OMB
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|
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
|
|
X
|
|
QUARTERLY REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the quarter
period ended
December 31, 2009
|
|
|
|
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period
from___________ to __________
|
|
Commission file number
000-52331
|
MOLECULAR
PHARMACOLOGY (USA) LIMITED
|
(Exact name of registrant
as specified in its charter)
|
NEVADA
|
|
71-0900799
|
(State or other
jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
Drug Discovery Centre
284 Oxford Street, Leederville 6007 Perth, Western Australia
|
(Address of principal
executive offices)
|
011-61-8-9443-3011
|
(Registrant's
telephone number including area code)
|
Not Applicable
|
(Former name, former
address and formal fiscal year, if changed since last report)
|
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
|
Yes
x
|
No
o
|
|
Indicate by check mark whether the registrant is
large accelerated filer, an accelerated filer, a non accelerated filer, or a
small reporting company. See the definitions of "large accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act (Check one):
|
Large Accelerated Filer
o
|
Accelerated Filer
|
Non-Accelerated Filer
o
|
Smaller Reporting Company
x
|
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
|
Yes
o
|
No
x
|
Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Section 12, 13 and
15(d) of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court
|
|
Yes
x
|
No
o
|
State the number of
shares outstanding of each of the issuer's classes of common equity, as
of the latest practicable date.
|
111,553,740
common shares issued and outstanding as of February 12, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
i
MOLECULAR
PHARMACOLOGY (USA) LIMITED
Form 10-Q
December 31, 2009
Table of Contents
PART I - FINANCIAL INFORMATION
|
|
Item 1.
|
Interim Consolidated Financial Statements
|
1
|
Item 2.
|
Management Discussion and Analysis of Financial Condition and Results
of Operation
|
20
|
Item 3.
|
Quantitative and Quantitative Disclosures About Market Risk
|
30
|
Item 4.
|
Controls and Procedures
|
31
|
|
|
|
PART II - OTHER INFORMATION
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
32
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
32
|
Item 3.
|
Defaults Upon Senior Securities
|
32
|
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
32
|
Item 5.
|
Other Information
|
32
|
Item 6.
|
Exhibits and Reports on Form 10-Q
|
33
|
|
|
|
SIGNATURES
|
33
|
ii
PART 1 - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial
Statements
The
information in this report for the six months ended December 31, 2009, is
unaudited but includes all adjustments (consisting only of normal recurring
accruals, unless otherwise indicated) which Molecular Pharmacology (USA)
Limited ("
Molecular USA
" or the "
Company
") considers necessary for a fair presentation
of the financial position, results of operations, changes in stockholders'
equity and cash flows for those periods.
The interim
consolidated financial statements should be read in conjunction with Molecular
USA's financial statements and the notes thereto contained in Molecular
USA's Audited Consolidated Financial Statements for the year ended June 30, 2009,
in the Form 10K filed with the SEC on October 2, 2009.
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 December 2009
2
Molecular Pharmacology (
USA
) Limited
(A Development Stage
Company)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
|
|
As at
31
December
2009
|
|
As at
30 June
2009
(Audited)
|
|
|
$
|
|
$
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Cash and cash equivalents
|
|
5,695
|
|
7,543
|
Amounts receivable
|
|
6,434
|
|
2,917
|
|
|
|
|
|
|
|
12,129
|
|
10,460
|
|
|
|
|
|
Equipment
(Note
3)
|
|
2,559
|
|
2,920
|
|
|
|
|
|
|
|
14,688
|
|
13,380
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Accounts payable and accrued liabilities (Note 4)
|
|
22,240
|
|
30,829
|
|
|
|
|
|
Due to related parties
(Note
5)
|
|
1,488,216
|
|
1,273,680
|
|
|
|
|
|
|
|
1,510,456
|
|
1,304,509
|
|
|
|
|
|
Stockholders' deficiency
|
|
|
|
|
Capital stock
(Note
6)
|
|
|
|
|
Authorized
|
|
|
|
|
300,000,000 of common shares, par value $0.001
|
|
|
|
|
Issued and outstanding
|
|
|
|
|
31 December 2009 - 111,553,740 common shares, par value $0.001
|
|
|
|
|
30 June 2009 -
111,553,740 common shares, par value $0.001
|
|
111,554
|
|
111,554
|
Additional paid-in capital
|
|
106,707
|
|
106,707
|
Cumulative translation adjustment
|
|
(216,496)
|
|
(75,804)
|
Deficit, accumulated during the development
stage
|
|
(1,497,533)
|
|
(1,433,586)
|
|
|
|
|
|
|
|
(1,495,768)
|
|
(1,291,129)
|
|
|
|
|
|
|
|
14,688
|
|
13,380
|
Nature and Continuance of Operations
(Note
1),
Commitment
(Note 8),
Contingency
(Note 11) and
Subsequent
Event
(Note 12)
