Item 1. Interim Consolidated Financial Statements.
The information in this report for the nine months ended March 31, 2013, 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' deficiency and cash flows for
those periods.
The interim consolidated financial statements should be read in conjunction with Molecular USA's consolidated financial statements and the notes
thereto contained in Molecular USA's Audited Financial Statements for the year ended June 30, 2012, in the Form 10-K filed with the SEC on August 22,
2012.
Interim results are not necessarily indicative of results for the full fiscal year.
The unaudited interim consolidated financial statements start on the next page.
1
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
2
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
|
|
As at
31 March
2013
|
|
As at
30 June
2012
(Audited)
|
|
|
$
|
|
$
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Cash and cash equivalents
|
|
13,124
|
|
2,572
|
Amounts receivable
|
|
4,335
|
|
5,110
|
|
|
|
|
|
|
|
17,459
|
|
7,682
|
|
|
|
|
|
|
|
|
|
|
Equipment
(Note 4)
|
|
152
|
|
1,159
|
|
|
|
|
|
|
|
17,611
|
|
8,841
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Accounts payable and accrued liabilities (Note 5)
|
|
7,000
|
|
19,252
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
(Note 6)
|
|
2,283,574
|
|
2,069,448
|
|
|
|
|
|
|
|
|
|
|
|
|
2,290,574
|
|
2,088,700
|
|
|
|
|
|
Stockholders' deficiency
|
|
|
|
|
Capital stock
(Note 7)
|
|
|
|
|
Authorized
|
|
|
|
|
300,000,000 common shares, par value $0.001
|
|
|
|
|
Issued and outstanding
|
|
|
|
|
31 March 2013 - 111,553,740 common shares, par value $0.001
|
|
|
|
|
30 June 2012 - 111,553,740 common shares, par value $0.001
|
|
111,554
|
|
111,554
|
Additional paid-in capital
|
|
106,707
|
|
106,707
|
Cumulative translation adjustment
|
|
(486,587)
|
|
(446,072)
|
Deficit, accumulated during the development stage
|
|
(2,004,637)
|
|
(1,852,048)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,272,963)
|
|
(2,079,859)
|
|
|
|
|
|
|
|
|
|
|
|
|
17,611
|
|
8,841
|
Nature and Continuance of Operations
(Note 1)
On behalf of the Board:
/s/ Jeffrey Edwards
Director
Jeffery Edwards
The accompanying notes are an integral part
of these interim consolidated financial statements.
3
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
31 March
2013
|
For the
three month
period
ended
31 March
2013
|
For the
three month
period
ended
31 March
2012
|
For the
nine month
period
ended
31 March
2013
|
For the
nine month
period
ended
31 March
2012
|
Expenses
|
$
|
$
|
$
|
$
|
$
|
Advertising and promotion
|
23,739
|
-
|
-
|
-
|
-
|
Amortization (Note 4)
|
6,875
|
14
|
114
|
184
|
339
|
Analysis
|
33,947
|
-
|
-
|
-
|
-
|
Consulting (Note 6)
|
1,394,182
|
39,923
|
9,126
|
104,041
|
69,259
|
Office and miscellaneous (Note 6)
|
238,943
|
4,630
|
5,671
|
20,410
|
16,244
|
Professional fees
|
386,355
|
7,029
|
15,899
|
26,772
|
26,712
|
Public relations
|
3,656
|
-
|
-
|
-
|
-
|
Rent (Note 6)
|
27,759
|
-
|
-
|
-
|
-
|
Salaries and benefits
|
44,464
|
-
|
-
|
-
|
-
|
Transfer agent and filing fees
|
17,172
|
-
|
-
|
-
|
-
|
Travel
|
111,693
|
-
|
-
|
359
|
-
|
|
|
|
|
|
|
Net loss before other items
|
(2,288,785)
|
(51,596)
|
(30,810)
|
(151,766)
|
(112,554)
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
Export market development grants
|
69,629
|
-
|
-
|
-
|
-
|
Loss on write-off of equipment (Note 4)
|
(823)
|
-
|
-
|
(823)
|
-
|
Interest income
|
2,322
|
-
|
-
|
-
|
-
|
Research and development tax refund
|
213,020
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Net loss for the period
|
(2,004,637)
|
(51,596)
|
(30,810)
|
(152,589)
|
(112,554)
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
(0.001)
|
(0.001)
|
(0.001)
|
(0.001)
|
|
|
|
|
|
|
Weighted average number of common shares
used in per share calculations
|
111,553,740
|
111,553,740
|
111,553,740
|
111,553,740
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
Net loss for the period
|
(2,004,637)
|
(51,596)
|
(30,810)
|
(152,589)
|
(112,554)
|
Foreign currency translation adjustment
|
(486,587)
|
(7,752)
|
(22,403)
|
(40,515)
|
41,201
|
|
|
|
|
|
|
Total comprehensive loss for the period
|
(2,491,224)
|
(59,348)
|
(53,213)
|
(193,104)
|
(71,353)
|
|
|
|
|
|
|
Basic and diluted comprehensive loss per
common share
|
(0.001)
|
(0.001)
|
(0.002)
|
(0.001)
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these interim consolidated financial statements.
