Item 1. Interim Consolidated Financial
Statements
.
The
information in this report for the nine months ended March 31, 2014, 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, 2013, in the Form 10-K filed with the Securities and Exchange
Commission ("
SEC
") on August
13, 2013.
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 2014
2
Molecular Pharmacology (USA)
Limited
(A Development Stage
Company)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
|
|
As at
31 March
2014
|
|
As at
30 June
2013
(Audited)
|
|
|
$
|
|
$
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Cash and cash
equivalents
|
|
1,013
|
|
7,046
|
Amounts receivable
|
|
5,347
|
|
5,070
|
|
|
|
|
|
|
|
6,360
|
|
12,116
|
|
|
|
|
|
Equipment
(Note 5)
|
|
108
|
|
140
|
|
|
|
|
|
|
|
6,468
|
|
12,256
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Accounts payable and
accrued liabilities (Note 6)
|
|
21,052
|
|
21,628
|
|
|
|
|
|
Due to
related parties
(Note 7)
|
|
2,148,686
|
|
2,044,501
|
|
|
|
|
|
|
|
2,169,738
|
|
2,066,129
|
|
|
|
|
|
Stockholders’
deficiency
|
|
|
|
|
Capital
stock
(Note 8)
|
|
|
|
|
Authorized
|
|
|
|
|
300,000,000 common shares, par value
$0.001
|
|
|
|
|
Issued and outstanding
|
|
|
|
|
31 March 2014
– 111,553,740 common shares, par value $0.001
|
|
|
|
|
30 June 2013 – 111,553,740 common
shares, par value $0.001
|
|
111,554
|
|
111,554
|
Additional
paid-in capital
|
|
106,707
|
|
106,707
|
Cumulative
translation adjustment
|
|
(236,115)
|
|
(210,186)
|
Deficit,
accumulated during the development stage
|
|
(2,145,416)
|
|
(2,061,948)
|
|
|
|
|
|
|
|
(2,163,270)
|
|
(2,053,873)
|
|
|
|
|
|
|
|
6,468
|
|
12,256
|
Nature and Continuance of Operations
(Note
1)
On behalf of the Board:
/s/ Jeffrey Edwards
Director
Jeffrey 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
2014
|
For the
three month
period ended
31 March
2014
|
For the
three month
period ended
31 March
2013
|
For the
nine month
period ended
31 March
2014
|
For the
nine month
period ended
31 March
2013
|
|
$
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Advertising and promotion
|
23,739
|
-
|
-
|
-
|
-
|
Amortization
(Note 5)
|
6,919
|
10
|
14
|
32
|
184
|
Analysis
|
33,947
|
-
|
-
|
-
|
-
|
Consulting (Note
7)
|
1,454,473
|
6,642
|
39,923
|
30,109
|
104,041
|
Office and
miscellaneous (Note 7)
|
268,314
|
6,283
|
4,630
|
21,453
|
20,410
|
Professional fees
|
432,283
|
5,702
|
7,029
|
26,746
|
26,772
|
Public relations
|
3,656
|
-
|
-
|
-
|
-
|
Rent (Note 7)
|
27,759
|
-
|
-
|
-
|
-
|
Salaries and
benefits
|
44,464
|
-
|
-
|
-
|
-
|
Transfer agent
and filing fees
|
22,300
|
1,504
|
-
|
5,128
|
-
|
Travel
|
111,710
|
-
|
-
|
-
|
359
|
|
|
|
|
|
|
Net
loss before other items
|
(2,429,564)
|
(20,141)
|
(51,596)
|
(83,468)
|
(151,766)
|
|
|
|
|
|
|
Other
items
|
|
|
|
|
|
Export market development grants
|
69,629
|
-
|
-
|
-
|
-
|
Write-off of equipment
|
(823)
|
-
|
-
|
-
|
(823)
|
Interest income
|
2,322
|
-
|
-
|
-
|
-
|
Research and development tax refund
|
213,020
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Net
loss for the period
|
(2,145,416)
|
(20,141)
|
(51,596)
|
(83,468)
|
(152,589)
|
|
|
|
|
|
|
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
|
(2,145,416)
|
(20,141)
|
(51,596)
|
(83,468)
|
(152,589)
|
Foreign currency
translation adjustment
|
(236,115)
|
(80,248)
|
(7,752)
|
(25,929)
|
(40,515)
|
|
|
|
|
|
|
Total
comprehensive loss for the period
|
(2,381,531)
|
(100,389)
|
(59,348)
|
(109,397)
|
(193,104)
|
|
|
|
|
|
|
Basic
and diluted comprehensive loss per common share
|
(0.001)
|
(0.001)
|
(0.001)
|
(0.002)
|