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 December
2009
|
For the
three month
period
ended
31 December
2009
|
For the
three month
period
ended
31 December
2008
|
For the
six month
period
ended
31 December
2009
|
For the
six month
period
ended
31 December
2008
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Advertising and promotion
|
|
23,739
|
|
-
|
|
-
|
|
-
|
|
-
|
Amortization
(Note 3)
|
|
5,291
|
|
185
|
|
206
|
|
361
|
|
474
|
Analysis
|
|
33,947
|
|
-
|
|
-
|
|
-
|
|
-
|
Consulting (Note
5)
|
|
1,120,841
|
|
10,580
|
|
7,498
|
|
25,934
|
|
15,830
|
Office and
miscellaneous (Note 5)
|
|
160,586
|
|
4,132
|
|
4,681
|
|
14,575
|
|
13,951
|
Professional fees
|
|
242,430
|
|
10,928
|
|
15,292
|
|
18,362
|
|
23,864
|
Public relations
|
|
3,656
|
|
-
|
|
-
|
|
-
|
|
-
|
Rent (Note 5)
|
|
27,759
|
|
-
|
|
-
|
|
-
|
|
-
|
Salaries and
benefits
|
|
44,464
|
|
-
|
|
-
|
|
-
|
|
-
|
Transfer agent
and filing fees
|
|
15,542
|
|
3,655
|
|
3,048
|
|
4,715
|
|
3,152
|
Travel (recovery)
|
|
104,249
|
|
-
|
|
(246)
|
|
-
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before other items
|
|
(1,782,504)
|
|
(29,480)
|
|
(30,479)
|
|
(63,947)
|
|
(59,031)
|
|
|
|
|
|
|
|
|
|
|
|
Other
items
|
|
|
|
|
|
|
|
|
|
|
Export market development grants
|
|
69,629
|
|
-
|
|
-
|
|
-
|
|
-
|
Interest income
|
|
2,322
|
|
-
|
|
-
|
|
-
|
|
-
|
Research and development tax refund
|
213,020
|
|
-
|
|
6,751
|
|
-
|
|
6,751
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
(1,497,533)
|
|
(29,480)
|
|
(23,728)
|
|
(63,947)
|
|
(52,280)
|
|
|
|
|
|
|
|
|
|
|
|
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
income (loss)
|
|
|
|
|
|
|
|
|
|
|
Net loss for the
period
|
|
(1,497,533)
|
|
(29,480)
|
|
(23,728)
|
|
(63,947)
|
|
(52,280)
|
Foreign currency
translation adjustment
|
|
(216,496)
|
|
(31,982)
|
|
192,862
|
|
(140,692)
|
|
398,568
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) for the period
|
|
(1,714,029)
|
|
(61,462)
|
|
169,134
|
|
(204,639)
|
|
346,288
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) per common share
|
|
(0.001)
|
|
0.002
|
|
(0.002)
|
|
0.003
|
|
|
|
|
|
|
|
|
|
|
|
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
December
2009
|
For the
three
month
period
ended
31
December
2009
|
For the
three
month
period
ended
31
December
2008
|
For the
six
month period
ended
31
December
2009
|
For the
six
month
period
ended
31
December
2008
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used in operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
(1,497,533)
|
|
(29,480)
|
|
(23,728)
|
|
(63,947)
|
|
(52,280)
|
Adjustments
to reconcile loss to net cash used by operating activities
|
|
|
|
|
|
|
|
|
|
|
Amortization
(Note 3)
|
|
5,291
|
|
185
|
|
206
|
|
361
|
|
474
|
Write-down
of intangible assets
|
|
1,278
|
|
-
|
|
-
|
|
-
|
|
-
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in amounts receivable
|
(4,208)
|
|
(1,170)
|
|
(91)
|
|
(3,517)
|
|
6,646
|
Increase (decrease) in accounts payable and accrued
liabilities (Note 4)
|
(25,177)
|
|
(6,162)
|
|
10,023
|
|
(8,589)
|
|
3,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,520,349)
|
|
(36,627)
|
|
(13,590)
|
|
(75,692)
|
|
(41,901)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment (Note 3)
|
|
(7,850)
|
|
-
|
|
-
|
|
-
|
|
(134)
|
Purchase of intangible assets
|
|
(1,278)
|
|
-
|
|
-
|
|
-
|
|
-
|
Cash acquired on the purchase of Molecular
Pharmacology (USA) Limited (Note 1)
|
|
37,163
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,035
|
|
-
|
|
-
|
|
-
|
|
(134)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in) financing activities
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash (Note 6)
|
|
234,497
|
|
-
|
|
-
|
|
-
|
|
-
|
Increase (decrease) in due to related parties (Note
5)
|
|
1,480,008
|
|
63,538
|
|
(182,099)
|
|
214,536
|
|
(372,308)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,714,505
|
|
63,538
|
|
(182,099)
|
|
214,536
|
|
(372,308)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(216,496)
|
|
(31,982)
|
|
192,862
|
|
(140,692)
|
|
398,568
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
5,695
|
|
(5,071)
|
|
(2,827)
|
|
(1,848)
|
|
(15,775)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
-
|
|
10,766
|
|
8,542
|
|
7,543
|
|
21,490
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
5,695
|
|
5,695
|
|
5,715
|
|
5,695
|
|
5,715
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures with Respect to Cash Flows
(Note
9)
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 period
|
|
-
|
|
-
|
|
-
|
|
(63,947)
|
|
-
|
|
(63,947)
|
Cumulative
translation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(140,692)
|
|
(140,692)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009
|
111,553,740
|
|
111,554
|
|
106,707
|
|
(1,497,533)
|
|
(216,496)
|
|
(1,495,768)
|
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 December
2009
1.