4
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
31 March
2013
|
For the
three month
period
ended
31 March
2013
|
For the
three month
period
ended
31 March
2012
|
For the
nine month
period
ended
31 March
2013
|
For the
nine month
period
ended
31 March
2012
|
Cash flows used in operating activities
|
$
|
$
|
$
|
$
|
$
|
Net loss for the period
|
(2,004,637)
|
(51,596)
|
(30,810)
|
(152,589)
|
(112,554)
|
Adjustments to reconcile net loss to cash used by operating activities
|
|
|
|
|
|
Amortization
|
6,875
|
14
|
114
|
184
|
339
|
Write-down of intangible assets
|
1,278
|
-
|
-
|
-
|
-
|
Write-off of equipment
|
823
|
-
|
-
|
823
|
-
|
Changes in operating assets and liabilities
|
|
|
|
|
|
(Increase) decrease in amounts receivable
|
(2,109)
|
3,186
|
4,240
|
775
|
1,813
|
Increase in prepaid expenses
|
-
|
-
|
876
|
-
|
(500)
|
Decrease in accounts payable and accrued liabilities
|
(40,417)
|
(184)
|
(5,805)
|
(12,252)
|
(12,467)
|
|
(2,038,187)
|
(48,580)
|
(31,385)
|
(163,059)
|
(123,369)
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Purchase of equipment
|
(7,850)
|
-
|
-
|
-
|
-
|
Purchase of intangible assets
|
(1,278)
|
-
|
-
|
-
|
-
|
Cash acquired on the purchase of Molecular Pharmacology (USA) Limited
|
37,163
|
-
|
-
|
-
|
-
|
|
28,035
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Common shares issued for cash
|
234,497
|
-
|
-
|
-
|
-
|
Increase in due to related parties
|
2,275,366
|
63,462
|
57,219
|
214,126
|
86,958
|
|
2,509,863
|
63,462
|
57,219
|
214,126
|
86,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(486,587)
|
(7,752)
|
(22,403)
|
(40,515)
|
41,201
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
13,124
|
7,130
|
3,431
|
10,552
|
4,790
|
Cash and cash equivalents, beginning of period
|
-
|
5,994
|
10,034
|
2,572
|
8,675
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
13,124
|
13,124
|
13,465
|
13,124
|
13,465
|
Supplemental Disclosures with Respect to Cash Flows
(Note 10)
The accompanying notes are an integral part
of these interim consolidated financial statements.
5
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 year
|
|
-
|
|
-
|
|
-
|
|
62,296
|
|
-
|
|
62,296
|
Cumulative translation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(166,483)
|
|
(166,483)
|
Balance at 30 June 2008
|
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,339,250)
|
|
(294,838)
|
|
(1,415,827)
|
Net loss for the year
|
|
-
|
|
-
|
|
-
|
|
(94,336)
|
|
-
|
|
(94,336)
|
Cumulative translation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
219,034
|
|
219,034
|
Balance at 30 June 2009
|
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,433,586)
|
|
(75,804)
|
|
(1,291,129)
|
Net loss for the year
|
|
-
|
|
-
|
|
-
|
|
(117,220)
|
|
-
|
|
(117,220)
|
Cumulative translation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(78,521)
|
|
(78,521)
|
Balance at 30 June 2010
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,550,806)
|
|
(154,325)
|
|
(1,486,870)
|
Net loss for the year
|
-
|
|
-
|
|
-
|
|
(121,860)
|
|
-
|
|
(121,860)
|
Cumulative translation
adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
(357,962)
|
|
(357,962)
|
Balance at 30 June 2011
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,672,666)
|
|
(512,287)
|
|
(1,966,692)
|
Net loss for the year
|
-
|
|
-
|
|
-
|
|
(179,382)
|
|
-
|
|
(179,382)
|
Cumulative translation
adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
66,215
|
|
66,215
|
Balance at 30 June 2012
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,852,048)
|
|
(446,072)
|
|
(2,079,859)
|
Net loss for the period
|
-
|
|
-
|
|
-
|
|
(152,589)
|
|
-
|
|
(152,589)
|
Cumulative translation
adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
(40,515)
|
|
(40,515)
|
Balance at 31 March 2013
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(2,004,637)
|
|
(486,587)
|
|
(2,272,963)
|
The accompanying notes are an integral part
of these interim consolidated financial statements.
6
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
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 authorized share capital to 300,000,000 shares of common stock with a par value of
$0.001 per share.