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
2014
|
For the
three
month
period
ended
31 March
2014
|
For the
three
month
period
ended
31 March
2013
|
For the
nine
month
period
ended
31
March
2014
|
For the
nine
month
period
ended
31
March
2013
|
|
$
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
Cash flows used in operating activities
|
|
|
|
|
|
Net loss for the period
|
(2,145,416)
|
(20,141)
|
(51,596)
|
(83,468)
|
(152,589)
|
Adjustments to reconcile net
loss to cash used by operating activities
|
|
|
|
|
|
Amortization
|
6,919
|
10
|
14
|
32
|
184
|
Write-down of
intangible assets
|
1,278
|
-
|
-
|
-
|
-
|
Write-off of equipment
|
823
|
-
|
-
|
-
|
823
|
Changes in operating assets and liabilities
|
|
|
|
|
|
Decrease (increase) in amounts receivable
|
(3,121)
|
(882)
|
3,186
|
(277)
|
775
|
Increase (decrease) in accounts
payable and accrued
liabilities
|
(26,365)
|
570
|
(184)
|
(576)
|
(12,252)
|
|
(2,165,882)
|
(20,443)
|
(48,580)
|
(84,289)
|
(163,059)
|
|
|
|
|
|
|
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 (used in) financing activities
|
|
|
|
|
Common shares issued for cash
|
234,497
|
-
|
-
|
-
|
-
|
Increase in due to related
parties
|
2,140,478
|
96,707
|
63,462
|
104,185
|
214,126
|
|
2,374,975
|
96,707
|
63,462
|
104,185
|
214,126
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(236,115)
|
(80,248)
|
(7,752)
|
(25,929)
|
(40,515)
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
1,013
|
(3,984)
|
7,130
|
(6,033)
|
10,552
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
-
|
4,997
|
5,994
|
7,046
|
2,572
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
1,013
|
1,013
|
13,124
|
1,013
|
13,124
|
Supplemental
Disclosures with Respect to Cash Flows
(Note
12)
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 year
|
-
|
|
-
|
|
-
|
|
(209,900)
|
|
-
|
|
(209,900)
|
Cumulative translation
adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
(235,886)
|
|
(235,886)
|
Balance at 30 June 2013
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(2,061,948)
|
|
(210,186)
|
|
(2,053,873)
|
Net loss for the period
|
-
|
|
-
|
|
-
|
|
(83,468)
|
|
-
|
|
(83,468)
|
Cumulative translation
adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
(25,929)
|
|
(25,929)
|
Balance at 31 March 2014
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(2,145,416)
|
|
(236,115)
|
|
(2,163,270)
|
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
2014
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 10).
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 (Note 2).
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
2014
The Company’s interim consolidated financial statements as at 31
March 2014 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 $83,468
for the nine month period ended 31 March 2014 (31 March 2013 – $152,589;
cumulative - $2,145,416) and has working capital deficit of $14,692 at 31 March
2014 (30 June 2013 – $9,512).
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 for the next twelve month period from the date of these
interim consolidated financial statements.
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.
Management is aware, in
making its assessment, of material uncertainties related to events or
conditions that may cast significant doubt upon the Company’s ability to
continue as a going concern. 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 2014, 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
2014
Equipment
Equipment
is recorded at cost and amortization is provided over its estimated economic
life at the rate of 15% declining balance.
