share capital of MPLA. The transaction was originally
announced by Molecular USA in a press release dated November 29, 2005 and was
subsequently approved by a majority of the stockholders of the Company at a
stockholders meeting held on April 21, 2005. As a result of the transaction,
PharmaNet Group Limited ("
PharmaNet
"),
the former parent company of MPLA, now controls approximately 79% of Molecular
USA 's issued and outstanding share capital. The transaction between the parties
closed in escrow with an effective closing date of May 8, 2006. The business of
MPLA is now the business of Molecular USA.
Our Current Business
The
acquisition of MPLA provided Molecular USA an immediate and solid international
foundation which management believes will allow it to grow its business into all
major geographical markets. The assets and resources of the Australian company
and its existing teams and development programs has augmented Molecular USA's
plan to develop safe and effective pain and inflammation management products.
Molecular
USA through its wholly owned subsidiary MPLA is in the business of developing
and commercialising a new analgesic and anti-inflammatory molecule known as
Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable
for the treatment of common every-day pain. As an analgesic and
anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action
and its topical or rub-on application.
The majority
of over-the-counter anti-pain and anti-inflammatory products sold for the
treatment of acute localised pain are based on non-steroidal anti-inflammatory
drugs or NSAIDs. The majority of such products are slow acting and provide only
mild pain relief.
The NSAID
group has come under additional pressure and increasing medical alarm, as many
drugs in this class have been found to set-back the recovery of certain
conditions and treatments for which they were marketed. Moreover, NSAIDs are
associated with severe gastro-intestinal side-effects. This has left a niche in
an industry under-served by new products and ingredients.
22
MPLA's
business strategy is to exploit the fast and locally acting, low side effects,
and recovery-enhancing properties of its new drug group and to market this as a
new ingredient, enabling pharmaceutical companies to develop and market
effective and safer products suited to a broad range of common everyday pain.
Licensed Products
Molecular
USA has exclusive distribution rights to distribute, market, promote, detail,
advertise and sell certain "Licensed Products", with metallo-polypeptide
analgesic and anti-inflammatory activity as an active ingredient, in the United
States (excluding its territories and possessions) from its wholly owned
subsidiary company MPLA.
The Licensed
Products include all products in all dosage forms, formulations, line extensions
and package configurations using or otherwise incorporating any aspect or
production method of metallo-polypeptide analgesic and anti-inflammatory
activity as an active ingredient marketed by MPLA or its affiliates under the
tradename Tripeptafen or any other trade names or trade marks used by MPLA
relating to the product and any improvements to such formulations or dosages as
may hereafter be distributed by MPLA or its affiliates in the territory during
the term of the distribution and supply agreement between Molecular and MPLA for
the topical application for human use only, and specifically excludes:
-
dermatological or cosmetic use, or tissue repair or tissue regeneration
effect;
-
any use or
application of the Licensed Product in non-human groups or species; and
-
Thermalife
cream, presently owned by Pharmanet, the holding company of MPLA.
All Licensed
Products must first obtain regulatory clearance in the United States before they
may be marketed and sold by Molecular USA in that territory. Clinical programs
are currently planned by MPLA for Europe, USA and Australia. The clinical trial
program is expected to be expanded with follow-up trials. Regulatory approval,
commencement of the Master Drug File (MDF) and market approval are the focus of
an ongoing program expected to continue over the next 18 to 24 months.
MPLA has an
exclusive license from Cambridge Scientific Pty ltd of Australia. This license
is restricted to a "field of use" defined in the license documentation.
Cambridge Scientific may grant other licenses to third parties outside the
"field of use" the subject of the licenses granted to MPLA.