The Company is a development stage enterprise, as defined in Accounting Standards Codification (the "Codification" or "ASC") 915-10, "
Development Stage Entities
". The Company is devoting all of its present efforts to securing and establishing a new business and its current
planned principle operations have not commenced. Accordingly, no revenue has been derived during the organization period.
Up until the fall of 2005, the Company was in the business of mineral exploration and development of a mineral property. The Company allowed the option
on its mineral claim to lapse in the fall of 2005.
On 13 October 2005, the Company acquired the exclusive distribution rights to distribute, market, promote, detail, advertise and sell certain "Licensed
Products" through Molecular Pharmacology Pty. Ltd. (formerly Molecular Pharmacology Limited) ("MPLA") (Note 9). MPLA was incorporated under the laws of
Australia and converted to a proprietary company on 29 October 2009. MPLA is a wholly owned subsidiary company of PharmaNet Group Limited
("PharmaNet"), an Australian company listed on the Australian Stock Exchange.
Since then, 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 (the "Purchase Agreement"). Under the terms of the Purchase Agreement the
Company acquired 100% of the issued and outstanding shares of MPLA. The Company, in exchange for 100% of the issued and outstanding shares of MPLA,
issued PharmaNet an aggregate total of 88,000,000 common shares of the Company on the closing of the transaction. The issuance of 88,000,000 common
shares of the Company constituted an acquisition of control of the Company by PharmaNet. The transaction has been accounted for as a recapitalization
of the Company.
MPLA was incorporated on 14 July 2004 under the laws of Australia. The accompanying interim consolidated financial statements are the historical
financial statements of MPLA.
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.
7
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
The Company's interim consolidated financial statements as at 31 March 2013 and for the nine 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 a net loss of $152,589 for the nine month period ended 31 March 2013 (31 March 2012 - $112,554, cumulative - $2,004,637) and has working capital of
$10,459 at 31 March 2013 (30 June 2012 - working capital deficit of $11,570).
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 next 12 month period. 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 interim consolidated financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
At 31 March 2013, 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 interim consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
2.
Significant Accounting Policies
The following is a summary of significant accounting policies used in the preparation of these interim consolidated financial statements.
Basis of presentation
These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP") applicable for a development stage company for financial information and are expressed in U.S. dollars.
Principles of consolidation
These interim consolidated financial statements include the accounts of MPLA since its incorporation on 14 July 2004 and the Company since the reverse
acquisition on 8 May 2006 (Note 1). All intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
8
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
Segments of an enterprise and related information
ASC 280, "
Segment Reporting
" establishes guidance for the way that public companies report information about operating segments in annual
financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as
components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Foreign currency translation
The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity
operates. The functional currency of Molecular Pharmacology (USA) Limited is U.S. dollars. The functional currency of MPLA is Australian dollars. The
reporting currency of the Company is U.S. dollars.
On consolidation, MPLA's financial statements are translated into the presentation currency, being U.S. dollars, in accordance with ASC 830, "
Foreign Currency Matters
". Assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the
balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting
from this process are charged or credited to Other Comprehensive Income.
The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of
foreign currency fluctuations.
Equipment
Equipment is recorded at cost and amortization is provided over its estimated economic life at the rate of 15% declining balance.
Income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the interim consolidated financial statements
and those reported for income tax purposes in accordance with ASC 740,
"Income Taxes"
, which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses 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.
9
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
Comprehensive income (loss)
ASC 220, "
Comprehensive Income
", establishes standards for the reporting and disclosure of comprehensive
income (loss) and its components in the financial statements. As at 31 March 2013, the Company has items that represent a comprehensive loss and,
therefore, has included a schedule of comprehensive loss in the interim consolidated financial statements.
Basic and diluted net income (loss) per share
The Company computes net income (loss) per share in accordance with ASC 260, "
Earnings per Share
". ASC 260 requires presentation of both basic
and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all
potentially dilutive common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted
method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the
exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.
Stock-based compensation
Effective 1 January 2006, the Company adopted the provisions of ASC 718, "
Compensation - Stock Compensation
", which establishes accounting for
equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period
of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over
the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding
at the date of adoption. Accordingly, the financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value
method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to
non-employees, with guidance provided by ASC 505-50, "
Equity-Based Payments to Non-Employees
".
Comparative figures
Certain comparative figures have been adjusted to conform to the current period's presentation.
3.
Recent Accounting Pronouncements
In March 2013, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-05, "
Foreign Currency Matters
". The amendments in this update resolve the diversity in practice about whether Subtopic 810-10, "
Consolidation - Overall
", or Subtopic
830-30, "
Foreign Currency Matters - Translation of Financial Statements
", applies to the release of the cumulative translation adjustment into
net income when a parent either sells a part or all of its investment in a foreign
10
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a
sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this update
resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions)
involving a foreign entity. ASU No. 2013-05 will be effective for fiscal years, and interim periods within those years, beginning after 15 December
2013, with early adoption permitted, and should be applied retrospectively to all prior periods presented. The Company does not expect the adoption of
this update will have a material effect on its consolidated financial statements.