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 Company’s functional and reporting currency is U.S.
dollars.
The interim
consolidated financial statements of the Company are translated to U.S. dollars
in accordance with
ASC 830, "
Foreign Currency Matters
". Assets and
liabilities denominated in foreign currencies are translated using the exchange
rate prevailing at the balance sheet date.
Revenue and expenses are translated at average rates of exchange
prevailing during the 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.
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
2014
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.
As at 31 March 2014, the Company had no outstanding stock options or warrants.
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 2014, the Company has
items that represent a comprehensive loss and, therefore, has included a
schedule of comprehensive loss in the interim consolidated financial
statements.
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.
10
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
3.
Changes in Accounting Policies
Effective
1 July 2013, the Company adopted Accounting Standards Update ("ASU")
2013-05, "
Foreign Currency Matters (Topic 830) –
Parent’s Accounting for the Cumulative Translation Adjustment upon
Derecognition of Certain Subsidiaries or Group of Assets within a Foreign
Entity or of an Investment in a Foreign Entity
". These
amendments provide guidance on releasing cumulative translation adjustments
when a reporting entity (parent) ceases to have a controlling financial
interest in a subsidiary or a group of assets that is a non-profit activity or
a business within a foreign entity. In addition, these amendments provide
guidance on the release of cumulative translation adjustments in partial sales
of equity method investments and in step acquisitions. The adoption of these
amendments did not have an impact on the Company’s interim consolidated
financial statements.
Effective
1 July 2013, the Company adopted ASU 2013-04, "
Liabilities
(Topic 405) – Obligations Resulting from Joint and Several Liability
Arrangements for Which the Total Amount of the Obligation is Fixed at the
Reporting Date
". These amendments provide guidance for the
recognition, measurement, and disclosure of 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, except for
obligations addressed within existing guidance in U.S. GAAP. The adoption of these
amendments did not have an impact on the Company’s interim consolidated
financial statements.
Effective
1 July 2013, the Company adopted ASU 2013-02, "
Comprehensive
Income (Topic 220) – Reporting of Amounts Reclassified out of Accumulated
Other Comprehensive Income
". The amendments require an entity to
provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required 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 U.S. GAAP to be reclassified to net
income in its entirety in the same reporting period. For other amounts that are
not required under U.S. GAAP to be reclassified in their entirety to net
income, an entity is required to cross reference to other disclosures required
under U.S. GAAP that provide additional details about those amounts. The
adoption of these amendments did not have an impact on the Company’s
interim consolidated financial statements.
11
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
4.
Recent Accounting Pronouncements
Certain
new standards, interpretations, amendments and improvements to existing
standards were issued by Financial Accounting Standards Board ("FASB").
The new standards, amendments to standards and interpretations that have been
issued and that are applicable to the Company but not effective during the nine
month period ended 31 March 2014 are as follows:
In
July 2013, the FASB issued ASU 2013-11, "
Income Taxes
(Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating
Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist
".
These amendments require that an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should be presented in the financial statements as a
reduction to a deferred tax asset for a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward except as follows. To the extent
a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction to settle any additional income taxes that would result
from a disallowance of a tax position or the tax law of the applicable
jurisdiction does not require the entity to use, and the entity does not intend
to use, the deferred tax asset for such purpose, the unrecognized tax benefit
should be presented in the financial statements as a liability and should not
be combined with deferred tax assets. These amendments are effective for fiscal
years, and interim periods within those years, beginning after 15 December
2013. The amendments should be applied prospectively to all unrecognized tax
benefits that exist at the effective date. Retrospective application and early
adoption is permitted. The adoption is not expected to have a material impact
on the Company’s interim consolidated financial statements.
5.
Equipment
|
|
|
|
|
|
Net Book Value
|
|
|
Cost
|
|
Accumulated amortization
|
|
As at
31 March
2014
|
|
As at
30 June
2013
(Audited)
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
864
|
|
756
|
|
108
|
|
140
|
During the nine month period
ended 31 March 2014, the total additions to equipment were $Nil (31 March 2013 –
$Nil).