Patents & Trademarks
Molecular
USA and its subsidiary MPLA, regard their intellectual property rights, such as
copyrights, trademarks, trade secrets, practices and tools, as important to the
success of their company. To protect their intellectual property rights,
Molecular USA relies on a combination of patent, trademark and copyright law,
trade secret protection, confidentiality agreements and other contractual
arrangements with their employees, affiliates, clients, strategic partners,
acquisition targets and others. Effective patent, trademark, copyright and trade
secret protection may not be available in every country in which the combined
company intends to offer its products. The steps taken by Molecular USA and MPLA
to protect their intellectual property rights may not be adequate. Third parties
may infringe or misappropriate the combined company's intellectual property
rights or the combined company may not be able to detect unauthorized use and
take appropriate steps to enforce its rights. In addition, other parties may
assert infringement claims against the combined company. Such claims, regardless
of merit, could result in the expenditure of significant financial and
managerial resources. Further, an increasing number of patents are being issued
to third parties regarding these processes. Future patents may limit the
combined company's ability to use processes covered by such patents or expose
the combined company to claims of patent infringement or otherwise require the
combined company to seek to obtain related licenses. Such licenses may not be
available on acceptable terms. The failure to obtain such licenses on acceptable
terms could have a negative effect on the combined company's business.
To protect
their intellectual property rights, MPLA relies on a combination of license and
patent applications held by Cambridge Scientific Pty Ltd, namely "Analgesic and
Anti-Inflammatory Composition" comprising USA
23
patent
application in completion plus PCT Provisional Specification having the same
name designated as Serial No. 11/059580. These patent applications embody all
the current Analgesic and Anti-inflammatory assets. MPLA will also rely on the
exclusive nature of its license, trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements as it
may execute from time to time.
Management
of Molecular USA and MPLA believes that MPLA's products, trademarks, and other
proprietary rights do not infringe on the proprietary rights of third parties.
Marketing
Molecular
USA plans to market its Licensed Products, when approved, through existing
pharmaceutical distributors and by collaborative dealings with major companies
active in the United States and Europe.
In addition,
Molecular USA plans to explore opportunities for direct sales, out-licensing and
the integration of the company's proprietary anti-inflammatory and analgesic
components in products already distributed through various international
markets.
Molecular
USA expects that these activities may even help fund the development costs of
the Licensed Products in the United States.
Manufacturing & Supply
Molecular
USA and MPLA have no manufacturing facilities. MPLA is required to supply
Molecular USA with all Licensed Products under the distribution and supply
agreement entered into by the parties in October 2005. It is likely MPLA will
enter into arrangements with various GMP certified formulation and manufacturers
of the Licensed Products for clinical trial and sales purposes. These
formulations and the manufacturing facilities must comply with regulations and
current good laboratory practices or cGLPs, and current good manufacturing
practices or cGMPs, enforced by the FDA. Molecular USA plans to continue MPLA's
practice to outsource formulation and manufacturing for its clinical trials and
potential commercialization after the acquisition of MPLA by Molecular USA.
Molecular
USA has not entered into any supply agreements.
Competition
Molecular
USA and MPLA compete in the segment of the pharmaceutical market that treats
pain and inflammation, which is highly competitive. We face significant
competition from most pharmaceutical companies as well as biotechnology
companies that are also researching and selling products designed to treat pain
and inflammation. Many of our competitors have significantly greater financial,
manufacturing, marketing and product development resources than we do. Large
pharmaceutical companies in particular have extensive experience in clinical
testing and in obtaining regulatory approvals for drugs. These companies also
have significantly greater research capabilities than we do. In addition, many
universities and private and public research institutes are active in
neurological research, some in direct competition with us. These companies, as
well as academic institutions, governmental agencies and other public and
private organizations conducting research, also compete with Molecular USA and
MPLA in recruiting and retaining highly qualified scientific personnel and
consultants and may establish collaborative arrangements with competitors of
Molecular USA.
Molecular
USA's competition will be determined in part by the potential indications for
which the MPLA's products are developed and ultimately approved by regulatory
authorities.
Molecular
USA knows of other companies and institutions dedicated to the development of
anti-pain and anti-inflammatory pharmaceuticals similar to those being developed
by MPLA and licensed to Molecular USA. Many of Molecular USA's competitors,
existing or potential, have substantially greater financial and technical
resources and therefore may be in a better position to develop, manufacture and
market pharmaceutical products. Many of
24
these
competitors are also more experienced with regard to preclinical testing, human
clinical trials and obtaining regulatory approvals. The current or future
existence of competitive products may also adversely affect the marketability of
Molecular USA's products.