In February 2013, FASB issued ASU No. 2013-04, "
Liabilities
". This update requires an entity to measure obligations resulting from joint and
several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the
sum of: (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the
reporting entity expects to pay on behalf of its co-obligors. ASU No. 2013-04 will be effective for fiscal years, and interim periods within those
years, beginning after 15 December 2013, with early adoption permitted. The Company does not expect the adoption of this update will have a material
effect on its consolidated financial statements.
In February 2013, FASB issued ASU No. 2013-02, "
Comprehensive
Income
". The amendments in this update do not change the current
requirements for reporting net income or other comprehensive income in the financial statements. However, an entity is required to provide information
about the amounts reclassified out of accumulated other comprehensive income by component and to present, either on the face of the statement where net
income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For
other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other
disclosures required under GAAP that provide additional detail about those amounts. ASU No. 2013-02 will be effective prospectively for reporting
periods beginning on or after 15 December 2012, with early adoption permitted. The Company does not expect the adoption of this update will have a
material effect on its consolidated financial statements.
In January 2013, FASB issued ASU No. 2013-01, "
Balance
Sheet
". The amendments in this update clarify that the scope of ASU 2011-11, "
Disclosures about Offsetting Assets and Liabilities
," applies to derivatives accounted for in accordance with Topic 815, "
Derivatives and Hedging
," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities
borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an
enforceable master netting arrangement or similar agreement. ASU No. 2013-01 will be effective for fiscal years beginning on or after 1 January 2013
and interim periods within those annual periods, and to be applied retrospectively for all comparative periods presented. The Company does not expect
the adoption of this update will have a material effect on its consolidated financial statements.
In July 2012, FASB issued ASU No. 2012-02, "
Intangibles - Goodwill and Other
". This update presents an entity with the option to first to
assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for
determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, "
Intangibles - Goodwill and Other - General Intangibles Other than Goodwill
". The more-likely-than-not threshold is defined as having a
likelihood of more than fifty percent. ASU No. 2012-02 will be effective for annual and impairment tests
11
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
performed for fiscal years beginning after 15 September 2012, with early adoption permitted. The Company does not expect the adoption of this update
will have a material effect on its consolidated financial statements.
4.
Equipment
|
|
|
Accumulated amortization
|
|
Net Book Value
|
|
|
Cost
|
|
As at
31 March
2013
|
|
As at
30 June
2012
(Audited)
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
864
|
|
712
|
|
152
|
|
1,159
|
During the nine month period ended 31 March 2013, the total additions to equipment were $Nil (31 March 2012 - $Nil) and equipment with a carrying value
of $823 was written off (31 March 2012 - $Nil).
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 31 March 2013, the amount due to related parties includes $1,000 payable to a director of the Company (30 June 2012 - $1,000). This balance is
non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2013, the amount due to related parties includes $11,208 payable to a company owned by a director of the Company or an officer of
PharmaNet (30 June 2012 - $22,846). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2013, the amount due to related parties includes $477 payable to a company owned by a director of the Company or an officer of PharmaNet
(30 June 2012 - $1,101). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2013, the amount due to related parties includes $8,570 payable to a company owned by a director of the Company or an officer of
PharmaNet (30 June 2012 - $7,741). This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2013, the amount due to related parties includes $2,262,319 payable to PharmaNet (30 June 2012 - $2,036,760). This balance is
non-interest bearing, unsecured and has no fixed terms of repayment.
12
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued consulting fees of $25,804 (31 March 2012 - $35,999, cumulative - $888,400).
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued consulting and/or administrative fees of $18,023 (31 March 2012 - $15,172, cumulative - $61,369) by the Company, which have been recorded in
office and miscellaneous expense.
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued consulting fees of $67,754 (31 March 2012 - $Nil, cumulative - $89,039) by the Company.
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued consulting fees of $Nil (31 March 2012 - $33,260; cumulative - $41,928) by the Company.
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued office and miscellaneous expenses of $Nil (31 March 2012 - $Nil; cumulative - $80,468) by the Company.
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued office and miscellaneous expenses of $Nil (31 March 2012 - $Nil, cumulative - $4,481).
During the nine month period ended 31 March 2013, a director of the Company or an officer of PharmaNet, and their controlled entities were paid or
accrued rental fees of $Nil (31 March 2012 - $Nil; cumulative - $12,987) by the Company.