Nature and Continuance of Operations
Molecular Pharmacology (USA) Limited (the "Company") was
incorporated in the state of Nevada
on 1 May 2002 under the name Blue Hawk Ventures, Inc. The Company changed its name to
Molecular Pharmacology (USA) Limited on 29 August 2005. At the same time, the Company completed
a four for one forward split of its issued and outstanding share capital and
altered its share capital to 300,000,000 shares of common stock with a par
value of $0.001 per share.
The Company is an 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 in establishing a new business, and its planned
principle operations have not commenced, and, accordingly, no revenue has been
derived during the organization period.
On 13 October 2005, the Company entered into a distribution and supply
agreement (the "Distribution Agreement") with Molecular Pharmacology Pty Ltd
(formerly Molecular Pharmacology Limited) ("MPLA"). MPLA is
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. Under the terms of
the distribution and supply agreement, the Company has the exclusive
distribution rights to distribute, market, promote, detail, advertise and sell
certain "Licensed Products", as defined in the agreement (Note 8).
Since signing the Distribution Agreement with MPLA, the Company has
engaged in organizational and start up activities, including developing a new
business plan, recruiting new directors, scientific advisors and key scientists,
making arrangements for laboratory facilities and office space and raising
additional capital. The Company has
generated no revenue from product sales.
The Company does not have any pharmaceutical products currently
available for sale, and none are expected to be commercially available for some
time, if at all. The Licensed
Products must first undergo pre-clinical and human clinical testing in the United States
before they may be sold commercially.
The Company completed a share purchase agreement on 8 May 2006 with
PharmaNet. Under the terms of the
agreement the Company acquired 100% of the issued and outstanding shares of
MPLA (the "Purchase Agreement"). The Company, in exchange for 100% of the
issued and outstanding shares of MPLA, issued PharmaNet an aggregate total of
88,000,000 shares of its common shares of the Company on the closing of the
transaction. The issuance of
88,000,000 common shares of the Company constituted an acquisition of control
of the Company by PharmaNet. The
transaction has been accounted for as a recapitalization of the Company (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.
7
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
On 15 March 2007, the Board of Directors approved a change in the
Company's financial year end from 31 October to 30 June. The decision to
change the fiscal year end was intended to assist the financial community in
its analysis of the business and in comparing the Company's financial
results to others in the industry, and to synchronize the Company's
fiscal reporting with MPLA.
The Company's interim
consolidated financial statements as at 31 December 2009 and for the six 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 $63,947
for the six month period ended 31 December 2009 (six month period ended 31
December 2008 - net loss of $52,280) and has a working capital deficit of
$10,111 at 31 December 2009 (30 June 2009 - $20,369).
Management cannot provide assurance that the Company will ultimately
achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management
believes that the Company's capital resources should be adequate to
continue operating and maintaining its business strategy during the fiscal year
ending 30 June 2010. 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 December 2009, 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 generally accepted accounting principles in the United States of America
("U.S. GAAP") applicable for a developmental stage company for
financial information and are expressed in U.S. dollars.
Principle of consolidation
These interim consolidated financial statements include the accounts of
MPLA since its incorporation on 14 July 2004 and MPLA USA since the
reverse acquisition on 8 May 2006 (Note 1). All intercompany balances and
transactions have been eliminated.
8
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
Cash and cash equivalents
Cash and cash equivalents include highly liquid
investments with original maturities of three months or less.
Financial instruments
The carrying value of cash and cash equivalents, amounts receivable,
accounts payable and accrued liabilities and due to related parties
approximates their fair value because of the short maturity of these
instruments. The Company's
operations are in Australia
and virtually all of its assets and liabilities give rise to significant
exposure to market risks from changes in foreign currency rates. The Company's financial risk is
the risk that arises from fluctuations in foreign exchange rates and the degree
of volatility of these rates.
Currently, the Company does not use derivative instruments to reduce its
exposure to foreign currency risk.
Foreign currency translation
The 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 year. 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.
Derivative financial instruments
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 their estimated economic lives 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 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 loss and credit carry
forwards.
9
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company provides for deferred taxes
for the estimated future tax effects attributable to temporary differences and
carry-forwards when realization is more likely than not.
Comprehensive loss
ASC 220, "
Comprehensive Income
",
establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As at 31 December 2009, 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 loss per share
The Company computes net 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 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,
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. 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
".