Governmental Regulation
FDA
Regulation
. Pharmaceutical products are subject to
extensive pre- and post-marketing regulation by the Food and Drug
Administration ("FDA"), including regulations that govern the testing,
manufacturing, safety, efficacy, labeling, storage, record-keeping, advertising
and promotion of the products under the Federal Food, Drug and Cosmetic Act and
the Public Health Services Act, and by comparable agencies in most foreign
countries. The process required by the FDA before a new drug may be marketed in
the U.S. generally involves the following: completion of pre-clinical laboratory
and animal testing; submission of an investigational new drug application, or
IND, which must become effective before clinical trials may begin; performance
of adequate and well controlled human clinical trials to establish the safety
and efficacy of the proposed drug's intended use; and approval by the FDA of a
New Drug Application, or NDA.
The
activities required before a pharmaceutical agent may be marketed in the United
States begin with pre-clinical testing. Pre-clinical tests include
laboratory evaluation of potential products and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies and other information must be submitted to the FDA as part of
an IND application, which must be reviewed and approved by the FDA before
proposed clinical testing can begin. Clinical trials involve the administration
of the investigational new drug to healthy volunteers or to patients under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with Good Clinical Practices under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND application. Further, each clinical study must be conducted
under the auspices of an independent institutional review board. The
institutional review board will consider, among other things, ethical factors
and the safety of human subjects.
Typically,
human clinical trials are conducted in three phases that may overlap. In Phase
1, clinical trials are conducted with a small number of subjects to determine
the early safety profile and pharmacology of the new therapy. In Phase 2,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase 3, large scale, multicenter, comparative clinical
trials are conducted with patients afflicted with a target disease in order to
provide enough data for the statistical proof of efficacy and safety required by
the FDA and others.
The results
of the pre-clinical and clinical testing, together with chemistry and
manufacturing information, are submitted to the FDA in the form of an NDA for a
pharmaceutical product in order to obtain approval to commence commercial sales.
In responding to an NDA, the FDA may grant marketing approvals, request
additional information or further research, or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria. Patient-specific therapies may be subject to additional risk with
respect to the regulatory review process. FDA approval for a pharmaceutical
product may not be granted on a timely basis, if at all, or if granted may not
cover all the clinical indications for which approval is sought or may contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
Satisfaction
of FDA premarket approval requirements for new drugs typically takes several
years, and the actual time required may vary substantially based upon the type,
complexity and novelty of the product or targeted disease. Government regulation
may delay or prevent marketing of potential products for a considerable period
of time and impose costly procedures upon our activities. Success in early stage
clinical trials or with prior versions of products does not assure success in
later stage clinical trials. Data obtained from clinical activities are not
always conclusive and may be susceptible to varying interpretations that could
delay, limit or prevent regulatory approval.
25
Once
approved, the FDA may withdraw the product approval if compliance with pre- and
post-marketing regulatory standards is not maintained or if problems occur after
the product reaches the marketplace. In addition, the FDA may require
post-marketing studies, referred to as Phase 4 studies, to monitor the effect of
an approved product, and may limit further marketing of the product based on the
results of these post-market studies. The FDA has broad post-market regulatory
and enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products, or withdraw
approvals.
Facilities
used to manufacture drugs are subject to periodic inspection by the FDA, Drug
Enforcement Agency and other authorities where applicable, and must comply with
the FDA's Current Good Manufacturing regulations. Failure to comply with the
statutory and regulatory requirements subjects the manufacturer to possible
legal or regulatory action, such as suspension of manufacturing, seizure of
product or voluntary recall of a product. Adverse experiences with the product
must be reported to the FDA and could result in the imposition of market
restriction through labeling changes or in product removal. Product approvals
may be withdrawn if compliance with regulatory requirements is not maintained or
if problems concerning safety or efficacy of the product occur following
approval.
With respect
to post-market product advertising and promotion, the FDA imposes a number of
complex regulations on entities that advertise and promote pharmaceuticals,
which include, among other things, standards and regulations relating to
direct-to-consumer advertising, off-label promotion, industry sponsored
scientific and educational activities, and promotional activities involving the
Internet. The FDA has very broad enforcement authority under the Federal Food,
Drug and Cosmetic Act, and failure to abide by these regulations can result in
penalties including the issuance of a warning letter directing the entity to
correct deviations from FDA standards, a requirement that future advertising and
promotional materials be pre-cleared by the FDA, and state and federal civil and
criminal investigations and prosecutions.