Transactions comprising the amount due to PharmaNet are as follows:
|
|
For the
nine month
period
ended
31 March
2013
|
|
For the
year
ended
30 June
2012
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Opening balance, beginning of period
|
|
2,036,760
|
|
1,896,625
|
Funds transferred to the Company by PharmaNet
|
|
187,165
|
|
170,790
|
Expenses paid by PharmaNet on behalf of the Company
|
|
85
|
|
33,852
|
Foreign currency translation adjustment
|
|
38,309
|
|
(64,507)
|
|
|
|
|
|
|
|
|
|
|
Balances, end of period
|
|
2,262,319
|
|
2,036,760
|
13
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
The average amount due to PharmaNet for the nine month period ended 31 March 2013 was $2,137,272 (30 June 2012 - $1,816,134).
7.
Capital Stock
Authorized
The total authorized capital is 300,000,000 common shares with a par value of $0.001 per common share.
Issued and outstanding
The total issued and outstanding capital stock is 111,553,740 common shares with a par value of $0.001 per common share.
8.
Income Taxes
Income tax expense differs from the amount that would result from applying the federal income tax rate to earnings before income taxes. These
differences result from the following items:
|
|
|
|
For the
nine month
period
ended
31 March
2013
|
|
For the
nine month
period
ended
31 March
2012
|
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
(152,589)
|
|
(112,554)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax rates
|
|
|
|
34.0%
|
|
34.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery based on the above rates
|
|
|
|
(51,880)
|
|
(38,268)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) due to:
|
|
|
|
|
|
|
Difference between U.S. and foreign tax rates
|
|
|
|
4,997
|
|
3,440
|
Change in valuation allowance
|
|
|
|
54,509
|
|
26,490
|
Foreign exchange and other
|
|
|
|
(7,626)
|
|
8,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
-
|
|
-
|
14
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
The composition of the Company's deferred tax assets as at 31 March 2013 and 30 June 2012 are as follows:
|
|
As at
31 March
2013
|
|
As at
30 June
2012
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Net income tax operating loss carryforward
|
|
2,279,606
|
|
2,101,601
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
715,257
|
|
660,748
|
Less: Valuation allowance
|
|
(715,257)
|
|
(660,748)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
-
|
|
-
|
The Company has non-capital loss carry-forwards of approximately $2,279,606 that may be available for tax purposes. The loss carry-forwards are all in
respect to U.S. and Australian operations and expire as follows:
|
$
|
|
|
2022
|
20,402
|
2023
|
46,992
|
2024
|
27,717
|
2025
|
14,187
|
2026
|
261,311
|
2027
|
111,155
|
2028
|
75,463
|
2029
|
57,882
|
2030
|
48,765
|
2031
|
43,836
|
2032
|
49,005
|
2033
|
27,669
|
No expiry
|
1,495,222
|
|
|
|
2,279,606
|
A full valuation allowance has been recorded against the potential deferred tax assets associated with all the loss carry-forwards as their utilization
is not considered more likely than not at this time.
9.
Distribution Agreement
The Company has the exclusive distribution rights, through MPLA, to distribute, market, promote, detail, advertise and sell certain Licensed Products,
with metallo-polypeptide analgesic as an active ingredient, in the United States (excluding its territories and possessions) (Note 1). If, and when
necessary, the Company will
15
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
obtain all necessary regulatory approvals for the Licensed Products and incorporate the Licensed Products in the United States.
10.
Supplemental Disclosures with Respect to Cash Flows
|
|
|
|
For the
period from
the date of
inception on
14 July 2004
to
31 March
2013
|
For the
nine month
period
ended
31 March 2013
|
For the
nine month
period
ended
31 March
2012
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
|
|
|
-
|
-
|
-
|
Cash paid during the period 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
|
-
|
-
|
11.
Segmented Information
Details on a geographic basis as at and for the nine month period ended 31 March 2013 are as follows:
|
|
Australia
|
|
U.S.A.
|
|
Total
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Assets
|
|
17,611
|
|
-
|
|
17,611
|
|
|
|
|
|
|
|
Loss for the period
|
|
(124,920)
|
|
(27,669)
|
|
(152,589)
|
Details on a geographic basis as at and for the year ended 30 June 2012 are as follows:
|
|
Australia
|
|
U.S.A.
|
|
Total
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Assets
|
|
8,841
|
|
-
|
|
8,841
|
|
|
|
|
|
|
|
Loss for the year
|
|
(130,377)
|
|
(49,005)
|
|
(179,382)
|
16
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
Details on a geographic basis as at and for the nine month period ended 31 March 2012 are as follows:
|
|
Australia
|
|
U.S.A.
|
|
Total
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Assets
|
|
19,527
|
|
500
|
|
20,027
|
|
|
|
|
|
|
|
Loss for the period
|
|
(86,000)
|
|
(26,554)
|
|
(112,554)
|
12.
Financial Instruments
A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurements).
The fair values of the financial instruments were determined using the following input levels and valuation techniques:
Level 1: classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is
significant transparency in the executed/quoted price.