6.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are
non-interest bearing, unsecured and have settlement dates within one year.
7.
Due to Related Parties and Related Party Transactions
As at 31 March 2014, the amount due to related
parties includes $1,000 payable to a director of the Company (30 June 2013
– $1,000). 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
2014
As at 31 March 2014, the amount due to related parties includes $43,522
payable to a company owned by a director of the Company or an officer of PharmaNet
(30 June 2013
–
$18,009). This
balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2014, the amount due to related parties includes $10,391
payable to a company owned by a director of the Company or an officer of
PharmaNet (30 June 2013
–
$2,772). This
balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 March 2014, the amount due to related parties includes $7,715
payable to a company owned by a director of the Company or an officer of
PharmaNet (30 June 2013 - $15,252).
This balance is non-interest bearing, unsecured and has no fixed terms
of repayment.
As at 31 March 2014, the amount due to related parties includes $2,086,058
payable to PharmaNet (30 June 2013
–
$2,007,468). This balance is non-interest bearing,
unsecured and has no fixed terms of repayment.
During the nine month period ended 31 March 2014, a director of
the Company or an officer of PharmaNet, and their controlled entities were paid
or accrued consulting fees of $23,199 (
31
March 2013
– $25,804, cumulative
- $919,377).
During the nine month period ended 31 March 2014, a director of
the Company or an officer of PharmaNet, and their controlled entities were paid
or accrued administrative fees of $18,814 (
31 March
2013
–
$18,023, cumulative - $87,108) by the
Company, which have been recorded in office and miscellaneous expense.
During the nine month period ended 31 March 2014, a director of
the Company or an officer of PharmaNet, and their controlled entities were paid
or accrued consulting fees of $6,910 (31 March 2013 - $67,754, cumulative - $118,571)
by the Company.
During the nine month period ended 31 March 2014, a director of
the Company or an officer of PharmaNet, and their controlled entities were paid
or accrued consulting fees of $Nil (31 March 2013 – $Nil, cumulative
– $41,928) by the Company.
During the nine month period ended 31 March 2014, 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
2013
–
$Nil, cumulative
–
$80,468) by the Company.
During the nine month period ended 31 March 2014, a director of
the Company or an officer of PharmaNet, and their controlled entities were paid
or accrued rental fees of $Nil (
31 March 2013
– $Nil, cumulative –
$12,987) by the Company.
During the nine month period ended 31 March 2014, 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 2013 - $Nil,
cumulative – $4,481) by the Company.
During the nine month period ended 31 March 2014, a director of the
Company or an officer of PharmaNet, and their controlled entities were paid or
accrued consulting fees of $Nil (31 March 2013 - $Nil, cumulative - $8,473) by
the Company.
13
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
Transactions comprising the amount due to PharmaNet are as
follows:
|
|
For the
nine
month
period
ended
31 March
2014
|
|
For the
year
ended
30 June
2013
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Opening balance, beginning of period
|
|
2,007,468
|
|
2,036,760
|
Funds
transferred to the Company by PharmaNet
|
|
53,925
|
|
204,583
|
Expenses paid by PharmaNet on behalf of the
Company
|
|
438
|
|
1,004
|
Foreign
currency translation adjustment
|
|
24,227
|
|
(234,879)
|
|
|
|
|
|
Balance, end of period
|
|
2,086,058
|
|
2,007,468
|
The weighted average amount due to PharmaNet for the nine month
period ended 31 March 2014 was $2,042,450 (30 June 2013 - $2,160,632).
8.
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.
9.