Research
facilities are subject to various laws and regulations regarding laboratory
practices, the experimental use of animals, and the use and disposal of
hazardous or potentially hazardous substances in connection with the research in
question. In each of these areas, as above, the government has broad
regulatory and enforcement powers, including the ability to levy fines and civil
penalties, suspend or delay issuance of approvals, seize or recall products, and
withdraw approvals, any one or more of which could have a material adverse
effect upon us.
Other Government Regulations
.
In addition to laws and regulations enforced by the FDA, research of Molecular
USA's products in the United States are subject to regulation under National
Institutes of Health guidelines, as well as under the Controlled Substances Act,
the Occupational Safety and Health Act, the Environmental Protection Act, the
Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other present and potential future federal, state or local laws and regulations,
as research and development of its products involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
In addition
to regulations in the United States, Molecular USA's products are subject to a
variety of foreign regulations governing clinical trials and commercial sales
and distribution of its Licensed Products. Whether or not Molecular USA obtains
FDA approval for a product, Molecular USA or its subsidiaries must obtain
approval of a product by the comparable regulatory authorities of foreign
countries before it can commence clinical trials or marketing of the product in
those countries. The approval process varies from country to country, and the
time may be longer or shorter than that required for FDA approval. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to country.
Sarbanes-Oxley Act of 2002
. On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, or
the SOA. SOA imposes a wide variety of new requirements on both U.S. and
non-U.S. companies, that file or are required to file periodic reports with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934. Many of these new requirements will affect Molecular USA and its board
of directors. For instance, under SOA Molecular USA is required to:
26
-
form an audit
committee in compliance with SOA;
-
have Molecular
USA's chief executive office and chief financial officer are required to
certify its financial statements;
-
ensure Molecular
USA's directors and senior officers are required to forfeit all bonuses or
other incentive-based compensation and profits received from the sale of
Molecular USA's securities in the twelve month period following initial
publication of any of Molecular USA's financial statements that later require
restatement;
-
disclose any
off-balance sheet transactions as required by SOA;
-
prohibit all
personal loans to directors and officers;
-
insure directors,
officers and 10% holders file their Forms 4's within two days of a transaction;
-
adopt a code of
ethics and file a Form 8-K when ever there is a change or waiver of this code;
and
-
insure Molecular
USA's auditor is independent as defined by SOA.
SOA has
required us to review our current procedures and policies to determine whether
they comply with the SOA and the new regulations promulgated thereunder. We will
continue to monitor our compliance with all future regulations that are adopted
under the SOA and will take whatever actions are necessary to ensure that we are
in compliance.
Environmental Compliance
The nature
of Molecular USA's and MPLA's business does not require special environmental or
local government approval. Molecular USA and MPLA are compliant with all
environmental laws. The cost of such compliance is minimal for the company.
Employees
Molecular
USA currently has no employees and instead relies on outside contractors.
Immediate Business Plans
Over the
next 12 to 24 months, Molecular USA, through its subsidiary MPLA, plans to
continue to pursue the various levels of the international regulatory approval
processes. Applications and product opportunities for Tripeptofen are believed
to be broad and cover a range of commercial fields, each with distinct
pre-market requirements. The international drug development team, global
resources and local know-how will allow MPLA to seek the most time and cost
effective regulatory pathways for each product and market sector.
The
scientific focus of MPLA will initially be the completion of the current
isolation and identifications programs, being run by MPLA's South East Asian and
Australian teams. This work will provide MPLA with the broadest product horizon,
from which it can then select the most commercially marketable products.
Dr Chin Joo
Goh manages the South East Asian activities while Dr Maud Eijkenboom manages the
Australian activities.
On
commercial development, MPLA will focus on consolidating the regulatory pathway
work in order to prioritise the path to market. Jeff Edwards will work to
set-out the strategies designed to maximize the multi-jurisdictional
capabilities of MPLA's development teams.
Results of Operation
For the Quarter ended September 30,
2007, and October 31, 2006.