Level 2: classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either
directly or indirectly, but do not represent quoted market prices from an active market.
Level 3: classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own
assumptions about how market participants would price the asset or liability.
The carrying values of cash and cash equivalents and accounts payable approximate fair value due to the short term maturity of these financial
instruments.
Credit Risk
Financial instruments that potentially subject the Company to credit risk consists of cash and cash equivalents. The Company deposits cash and cash
equivalents with high credit quality financial institutions as determined by rating agencies. As a result, credit risk is considered insignificant.
Currency Risk
The Company's subsidiary is located in Australia. As a result, a significant portion of the Company's assets, liabilities and expenses were denominated
in the Australian dollar and were therefore subject to fluctuation in exchange rates.
17
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 March 2013
The Company's objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash flows by holding most of its
cash and cash equivalents in Australian dollars. The Company monitors and forecasts the values of net foreign currency cash flow and balance sheet
exposures and from time to time could authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically
hedge a portion of foreign currency fluctuations.
If the Australian dollar had weakened (strengthened) against the U.S. dollar, with all other variables held constant, by 100 basis points (1%) at
period end, the impact on net loss and other comprehensive loss would have been $22,651 lower ($22,651 higher).
The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of
foreign currency fluctuations.
Interest Rate Risk
The Company has non-interest paying cash balances and no interest-bearing debt. It is management's opinion that the Company is not exposed to
significant interest risk arising from these financial instruments.
Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The Company is
reliant upon PharmaNet as its sole source of cash. The Company has received financing from PharmaNet in the past; however, there is no assurance that
it will be able to do so in the future.
18
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF MOLECULAR USA FOR THE THIRD QUARTER PERIOD ENDED MARCH 31, 2013 AND SHOULD
BE READ IN CONJUNCTION WITH MOLECULAR USA'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO CONTAINED ELSEWHERE IN THE FORM 10-Q.
Our interim 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 1, 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 Pty. Ltd. (formerly 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, 2006. 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
Molecular USA through its wholly owned subsidiary MPLA is in the business of developing and commercializing a new analgesic and anti-inflammatory molecule
known as Tripeptofen. Tripeptofen is likely to appear in a new group of products suitable for the treatment of common every-day pain. As an analgesic and
anti-inflammatory drug, Tripeptofen is unusual due to its rapid speed of action and its topical or rub-on application.
The majority of over-the-counter anti-pain and anti-inflammatory products sold for the treatment of acute localized pain are based on non-steroidal
anti-inflammatory drugs or NSAIDs. The majority of such products are slow acting and provide only mild pain relief.
The NSAID group has come under additional pressure and increasing medical alarm, as many drugs in this class have been found to set-back the recovery of
certain conditions and treatments for which they were marketed. Moreover, NSAIDs are associated with severe gastro-intestinal side-effects. This has left a
niche in an industry under-served by new products and ingredients.
MPLA's business strategy is to exploit the fast and locally acting, low side effects, and recovery-enhancing properties of its new drug group and to market
this as a new ingredient, enabling pharmaceutical companies to develop and market effective and safer products suited to a broad range of common everyday
pain.
19
Licensed Products
Molecular USA has exclusive distribution rights to distribute, market, promote, advertise and sell certain "
Licensed
Products
", with metallo-polypeptide analgesic and anti-inflammatory activity as an active ingredient, in the United States (excluding its
territories and possessions) from its wholly owned subsidiary company MPLA.
The Licensed Products include all products in all dosage forms, formulations, line extensions and package configurations using or otherwise incorporating
any aspect or production method of metallo-polypeptide analgesic and anti-inflammatory activity as an active ingredient marketed by MPLA or its affiliates
under the trade name Tripeptofen or any other trade names or trademarks used by MPLA relating to the product and any improvements to such formulations or
dosages as may hereafter be distributed by MPLA or its affiliates in the territory during the term of the distribution and supply agreement between
Molecular USA 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 parent 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.
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 Pty Ltd. 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 which
includes "Analgesic and Anti-Inflammatory Composition" comprising USA patent application in completion plus PCT Provisional Specification having the same
name designated as Serial No. 11/059580. These patent applications embody all the current Analgesic and Anti-inflammatory assets. MPLA will also rely on
the exclusive nature of its license, trademark and copyright law, trade secret protection, confidentiality agreements and other contractual arrangements as
it may execute from time to time.
Management of Molecular USA and MPLA believes that MPLA's products, trademarks, and other proprietary rights do not infringe on the proprietary rights of
third parties.
20
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 Good Manufacturing Practice ("
GMP
") certified formulation and manufacturers of the Licensed Products for clinical trial and sales purposes. These formulations and the
manufacturing facilities must comply with regulations and current good laboratory practices (or CGLPs), and current GMPs, enforced by the Food and Drug
Administration ("
FDA
"). Molecular USA plans to continue MPLA's practice to outsource formulation and manufacturing for its clinical trials
and potential commercialization after the acquisition of MPLA by Molecular USA.