10
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
Changes in
accounting policies
Fair Value Measurement and Disclosure
In August 2009, the Financial
Accounting Standard Board ("FASB") issued ASU No. 2009-05, "
Fair Value Measurement and Disclosure (Topic 820)
- Measuring
Liabilities at Fair Value
", which provides valuation
techniques to measure fair value in circumstances in which a quoted price in an
active market for the identical liability is not available. The guidance provided in this update is
effective 1 October 2009. The
adoption of this guidance did not have a material impact on the Company's
interim consolidated financial statements.
The Accounting Standards Codification
In June 2009, the FASB issued SFAS No. 168, "
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principle - a replacement of
FASB Statement No. 162
".
The Codification reorganized existing U.S. accounting and reporting
standards issued by the FASB and other related private sector standard setter
into a single source of authoritative accounting principles arranged by
topic. The Codification supersedes
all existing U.S.
accounting standards; all other accounting literature not included in the
Codification (other than Securities and Exchange Commission guidance for
publicly-traded companies) is considered non-authoritative. The Codification was effective on a
prospective basis for interim and annual reporting periods ending after 15
September 2009. The adoption of the
Codification changed the Company's references to U.S. GAAP accounting
standards, but did not impact the Company's results of operations,
financial position or liquidity.
Subsequent Events
In May 2009, the FASB issued new guidance for
accounting for subsequent events.
The new guidance, which is now part of ASC 855, "
Subsequent Events
" is intended to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date, but before financial statements are issued or are available
to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. This
disclosure should alert all users of financial statements that an entity has
not evaluated subsequent events after that date in the set of financial
statements being presented. The new
guidance was effective on a prospective basis for interim or annual reporting
periods ending after 15 June 2009.
The adoption of this guidance did not have a material 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 December
2009
Convertible Debt
In May 2008, the FASB issued new guidance for
accounting for convertible debt instruments that may be settled in cash. The new guidance, which is now part of
ASC 470-20, "
Debt with Conversion and
Other Options
" requires the liability and equity components to
be separately accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate.
The Company will allocate a portion of the proceeds received from the
issuance of convertible notes between a liability and equity component by
determining the fair value of the liability component using the Company's
nonconvertible debt borrowing rate.
The difference between the proceeds of the notes and the fair value of
the liability component will be recorded as a discount on the debt with a
corresponding offset to paid-in capital.
The resulting discount will be accreted by recording additional non-cash
interest expense over the expected life of the convertible notes using the
effective interest rate method. The
new guidance was to be applied retrospectively to all periods presented upon
those fiscal years. The adoption of
this guidance did not have a material impact on the Company's interim
consolidated financial statements.
Useful Life of Intangible Assets
In April 2008, the FASB issued new guidance
for determining the useful life of an intangible assets, the new guidance,
which is now part of ASC 350, "
Intangibles
-
Goodwill and Other
".
In determining the useful life of intangible assets, ASC 350 removes the
requirement to consider whether an intangible asset can be renewed without
substantial cost of material modifications to the existing terms and conditions
and, instead, requires an entity to consider its own historical experience in
renewing similar arrangements. ASC
350 also requires expanded disclosure related to the determination of
intangible asset useful lives. The
new guidance was effective for financial statements issued for fiscal years
beginning after 15 December 2008.
The adoption of this guidance did not have a material impact on the
Company's interim consolidated financial statements.
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued new guidance
on the disclosure of derivative instruments and hedging activities. The new guidance, which is now part of ASC
815, "
Derivatives and Hedging Activities
"
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of, and gains
and losses on, derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. The new guidance was effective
prospectively for financial statements issued for fiscal years beginning after
15 November 2008, with early application encouraged. The adoption of this guidance did not
have a significant impact on the Company's interim consolidated financial
statements.
12
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
Business Combinations
In December 2007, the FASB issued revised
guidance for accounting for business combinations. The revised guidance, which is now part
of ASC 805, "
Business Combination
"
requires the fair value measurement of assts acquired, liabilities assumed and
any noncontrolling interest in the acquiree, at the acquisition date with
limited exceptions. Previously, a
cost allocation approach was used to allocate the cost of the acquisition based
on the estimated fair value of the individual assets acquired and liabilities
assumed. The cost allocation
approach treated acquisition-related costs and restructuring costs that the
acquirer expected to incur as a liability on the acquisition date, as part of
the cost of the acquisition. Under
the revised guidance, those costs are recognized in the statement of income
separately from the business combination.
The revised guidance applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after 15 December 2008. The adoption of this
guidance did not have a material impact on the Company's interim
consolidate financial statements.
Recent accounting pronouncements
From June 2009 to
October 2009, the FASB issued various updates, Accounting Standard Update
("ASU") No. 2009-2 through ASU No. 2009-15, which contain technical
corrections to existing guidance or affect guidance to specialized industries
or entities. These updates have no
current applicability to the Company or their effect on the interim
consolidated financial statements is insignificant.