27
Rev
enues
REVENUE
- Molecular USA has not
generated any revenues for the quarter ended September 30, 2007, or since
inception.
COMMON STOCK
-
Molecular has not issued any shares during the most recent quarter.
As of the date of November 14, 2007 Molecular USA has 111,553,740 common shares
issued and outstanding.
Expenses
SUMMARY
- Total expenses were $60,775 for the three month period
ended September 30, 2007. Expenses had decreased during this past quarter
as compared to the three month period ended October 31, 2006 - $192,064. A total
of $1,463,079 in expenses has been incurred by Molecular USA since inception on
July 14, 2004
through to September 30, 2007.
The increase in costs over the past two years has occurred as the result of
Molecular USA's wholly owned subsidiary stepping up its research projects
resulting in increase in consulting fees and expenses. The costs can be
subdivided into the following categories.
-
Office Expenses
: $10,376
in office expenses (for rent and administrative costs) were incurred for the
three month period ended
September 30, 2007
as
compared to $10,645 for the three month period ended
October 31, 200
6; while a total of
$100,950 was incurred in the period from inception on
July
14, 2004
to
September 30, 200
7.
All contributed expenses are reported as contributed costs with a corresponding
credit to additional paid-in capital.
-
Consulting and Analysis Costs
:
Molecular USA relies on consultants and other third parties to conduct the
majority of its research. For the three month period ended September 30,
2007, $32,597 in consulting and analysis expenses were incurred as compared to
$130,115 during the three month period ended
October 31, 200
6
and $317,309 for the
year ended October 31, 2005. We have incurred a total of $1,037,905 in
consulting and analyst fees since our inception on
July 14,
2004
to
September 30, 2007
.
-
Advertising and Promotion Fees
:
Molecular USA has spent a nominal amount in this area. During the three
month period ended
September 30, 2007
we spent $565
on advertising and public relations while for the three month period ended
October 31, 2006 we spent $251 in this area; while a total of $27,960 has been
incurred in this area during the period from inception on
July 14, 2004
to
September 30,
200
7.
-
Professional Fees
:
Molecular USA incurred $13,027 in professional fees for the three month period
ended on
September 30, 2007
as compared to $31,754
for the three month period ended October 31, 2006. From inception to
September 30, 2007
, we have incurred a total of
$120,473 in professional fees mainly spent on legal and accounting matters.
-
Travel Costs
: Molecular
USA incurred $3,813 in travel costs for the fiscal three month period ended on
September 30, 200
7
as
compared to $14,728 for the three month period ended
October 31, 200
6 and
$97,411 has been
incurred in the period from inception on
July 14, 2004
to
September 30, 200
7.
This decrease reflects limited travel expense this quarter to just visiting
various research facilities we have ongoing trials or research projects.
-
Salaries and Benefit Costs
:
Molecular USA and its subsidiary relies primarily on outside consultants and
not salaried employees. As a result, Molecular USA incurred $0 in
salaries and benefits for the three month period ended September 30, 2007 and
while $50 was incurred during the three month period ended
October 31, 200
6
. For the period
July
14, 2004
(inception) through
September 30, 2007
, Molecular
USA has spent a total of $44,464 on salaries and benefits.
Molecular USA continues to carefully control its expenses and overall costs as
it moves forward with the development of its new business plan. Molecular USA
does not have any employees and engages personnel through outside consulting
contracts
or
agreements or other such arrangements
INCOME TAX
PROVISION
: We have losses carried forward for
income tax purpose to September 30, 2007. There are no current or deferred
tax expenses for the period ended September 30, 2007 due to our loss position.
We have fully reserved for any benefits of these losses. The deferred tax
consequences of temporary differences in reporting items for financial statement
and income tax purposes are recognized as appropriate.
28
Liquidity and Capital
Resources
During the three month period ended September 30, 2007, Molecular USA satisfied
its working capital needs by borrowing cash from its parent company Pharmanet.
As of September 30, 2007, the Company had cash and cash equivalents on hand in
the amount of $0, cash in trust $2,939 and bank indebtedness of $31,975 ($20,994
- June 30, 2007). Given the proposed business activities of Molecular USA and
its subsidiary, management does not expect that the current level of cash on
hand will be sufficient to fund its operation for the next twelve month period.