Segmented Information
Details on a geographic basis as at and for the nine
month period ended 31 March 2014 are as follows:
|
Australia
|
|
U.S.A.
|
|
Total
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
Current assets
|
6,360
|
|
-
|
|
6,360
|
Long-term assets
|
108
|
|
-
|
|
108
|
Loss for the period
|
(50,073)
|
|
(33,395)
|
|
(83,468)
|
14
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
Details
on a geographic basis as at and for the year ended 30 June 2013 are as follows:
|
Australia
|
|
U.S.A.
|
|
Total
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
Current assets
|
12,116
|
|
-
|
|
12,116
|
Long-term assets
|
140
|
|
-
|
|
140
|
Loss for the year
|
(162,485)
|
|
(47,415)
|
|
(209,900)
|
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
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
Current assets
|
17,459
|
|
-
|
|
17,459
|
Long-term assets
|
152
|
|
-
|
|
152
|
Loss for the period
|
(124,920)
|
|
(27,669)
|
|
(152,589)
|
10.
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 obtain all necessary regulatory
approvals for the Licensed Products and incorporate the Licensed Products in
the United States.
15
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
11.
Income Taxes
Income tax expense differs
from the amount that would result from applying the federal income tax rate to
earnings before income taxes. The
differences result from the following items:
|
|
For the
nine
month period ended 31 March
2014
|
|
For the
nine
month period ended 31 March
2013
|
|
|
$
|
|
$
|
|
|
|
|
|
Loss before income taxes
|
|
(83,468)
|
|
(152,589)
|
|
|
|
|
|
Federal income tax rates
|
|
35.0%
|
|
34.0%
|
|
|
|
|
|
Income
tax recovery based on the above rates
|
|
(29,214)
|
|
(51,880)
|
|
|
|
|
|
Increase
(decrease) due to:
|
|
|
|
|
Difference
between U.S. and foreign tax rates
|
|
2,504
|
|
4,997
|
Change in
valuation allowance
|
|
31,561
|
|
54,509
|
Foreign
exchange and other
|
|
(4,851)
|
|
(7,626)
|
|
|
|
|
|
Income tax expense
|
|
-
|
|
-
|
The composition of the Company’s deferred tax assets as at 31 March 2014
and 30 June 2013 are as follows:
|
|
As at
31 March
2014
|
|
As at
30 June
2013
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Net income tax operating loss
carry-forward
|
|
2,224,914
|
|
2,125,274
|
|
|
|
|
|
Deferred
tax assets
|
|
709,350
|
|
677,789
|
Less:
Valuation allowance
|
|
(709,350)
|
|
(677,789)
|
|
|
|
|
|
Net
deferred tax asset
|
|
-
|
|
-
|
16
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
The Company has non-capital
loss carry-forwards of approximately $2,224,914 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
|
47,415
|
2034
|
33,395
|
No expiry
|
1,387,389
|
|
|
|
2,224,914
|
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.
12.
Supplemental Disclosures with
Respect to Cash Flows
|
For the
period
from
the
date of inception on
14 July
2004
to
31 March
2014
|
For the
three
month
period
ended
31 March
2014
|
For the
three
month
period
ended
31 March
2013
|
For the
nine
month
period
ended
31 March
2014
|
For the
nine
month
period
ended
31 March
2013
|
|
$
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
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
|
-
|
-
|
-
|
-
|
17
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
13.
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, amounts receivable 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.
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 $21,413 lower ($21,413 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.
18
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 March
2014
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.
14.
Commitment
On 21 June 2013, the Company
executed an agreement with a New York-based company, Dermatology Development
Corporation, to develop and market a range of therapeutic, cosmetic and
cosmecutical products based on the ThermaLIFE® product range and its active
ingredient in the United States.
15.
Subsequent Event
There are no reportable
events for the period from the nine month period ended 31 March 2014 to the
date that the interim consolidated financial statements were available to be
issued.
19
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, 2014 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 (
"
U.S. GAAP
").
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
("
PharmaNet
"), 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, 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.
On July 19, 2013, Molecular USA announced its
wholly-owned subsidiary, MPLA, executed an agreement with a New York-based
company, Dermatology Development Corporation ("
DDC
") to develop and market a range of therapeutic,
cosmetic and cosmecutical products based on the ThermaLIFE® product range
and its active ingredient in the United States.