In June 2009, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 167, "
Amendments to FASB Interpretation No. 46(R)
". SFAS No. 167, which amends ASC
810-10, "
Consolidation
", prescribes a
qualitative model for identifying whether a company has a controlling financial
interest in a variable interest entity ("VIE") and eliminates the
quantitative model. The new model
identifies two primary characteristics of a controlling financial interest: (1)
provides a company with the power to direct significant activities of the VIE,
and (2) obligates a company to absorb losses of and/or provides rights to
receive benefits from the VIE. SFAS
167 requires a company to reassess on an ongoing basis whether it holds a
controlling financial interest in a VIE.
A company that holds a controlling financial interest is deemed to be
the primary beneficiary of the VIE and is required to consolidate the VIE. SFAS No. 167, which is referenced in ASC
105-10-65, has not yet been adopted into the Codification and remains
authoritative. SFAS No. 167 is
effective 1 January 2010. The
Company does not expect that the adoption of SFAS No. 167 will have a material
impact on its interim consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, "
Accounting for Transfer of Financial Assets
-
an amendment of FASB Statement
". SFAS No. 166 removes the concept of a
qualifying special-purpose entity from ASC 860-10, "
Transfers
and Servicing
", and removes the exception from applying ASC 810-10, "
Consolidation
". These
statements also clarifies the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. SFAS No. 166, which is referenced in ASC
105-10-65, has not yet been adopted into the Codification and remains
authoritative. This statement is
effective 1 January 2010. The
Company does not expect that the adoption of SFAS No. 166 will have a material
impact on its interim consolidated financial statements.
13
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
International Financial Reporting Standards
In November 2008, the Securities and Exchange Commission
("SEC") issued for comment a proposed roadmap regarding potential use of
financial statements prepared in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board. Under
the proposed roadmap, the Company would be required to prepare financial
statements in accordance with IFRS in fiscal year 2014, including comparative
information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the
potential impact of IFRS on its interim consolidated financial statements and
will continue to follow the proposed roadmap for future developments.
3.
Equipment
|
|
|
Accumulated amortization
|
|
Net Book Value
|
|
|
Cost
|
|
As at
31 December
2009
|
|
As at
30 June
2009
(Audited)
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
7,840
|
|
5,281
|
|
2,559
|
|
2,920
|
During the six
month period ended 31 December 2009 the total additions to equipment were $Nil
(31 December 2008 - $134).
4.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities are non-interest bearing, unsecured and have
settlement dates within one year.
5.
Due
to Related Parties and Related Party Transactions
As at 31 December 2009, the amount due
to related parties includes $1,000 payable to a director of the Company (30
June 2009
-
$1,000). This
balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 December 2009, the amount due
to related parties includes $57,567 payable to a company owned by a director of
the Company or an officer of PharmaNet (30 June 2009
-
$25,498). This
balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 December 2009, the amount due
to related parties includes $1,220 payable to a company owned by a director of
the Company or an officer of PharmaNet (30 June 2009
-
$1,124). This
balance is non-interest bearing, unsecured and has no fixed terms of repayment.
As at 31 December 2009, the amount due
to related parties includes $1,428,429 payable to PharmaNet (30 June 2009
-
$1,246,058). This balance is non-interest bearing,
unsecured and has no fixed terms of repayment.
14
Molecular Pharmacology (USA)
Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
During the six month period ended 31
December 2009, a director of the Company or an officer of PharmaNet, and their
controlled entities were paid or accrued consulting fees and office and
miscellaneous expenses of $25,934 (six month period ended 31 December 2008
- $15,071, cumulative - $756,508) and $12,898 (six month period
ended 31 December 2008
-
$11,607, cumulative
-
$76,014) respectively by the Company.
During the six month period ended 31
December 2009, a director of the Company or an officer of PharmaNet, and their
controlled entities were paid or accrued rental fees of $Nil by the Company
(six month period ended 31 December 2008 - $Nil, cumulative -
$12,987).
Transactions comprising the amount due
to PharmaNet are as follows:
|
|
For the
six month
period
ended
31
December
2009
|
|
For the
year
ended
30 June
2009
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Opening balance, beginning of period
|
|
1,246,058
|
|
1,411,131
|
Funds
transferred to the Company by PharmaNet
|
|
44,150
|
|
57,948
|
Expenses paid by PharmaNet on behalf of the
Company
|
|
1,001
|
|
520
|
Foreign
currency translation adjustment
|
|
137,220
|
|
(223,541)
|
|
|
|
|
|
Balance as at 31 December 2009 and 30 June 2009
|
|
1,428,429
|
|
1,246,058
|
The average amount due to PharmaNet for
the six month period ended 31 December 2009 was $1,492,289 (year ended 30 June
2009
-
$1,270,929).
6.
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.
15
Molecular Pharmacology (USA)
Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
7.