To achieve
our goals and objectives for the next 12 months, we plan to raise additional
capital through private placements of our equity securities, proceeds received
from the exercise of outstanding options, future financing from our majority
shareholder Pharmanet.
We plan to
use any additional funds that we might be successful in raising for development,
as well as for strategic acquisition of existing businesses that complement our
market niche, and general working capital purposes.
If we are
unsuccessful in obtaining new capital, our ability to seek and consummate
strategic acquisitions to build our company internationally, and to expand of
our business development and marketing programs could be adversely affected.
Off-Balance Sheet
Arrangement
As of September 30, 2007, Molecular USA did not
have any off-balance sheet arrangements.
Research and Development
Since the acquisition of
MPLA, Molecular USA has adopted MPLA's research and development program to:
-
Refine and prove-up its proprietary active
ingredients and to commence the processes that will lead to the issue of a
Master Drug File registration of its products;
-
Define the mode of action and potential of
Tripeptofen in both in vitro, animal and human studies;
-
Gain Australian regulatory and marketing approval;
-
Gain European regulatory approval; and
-
Commence application for American regulatory
approval.
MPLA is in the business
of developing and commercializing a new analgesic and anti-inflammatory molecule
known as Tripeptofen. Tripeptofen is likely to appear in a new group of products
suitable for the treatment of common every-day pain. As an analgesic and
anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action
and its topical or rub-on application. A complete description of the
Purchase Agreement and the business of MPLA is set out in the Preliminary Form
14A information circular filed on March 22, 2006
On April 19, 2006,
Molecular USA, announced the filing of a new patent, Tissue Disruption Treatment
and Composition for Use (US Patent number 11218382). The patent describes
a proprietary process for the manufacture of topical biological secondary injury
mediators (B-SIMs) that should have local, rather than systemic, effects and may
be significantly less expensive to manufacture than conventional B-SIMs.
MPLA is developing its B-SIMs to stop the tissue disruption that occurs after
injury by suppressing the body's reactions, such as inflammation and
damage/death of otherwise uninjured cells that are triggered in response to
primary injury.
The first conditions
targeted by MPLA will be the musculoskeletal injuries. The use of a B-SIM
in these markets represents a new approach to one of the world's largest over
the counter drug markets and includes indications
29
such as joint
inflammation, musculoskeletal pain, overuse and strain injuries, burns and even
surgical and cosmetic procedures. MPLA's proprietary, industrially
scalable peptide-ligand bond exchange (PLBE) B-SIM manufacturing process
involves the disassociation of proteins, rather than the far more costly process
of assembling B-SIMs one sequence at a time. The patent was lodged in the name
of Cambridge Scientific Pty Ltd; however, Molecular USA holds the worldwide
exclusive license to manufacture, commercialize, market and distribute topical
anti-inflammatory and analgesic products based on the proprietary MPL-TL
compound.
Molecular
USA is still working on the projections regarding the necessary expenditure and
time frame involved in pursuing this research and development program. Any
such program will also be subject to Molecular USA raising the necessary funds
to advance such a program.
Capital Expenditure Commitments
Capital
expenditures for the quarter ended September 30, 2007, amounted to $ Nil.
Molecular USA does not anticipate any significant purchase or sale of equipment
over the next 12 months.
Recent
Accounting Pronouncements
In February 2007, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 159, "
The
Fair Value Option for Financial Assets and Financial Liabilities
" ("SFAS
159"). SFAS 159 allows the company to choose to measure many financial
assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been elected are reported in
earnings. SFAS 159 is effective for fiscal years beginning after 15
November 2007. The Company is currently evaluating the requirements of
SFAS 159 and the potential impact on the Company's financial statements.
In
September 2006, the FASB issued SFAS No. 158, "
Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
" ("SFAS 158"). SFAS 158 requires an
employer that sponsors one or more single-employer defined benefit plans to (a)
recognize the overfunded or underfunded status of a benefit plan in its
statement of financial position, (b) recognize as a component of other
comprehensive income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net
periodic benefit cost pursuant to SFAS No. 87, "
Employers' Accounting for Pensions
", or SFAS No. 106, "
Employers'
Accounting for Postretirement Benefits Other Than Pensions
", (c) measure
defined benefit plan assets and obligations as of the date of the employer's
fiscal year-end, and (d) disclose in the notes to financial statements
additional information about certain effects on net periodic benefit cost for
the next fiscal year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition asset or obligation. SFAS No. 158
is effective for the Company's fiscal year ending 31 October 2007.