Molecular USA has not entered into any supply agreements.
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 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.
21
Governmental Regulation
FDA Regulation
. Pharmaceutical products are subject to extensive pre- and post-marketing regulation by the 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, ("
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 ("
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.
22
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.
23
Sarbanes-Oxley Act of 2002
. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 ("
SOA
"). The 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 the SOA, Molecular USA is required to:
-
form an audit committee in compliance with the SOA;
-
have Molecular USA's chief executive officer and chief financial officer certify its financial statements;
-
ensure Molecular USA's directors and senior officers 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 the SOA;
-
prohibit all personal loans to directors and officers;
-
ensure directors, officers and 10% holders file their Forms 4's within two days of a transaction;
-
adopt a code of ethics and file a Form 8-K whenever there is a change or waiver of this code; and
-
ensure Molecular USA's auditor is independent as defined by the SOA.
The 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
The Company, through its subsidiary MPLA, plans to continue to pursue the various levels of the international regulatory approval processes. Applications
and product opportunities for Tripeptofen are believed to be broad and cover a range of commercial fields, each with distinct pre-market requirements. The
international drug development team, global resources and local know-how will allow MPLA to seek the most time and cost effective regulatory pathways for
each product and market sector.
On commercial development, MPLA will focus on consolidating the regulatory pathway work in order to prioritize the path to market. Jeffery 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 March 31, 2013.
24
Rev
enues
REVENUE
- Molecular USA has not generated any revenues for the quarter ended March 31, 2013, or since inception.
COMMON STOCK
- Molecular USA has not issued any shares during the most recent quarter. As of the date of May 8, 2013, Molecular USA has 111,553,740 common shares issued
and outstanding.
Expenses
SUMMARY
- Total expenses were $151,766 for the nine month period ended March 31, 2013. Expenses had increased during this past nine month period as compared to the
nine month period ended March 31, 2012 - $112,554. A total of $2,288,785 in expenses has been incurred by Molecular USA since inception on July 14, 2004
through to March 31, 2013. The increase in costs over this nine month period has occurred as the result of Molecular USA's wholly owned subsidiary increase
in its consulting fees. The costs can be subdivided into the following categories:
-
Office Expenses and Rent
: $20,410 in office expenses (for administrative costs) were incurred for the nine month period ended March 31, 2013, as compared to $16,244 for the
nine month period ended March 31, 2012, while a total of $238,943 was incurred in the period from inception on July 14, 2004 to March 31, 2013. 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 nine month period ended March 31, 2013,
$104,041 in consulting and analysis expenses were incurred as compared to $69,259 during the nine month period ended March 31, 2012. We have incurred a
total of $1,394,182 in consulting and analyst fees since our inception on July 14, 2004 to March 31, 2013.
-
Advertising and Promotion Fees
: Molecular USA has spent no money in this area this year. During the nine month period ended March 31, 2013, we spent $Nil on advertising and public
relations and $Nil for nine month period ended March 31, 2012. A total of $23,739 has been incurred in this area during the period from inception on
July 14, 2004 to March 31, 2013.
-
Professional Fees
: Molecular USA incurred $26,772 in professional fees for the nine month period ended on March 31, 2013, as compared to $26,712 for the nine month
period ended March 31, 2012. From inception to March 31, 2013, we have incurred a total of $386,355 professional fees mainly spent on legal and
accounting matters.
-
Travel Costs
: Molecular USA incurred $359 in travel costs for the nine month period ended March 31, 2013, as compared to $Nil for the nine month period ended March
31, 2012 and $111,693 has been incurred in the period from inception on July 14, 2004 to March 31, 2013.
-
Salaries and Benefit Costs
: Molecular USA and its subsidiary rely primarily on outside consultants and not salaried employees. As a result, Molecular USA incurred $Nil in
salaries and benefits for the nine month period ended March 31, 2013 and $Nil in salaries and benefits during the nine month period ended March, 2012.
For the period July 14, 2004 (inception) through March 31, 2013, 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 March 31, 2013. There are no current or deferred tax expenses for the nine month period ended
March 31, 2013, 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.
25
Liquidity and Capital Resources
During the nine month period ended March 31, 2013, Molecular USA satisfied its working capital needs by borrowing cash from its parent company PharmaNet.
As March 31, 2013, the Company had cash and cash equivalents on hand in the amount of $13,124 ($2,572 - June 30, 2012) and current payable and accrued
liabilities of $7,000 ($19,252 - June 30, 2012). As March 31, 2013, Molecular USA currently owes its parent company PharmaNet, $2,262,319, an additional
$21,255 to other related parties, and $7,000 to non-related parties. 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 and
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 March 31, 2013, Molecular USA did not have any off-balance sheet arrangements.