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
six month
period
ended
31
December
2009
|
|
For the
six month
period
ended
31
December
2008
|
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
(63,947)
|
|
(52,280)
|
|
|
|
|
|
|
|
Federal income tax rates
|
|
|
|
34.0%
|
|
34.0%
|
|
|
|
|
|
|
|
Income
tax recovery based on the above rates
|
|
|
|
(21,742)
|
|
(17,775))
|
|
|
|
|
|
|
|
Increase
(decrease) due to:
|
|
|
|
|
|
|
Difference
between US and foreign tax rates
|
|
|
|
1,731
|
|
1,008
|
Change in
valuation allowance
|
|
|
|
48,762
|
|
(66,721)
|
Foreign
exchange and other
|
|
|
|
(28,751)
|
|
83,488
|
|
|
|
|
|
|
|
Income tax expense (recovery)
|
|
|
|
-
|
|
-
|
The
composition of the Company's deferred tax assets as at 31 December 2009
and 30 June 2009 are as follows:
|
|
|
|
|
|
|
|
As at
31
December
2009
|
|
As at
30 June
2009
(Audited)
|
|
|
$
|
|
$
|
|
|
|
|
|
Net income tax operating loss
carryforward
|
|
1,639,680
|
|
1,479,897
|
|
|
|
|
|
Deferred
tax assets
|
|
517,402
|
|
468,640
|
Less:
Valuation allowance
|
|
(517,402)
|
|
(468,640)
|
|
|
|
|
|
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 December
2009
The Company has non-capital loss carry-forwards of approximately
$1,639,680 that may be available for tax purposes. The loss carry-forwards are all in
respect of US 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
|
77,128
|
2029
|
57,881
|
2030
|
20,685
|
No expiry
|
1,002,222
|
|
|
|
1,639,680
|
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.
8.
Commitment
On 13 October 2005, t
he Company entered into the Distribution
Agreement with MPLA (Note 1).
The basic terms of the
Distribution Agreement are as follows:
i.
MPLA has granted exclusive distribution rights to the Company to
distribute, market, promote, detail, advertise and sell certain "Licensed
Products", as defined in the Distribution Agreement, with metallo-polypeptide analgesic as an active ingredient, in the United States
(excluding its territories and possessions);
ii.
The Company paid MPLA $1,000 upon the date of execution of the
Distribution Agreement and is required to pay $100,000 six months from the date
of execution of the Distribution Agreement or the date that any Licensed
Product is available and ready for distribution and sale in commercial
quantities in the United States under the terms of the Distribution Agreement
(the "Commencement Date"), whichever occurs first;
iii.
The Company is also required to pay MPLA a royalty of 5% as set out in
the Distribution Agreement;
iv.
MPLA will supply all Licensed Products to the Company under the
Distribution Agreement;
v.
MPLA is responsible for obtaining all necessary regulatory approvals
for the licensed product in the United
States; and
17
Molecular Pharmacology (USA) Limited
(A Development Stage Company)
Notes to Interim
Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
31 December 2009
vi.
The Distribution Agreement is for a one year term from the Commencement
Date and may be automatically extended by successive one-year periods, unless
at least three months prior to the renewal date, as defined in the Distribution
Agreement, either party advises the other party that it elects not to permit
the extension of the term.
The $100,000 payment to MPLA according to the
terms of the Distribution Agreement has not yet been made and the Company is
currently renegotiating the terms of the Distribution Agreement (Note 11).
9.
Supplemental Disclosures with Respect to Cash Flows
|
For the
period from
the date of
inception on
14 July 2004
to 31 December
2009
|
For the
three month
period
ended
31 December
2009
|
For the
three month
period
ended
31 December
2008
|
For the
six month
period
ended
31 December
2009
|
For the
six month
period
ended
31 December
2008
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the
year for interest
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cash paid during the
year for income taxes
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Common shares issued
on acquisition of MPLA
|
|
16,236
|
|
-
|
|
-
|
|
-
|
|
-
|
Amounts receivable
acquired on recapitalization of the Company
|
|
2,226
|
|
-
|
|
-
|
|
-
|
|
-
|
Accounts payable
assumed on recapitalization of the Company
|
|
54,624
|
|
-
|
|
-
|
|
-
|
|
-
|
Due to related party
assumed on recapitalization of the Company
|
|
1,000
|
|
-
|
|
-
|
|
-
|
|
-
|
10.
Segmented Information
Details on a geographic basis as at 31 December 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
Australia
|
|
U.S.A.
|
|
Total
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Assets
|
|
378,495
|
|
(363,807)
|
|
14,688
|
Loss for the period
|
|
(43,262)
|
|
(20,685)
|
|
(63,947)
|
18
Molecular Pharmacology
(USA) Limited
(A Development Stage
Company)
Notes
to Interim Consolidated Financial Statements
(Expressed
in U.S. Dollars)
(Unaudited)
31 December
2009
Details
on a geographic basis as at 30 June 2009 are as follows:
|
|
Australia
|
|
U.S.A.
|
|
Total
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Assets
|
|
348,654
|
|
(335,274)
|
|
13,380
|
Loss for the year
|
|
(36,455)
|
|
(57,881)
|
|
(94,336)
|
11.
Contingency
The
$100,000 payment to MPLA according to the terms of the Distribution Agreement
has not yet been made and the Company is currently renegotiating the terms of
the Distribution Agreement (Note 8).
12.