The
adoption of SFAS No. 158 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, "
Fair Value Measurement
"
("SFAS 157"). The statement provides guidance for using fair value to measure
assets and liabilities. The Statement also expands disclosures about the extent
to which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurement on
earnings. This Statement applies under other accounting pronouncements that
require or permit fair value measurements. This Statement does not expand the
use of fair value measurements in any new circumstances. Under this Statement,
fair value refers to the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants in
the market in which the entity transacts. SFAS 157 is effective for the Company
for fair value measurements and disclosures made by the Company in its fiscal
year beginning on 1 November 2008. The Company is currently reviewing the impact
of this statement.
In July 2006, the FASB issued FIN No.
48, "
Accounting for Uncertainty in Income Taxes (an interpretation of FASB
Statement No. 109
)"
("FIN 48") which is effective for fiscal
years beginning after 15 December 2006. This interpretation was
issued to clarify the accounting for uncertainty in income taxes recognized in
the financial
30
statements by prescribing 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
tax return. The adoption of FIN No. 48 is not expected to have a material impact
on the Company's financial position, results of operations or cash flows.
In March
2006, FASB issued SFAS No. 156, "
Accounting for Servicing of Financial Assets
",
which amends SFAS Statement No. 140. SFAS No. 156 may be adopted as early
as 1 January 2006, for calendar year-end entities, provided that no interim
financial statements have been issued. Those not choosing to early adopt
are required to apply the provisions as of the beginning of the first fiscal
year that begins after 15 September 2006 (e.g., 1 January 2007, for calendar
year-end entities). The intention of the new statement is to simplify
accounting for separately recognized servicing assets and liabilities, such as
those common with mortgage securitization activities, as well as to simplify
efforts to obtain hedge-like accounting. Specifically, the FASB said SFAS
No. 156 permits a servicer using derivative financial instruments to report both
the derivative financial instrument and related servicing asset or liability by
using a consistent measurement attribute, or fair value.
The
adoption of SFAS No. 156 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
In February
2006, the FASB issued SFAS No. 155, "
Accounting for Certain Hybrid Financial
Instruments
", which amends SFAS No. 133, "
Accounting for Derivative
Instruments and Hedging Activities
" and SFAS No. 140, "
Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
"
.
SFAS No. 155 permits fair value measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or hybrid financial
instruments containing embedded derivatives.
The adoption of SFAS No.
155 is not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
Critical
Accounting Policies and Estimates
Our quarterly financial
statements and accompanying notes are prepared in accordance with generally
accepted accounting principles used in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management's application of accounting
policies. We believe that understanding the basis and nature of the
estimates and assumptions involved with the following aspects of our
consolidated financial statements is critical to an understanding of our
financials.
Stock-based compensation
On February 1, 2006, we
adopted the provisions of SFAS No. 123(R), "
Share-Based
Payment
", which establishes accounting for equity instruments exchanged for
employee services. Under the provisions of SFAS No. 123(R), stock-based
compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employees'
requisite service period (generally the vesting period of the equity grant).
Before February 1, 2006, we accounted for stock-based compensation to employees
in accordance with Accounting Principles Board Opinion No. 25, "
Accounting
for Stock Issued to Employees
", and complied with the disclosure
requirements of SFAS No. 123, "
Accounting
for Stock-Based Compensation
". We adopted SFAS No. 123(R) using the
modified prospective method, which requires us to record compensation expense
over the vesting period for all awards granted after the date of adoption, and
for the unvested portion of previously granted awards that remain outstanding at
the date of adoption. Accordingly, financial statements for the periods
prior to February 1, 2006 have not been restated to reflect the fair value
method of expensing share-based compensation. Adoption of SFAS No. 123(R)
does not change the way we account for share-based payments to non-employees,
with guidance provided by SFAS No. 123 (as originally issued) and Emerging
Issues Task Force 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
".
31