Under the terms of the agreement, DDC is
contracted to drive business relationships with a number of third party
entities to sell products predominantly in the dermatology and cosmetic fields
in the United States in return for an establishment fee and royalties on the
agreements executed as a result of DDC’s services, paid for a fixed
period net of MPLA’s costs of sales. The engagement of DDC is limited to
the provision of the services in the United States, and is for an initial one
year period which may be extended by mutual agreement between MPLA and DDC.
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.
20
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.
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 holding corporation
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. ("
Cambridge
Scientific
") 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,
21
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 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.
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 (
"
CGLP
"), 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
22
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.
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 United States 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
23
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.
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.
24
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 ("
SOA
"). The SOA imposes a
wide variety of new requirements on both United States and non-United States companies,
that file or are required to file periodic reports with 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;
|
·
|
ensure Molecular USA
'
s chief executive officer 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 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
In the period ended March 31, 2014, Molecular USA did
not have any employees and does not intend to hire any employees in the
upcoming year. We rely heavily on outside contractors to conduct our business.
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.
25
On commercial development, MPLA will focus on
consolidating the regulatory pathway work in order to prioritize the path to
market. Jeffrey Edwards will work to set-out the strategies designed to
maximize the multi-jurisdictional capabilities of MPLA's development teams.
Reports to Security Holders
We are required to file annual reports on Form 10-K and quarterly
reports on Form 10-Q with the SEC on a regular basis, and will be required to
timely disclose certain material events (e.g., changes in corporate control;
acquisitions or dispositions of a significant amount of assets other than in
the ordinary course of business; and bankruptcy) in a current report on Form
8-K.
Although our Internet site www.mpl-usa.com does not contain our reports,
you may read and copy any materials we file with the SEC at their Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
Results of Operation
For the quarter ended March 31, 2014.
Rev
enues
REVENUE
- Molecular USA has
not generated any revenues for the quarter ended March 31, 2014, or since
inception.
COMMON
STOCK
–
Molecular USA has not
issued any shares during the most recent quarter. As of the date of May 6, 2014, Molecular USA has 111,553,740 common shares issued
and outstanding.
Expenses
SUMMARY
–
Total expenses were $83,468 for the nine month period ended March 31, 2014. Expenses had decreased during this past nine
month period as compared to the nine month period ended March 31, 2013 –
$151,766. A total of $2,429,564 in expenses has been incurred by Molecular USA
since inception on
July 14, 2004
through to March 31, 2014. The decrease
in costs over this nine month period has occurred as the result of Molecular USA’s
wholly owned subsidiary decrease in its consulting fees. The costs can be
subdivided into the following categories:
-
Office Expenses and Rent
: $21,453 in
office expenses (for administrative costs) were incurred for the nine
month period ended
March 31, 2014,
as compared to $20,410
for the nine month period ended March 31, 2013, while a total of $268,314
was incurred in the period from inception on
July
14, 2004
to March 31, 2014. 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, 2014, $30,109 in consulting and analysis expenses were incurred as
compared to $104,041 during the nine month period ended
March
31, 2013.
We have incurred a total of $1,454,473
in consulting and analyst fees since our inception on
July 14, 2004
to
March
31, 2014
.
-
Advertising and Promotion
Fees
: Molecular USA has spent no money in this area this year. During the nine month period ended
March 31, 2014,
we spent $Nil on
advertising and public relations and $Nil for nine month period ended March
31, 2013. A total of $23,739 has
been incurred in this area during the period from inception on
July 14, 2004
to
March 31, 2014
.
26
-
Professional Fees
: Molecular USA
incurred $26,746 in professional fees for the nine month period ended on March
31,
2014,
as compared to $26,772
for the nine month period ended March 31, 2013. From inception on July 14,
2004 to
March 31, 2014
, we have incurred
a total of $432,283 professional fees mainly spent on legal and accounting
matters.
-
Travel Costs
: Molecular USA incurred
$Nil in travel costs for the nine month period ended March 31, 2014, as
compared to $359 for the nine month period ended March 31, 2013
and
$111,710 has been incurred in the period
from inception on
July 14, 2004
to
March
31, 2014
.