Subsequent Event
There are no subsequent
events from the date of the six month period ended 31 December 2009 to the date
the interim consolidated financial statements were available to be issued on 9
February 2010.
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 SECOND QUARTER PERIOD ENDED DECEMBER
31, 2009 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 01,
2002. Up until the fall of 2005, Molecular USA was in the business of mineral
exploration and development of a mineral property.
On October 13, 2005,
Molecular USA entered into a distribution and supply agreement with Molecular
Pharmacology Limited ("
MPLA
").
MPLA is incorporated under the laws of Australia and at the time was a wholly
owned subsidiary company of PharmaNet Group Limited, an Australian company
listed on the Australian Stock Exchange. Under the terms of the
distribution and supply agreement, Molecular USA received the exclusive
distribution rights to distribute, market, promote, detail, advertise and sell
certain "
Licensed Products
", as
defined in the agreement, with metallo-polypeptide analgesic as an active
ingredient, in the United States (excluding its territories and
possessions).
On May 9, 2006, Molecular USA announced that it has
acquired 100% of the issued and outstanding share capital of MPLA. The transaction was originally announced
by Molecular USA in a press release dated November 29, 2005 and was
subsequently approved by a majority of the stockholders of the Company at a
stockholders meeting held on April 21, 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 localised pain are
based on non-steroidal anti-inflammatory drugs or NSAIDs. The majority of such
products are slow acting and provide only mild pain relief.
The NSAID group has come under additional pressure and
increasing medical alarm, as many drugs in this class have been found to
set-back the recovery of certain conditions and treatments for which they were
marketed. Moreover, NSAIDs are associated with severe gastro-intestinal
side-effects. This has left a niche in an industry under-served by new products
and ingredients.
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.
20
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 tradename 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 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
, Cytokine Mediation Composition
PCT/AU2007/000554, Tissue
Disruption Treatment And Composition For Use Thereof United States Of America
Patent Application No. 11/218382 and International Patent Application No.
PCT/AU2006/001288 and COX 2
Inhibitor Application Number WO/2006902207.
21
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 certified
formulation and manufacturers (GMP) of the Licensed Products for clinical trial
and sales purposes. These formulations and the manufacturing facilities must
comply with regulations and current good laboratory practices or cGLPs, and
current good manufacturing practices or cGMPs, enforced by the Food and Drug
Administration ("FDA").
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.
22
Governmental
Regulation
FDA Regulation
. Pharmaceutical products are subject to
extensive pre- and post-marketing regulation by the Food and Drug Administration ("FDA"),
including regulations that govern the testing, manufacturing, safety, efficacy,
labeling, storage, record-keeping, advertising and promotion of the products
under the Federal Food, Drug and Cosmetic Act and the Public Health Services
Act, and by comparable agencies in most foreign countries. The process required
by the FDA before a new drug may be marketed in the U.S. generally involves the
following: completion of pre-clinical laboratory and animal testing; submission
of an investigational new drug application, or IND, which must become effective
before clinical trials may begin; performance of adequate and well controlled
human clinical trials to establish the safety and efficacy of the proposed
drug's intended use; and approval by the FDA of a New Drug Application,
or NDA.
The activities required before a pharmaceutical agent
may be marketed in the United States begin with pre-clinical testing. Pre-clinical tests include laboratory
evaluation of potential products and animal studies to assess the potential
safety and efficacy of the product and its formulations. The results of these
studies and other information must be submitted to the FDA as part of an IND
application, which must be reviewed and approved by the FDA before proposed
clinical testing can begin. Clinical trials involve the administration of the investigational
new drug to healthy volunteers or to patients under the supervision of a
qualified principal investigator. Clinical trials are conducted in accordance
with Good Clinical Practices under protocols that detail the objectives of the
study, the parameters to be used to monitor safety and the efficacy criteria to
be evaluated. Each protocol must be submitted to the FDA as part of the IND
application. Further, each clinical study must be conducted under the auspices
of an independent institutional review board. The institutional review board
will consider, among other things, ethical factors and the safety of human
subjects.
Typically, human clinical trials are conducted in three
phases that may overlap. In Phase 1, clinical trials are conducted with a small
number of subjects to determine the early safety profile and pharmacology of
the new therapy. In Phase 2, clinical trials are conducted with groups of
patients afflicted with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety. In Phase 3, large
scale, multicenter, comparative clinical trials are conducted with patients
afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others.
The results of the pre-clinical and clinical testing,
together with chemistry and manufacturing information, are submitted to the FDA
in the form of an NDA for a pharmaceutical product in order to obtain approval
to commence commercial sales. In responding to an NDA, the FDA may grant
marketing approvals, request additional information or further research, or
deny the application if it determines that the application does not satisfy its
regulatory approval criteria. Patient-specific therapies may be subject to
additional risk with respect to the regulatory review process. FDA approval for
a pharmaceutical product may not be granted on a timely basis, if at all, or if
granted may not cover all the clinical indications for which approval is sought
or may contain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
Satisfaction of FDA premarket approval requirements for
new drugs typically takes several years, and the actual time required may vary
substantially based upon the type, complexity and novelty of the product or
targeted disease. Government regulation may delay or prevent marketing of
potential products for a considerable period of time and impose costly procedures
upon our activities. Success in early stage clinical trials or with prior
versions of products does not assure success in later stage clinical trials.