Research and Development
Since the acquisition of MPLA, Molecular USA has maintained 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.
On April 19, 2006, Molecular USA announced the filing of a new patent, Tissue Disruption Treatment and Composition for Use (US Patent number 11218382). The
patent describes a proprietary process for the manufacture of topical biological secondary injury mediators (B-SIMs) that should have local, rather than
systemic, effects and may be significantly less expensive to manufacture than conventional B-SIMs. MPLA is developing its B-SIMs to stop the tissue
disruption that occurs after injury by suppressing the body's reactions, such as inflammation and damage/death of otherwise uninjured cells that are
triggered in response to primary injury.
The first conditions targeted by MPLA will be the musculoskeletal injuries. The use of a B-SIM in these markets represents a new approach to one of the
world's largest over the counter drug markets and includes indications such as joint inflammation, musculoskeletal pain, overuse and strain injuries, burns
and even surgical and cosmetic procedures. MPLA's proprietary, industrially scalable peptide-ligand bond exchange (PLBE) B-SIM manufacturing process
involves the disassociation of proteins, rather than the far more costly process of assembling B-SIMs one sequence at a time. The patent was lodged in the
name of Cambridge Scientific Pty Ltd;
26
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 nine month period ended March 31, 2013, amounted to $Nil. Molecular USA does not anticipate any significant purchase or sale
of equipment over the next 12 months.
Recent Accounting Pronouncements
In March 2013, Financial Accounting Standards Board ("
FASB
") issued Accounting Standards Update ("
ASU
") No. 2013-05, "Foreign Currency Matters". The
amendments in this update resolve the diversity in practice about whether Subtopic 810-10, "Consolidation - Overall", or Subtopic 830-30, "Foreign Currency
Matters - Translation of Financial Statements", applies to the release of the cumulative translation adjustment into net income when a parent either sells
a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a
nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In
addition, the amendments in this update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also
referred to as step acquisitions) involving a foreign entity. ASU No. 2013-05 will be effective for fiscal years, and interim periods within those years,
beginning after 15 December 2013, with early adoption permitted, and should be applied retrospectively to all prior periods presented. The Company does not
expect the adoption of this update will have a material effect on its consolidated financial statements.
In February 2013, FASB issued ASU No. 2013-04, "Liabilities". This update requires an entity to measure obligations resulting from joint and several
liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of: (1)
the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity
expects to pay on behalf of its co-obligors. ASU No. 2013-04 will be effective for fiscal years, and interim periods within those years, beginning after 15
December 2013, with early adoption permitted. The Company does not expect the adoption of this update will have a material effect on its consolidated
financial statements.
In February 2013, FASB issued ASU No. 2013-02, "Comprehensive Income". The amendments in this update do not change the current requirements for reporting
net income or other comprehensive income in the financial statements. However, an entity is required to provide information about the amounts reclassified
out of accumulated other comprehensive income by component and to present, either on the face of the statement where net income is presented or in the
notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required
under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that
provide additional detail about those amounts. ASU No. 2013-02 will be effective prospectively for reporting periods beginning on or after 15 December
2012, with early adoption permitted. The Company does not expect the adoption of this update will have a material effect on its consolidated financial
statements.
In January 2013, FASB issued ASU No. 2013-01, "Balance Sheet". The amendments in this update clarify that the scope of ASU 2011-11, "Disclosures about
Offsetting Assets and Liabilities," applies to derivatives accounted for in accordance with Topic 815, "Derivatives and Hedging," including bifurcated
embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either
offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU No.
2013-01 will be effective for fiscal years beginning on or after 1 January 2013 and interim periods within those annual periods, and to be applied
27
retrospectively for all comparative periods presented. The Company does not expect the adoption of this update will have a material effect on its
consolidated financial statements.
In July 2012, FASB issued ASU No. 2012-02, "Intangibles - Goodwill and Other". This update presents an entity with the option to first assess qualitative
factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is
necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, "Intangibles - Goodwill and Other - General Intangibles Other
than Goodwill". The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. ASU No. 2012-02 will be effective for
annual and impairment tests performed for fiscal years beginning after 15 September 2012, with early adoption permitted. The Company does not expect the
adoption of this update will have a material effect on its consolidated financial statements.
Critical Accounting Policies and Estimates
Our quarterly interim consolidated 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 interim consolidated financial statements is
critical to an understanding of our financials.
Stock-based compensation
Effective January 1, 2006, the Company adopted the provisions of ASC 718,
"Compensation - Stock Compensation"
, which establishes accounting
for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date,
based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting
period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation
expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. Accordingly, the financial statements for the periods prior to January 1, 2006 have not been restated to
reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for
share-based payments to non-employees, with guidance provided by ASC 505-50,
"Equity-Based Payments to Non-Employees".