-
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,
2014 and $Nil in salaries and benefits during the nine month period ended March
31, 2013. For the period
July 14, 2004
(inception) through
March 31, 2014
, 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, 2014. There are no current or deferred tax
expenses for the nine month period ended March 31, 2014, 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.
Liquidity and Capital Resources
During the nine month period ended March 31, 2014, Molecular USA satisfied its
working capital needs by borrowing cash from its parent company PharmaNet. As at March 31, 2014, the Company had
cash and cash equivalents on hand in the amount of $1,013
(
June 30, 2013 - $7,046)
and current payable and accrued liabilities of $21,052 (June 30, 2013 - $21,628). As at March 31, 2014, Molecular USA
currently owes its parent company PharmaNet, $2,086,058
,
an additional $62,628
to other related parties, and $21,052 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, 2014, 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:
27
·
|
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; 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, 2014, amounted to $Nil. Molecular USA does not anticipate any
significant purchase or sale of equipment over the next 12 months.
Recent Accounting Pronouncements
Certain
new
standards, interpretations, amendments and improvements to existing standards
were issued by the Financial Accounting Standards Board ("
FASB
"). The new standards, amendments to standards and
interpretations that have been issued and that are applicable to the Company
but not effective during the nine month period ended March 31, 2014 are as
follows:
In July 2013, the FASB
issued ASU 2013-11, "
Income Taxes (Topic 740):
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist
".
These amendments require that an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should be presented in the financial statements as a
reduction to a deferred tax asset for a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward except as follows. To the extent
a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction to settle any additional income taxes that would result
from a disallowance of a tax position
28
or the tax law of the
applicable jurisdiction does not require the entity to use, and the entity does
not intend to use, the deferred tax asset for such purpose, the unrecognized
tax benefit should be presented in the financial statements as a liability and
should not be combined with deferred tax assets. These amendments are effective
for fiscal years, and interim periods within those years, beginning after
December 15, 2013. The amendments should be applied prospectively to all
unrecognized tax benefits that exist at the effective date. Retrospective
application and early adoption is permitted. The adoption is not expected to
have a material impact on the Company’s consolidated financial
statements.
Changes in Accounting Policies
Effective July 1, 2013, the Company adopted ASU 2013-05, "
Foreign Currency Matters (Topic 830) – Parent’s Accounting
for the Cumulative Translation Adjustment upon Derecognition of Certain
Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in
a Foreign Entity
". These amendments provide guidance on
releasing cumulative translation adjustments when a reporting entity (parent)
ceases to have a controlling financial interest in a subsidiary or a group of
assets that is a non-profit activity or a business within a foreign entity. In
addition, these amendments provide guidance on the release of cumulative
translation adjustments in partial sales of equity method investments and in
step acquisitions. The adoption of these amendments did not have an impact on
the Company’s interim consolidated financial statements.
Effective July 1, 2013, the Company adopted ASU 2013-04, "
Liabilities (Topic 405) – Obligations Resulting from Joint and
Several Liability Arrangements for Which the Total Amount of the Obligation is
Fixed at the Reporting Date
". These amendments provide
guidance for the recognition, measurement, and disclosure of 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, except for obligations addressed within existing guidance in
U.S. GAAP. The adoption of these amendments did not have an impact on the
Company’s interim consolidated financial statements.
Effective July 1, 2013, the Company adopted ASU 2013-02, "
Comprehensive Income (Topic 220) – Reporting of Amounts
Reclassified out of Accumulated Other Comprehensive Income
".
The amendments require an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In
addition, an entity is required 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 U.S. GAAP to
be reclassified to net income in its entirety in the same reporting period. For
other amounts that are not required under U.S. GAAP to be reclassified in their
entirety to net income, an entity is required to cross reference to other
disclosures required under U.S. GAAP that provide additional details about
those amounts. The adoption of these amendments did not have an impact on the
Company’s interim consolidated financial statements.
Critical Accounting Policies and Estimates
Our quarterly interim consolidated financial
statements and accompanying notes are prepared in accordance with U.S. GAAP
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
29
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".