Data obtained from clinical activities are not always conclusive and may be
susceptible to varying interpretations that could delay, limit or prevent
regulatory approval.
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.
23
Facilities used to manufacture drugs are subject to
periodic inspection by the FDA, Drug Enforcement Agency and other authorities
where applicable, and must comply with the FDA's Current Good
Manufacturing regulations. Failure to comply with the statutory and regulatory
requirements subjects the manufacturer to possible legal or regulatory action,
such as suspension of manufacturing, seizure of product or voluntary recall of
a product. Adverse experiences with the product must be reported to the FDA and
could result in the imposition of market restriction through labeling changes
or in product removal. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems concerning safety or
efficacy of the product occur following approval.
With respect to post-market product advertising and
promotion, the FDA imposes a number of complex regulations on entities that
advertise and promote pharmaceuticals, which include, among other things,
standards and regulations relating to direct-to-consumer advertising, off-label
promotion, industry sponsored scientific and educational activities, and
promotional activities involving the Internet. The FDA has very broad
enforcement authority under the Federal Food, Drug and Cosmetic Act, and
failure to abide by these regulations can result in penalties including the
issuance of a warning letter directing the entity to correct deviations from
FDA standards, a requirement that future advertising and promotional materials
be pre-cleared by the FDA, and state and federal civil and criminal
investigations and prosecutions.
Research facilities are subject to various laws and
regulations regarding laboratory practices, the experimental use of animals,
and the use and disposal of hazardous or potentially hazardous substances in
connection with the research in question.
In each of these areas, as above, the government has broad regulatory
and enforcement powers, including the ability to levy fines and civil
penalties, suspend or delay issuance of approvals, seize or recall products, and
withdraw approvals, any one or more of which could have a material adverse
effect upon us.
Other Government Regulations
. In
addition to laws and regulations enforced by the FDA, research of Molecular
USA's products in the United States are subject to regulation under
National Institutes of Health guidelines, as well as under the Controlled
Substances Act, the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
laws and regulations, as research and development of its products involves the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds.
In addition to regulations in the United States,
Molecular USA's products are subject to a variety of foreign regulations
governing clinical trials and commercial sales and distribution of its Licensed
Products. Whether or not Molecular USA obtains FDA approval for a product,
Molecular USA or its subsidiaries must obtain approval of a product by the
comparable regulatory authorities of foreign countries before it can commence
clinical trials or marketing of the product in those countries. The approval
process varies from country to country, and the time may be longer or shorter
than that required for FDA approval. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary greatly from
country to country.
Sarbanes-Oxley Act of 2002
. On July 30, 2002, President Bush signed into
law the Sarbanes-Oxley Act of 2002, or the SOA. SOA imposes a wide variety of
new requirements on both U.S. and non-U.S. companies, that file or are required
to file periodic reports with the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934. Many of these new
requirements will affect Molecular USA and its board of directors. For
instance, under SOA Molecular USA is required to:
-
form an audit committees in compliance with SOA;
-
have Molecular USA's chief executive office
and chief financial officer are required to certify its financial statements;
-
ensure Molecular USA's directors and senior
officers are required to forfeit all bonuses or other incentive-based compensation
and profits received from the sale of Molecular USA's securities in the
twelve month period following initial publication of any of Molecular
USA's financial statements that later require restatement;
-
disclose any off-balance sheet transactions as required
by SOA;
-
prohibit all personal loans to directors and
officers;
24
-
insure directors, officers and 10% holders file
their Forms 4's within two days of a transaction;
-
adopt a code of ethics and file a Form 8-K when
ever there is a change or waiver of this code; and
-
insure Molecular USA's auditor is
independent as defined by SOA.
SOA has required us to review our current procedures and
policies to determine whether they comply with the SOA and the new regulations
promulgated thereunder. We will continue to monitor our compliance with all
future regulations that are adopted under the SOA and will take whatever
actions are necessary to ensure that we are in compliance.
Environmental Compliance
The nature of Molecular USA's and MPLA's
business does not require special environmental or local government
approval. Molecular USA and MPLA
are compliant with all environmental laws. The cost of such compliance is
minimal for the company.
Employees
Molecular USA currently has no employees and instead
relies on outside contractors.
Immediate Business
Plans
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. Jeff Edwards will work to set-out the strategies designed to maximize
the multi-jurisdictional capabilities of MPLA's development teams.
Results of Operation
For the Quarter ended December 31, 2009.
Rev
enues
REVENUE
- Molecular USA has not generated any revenues for the
quarter ended December 31, 2009, or since inception.
COMMON STOCK
- Molecular USA has not issued any shares during the most recent quarter. As
of the date February 12, 2010, Molecular USA has 111,553,740 common shares
issued and outstanding.
Expenses
SUMMARY
-
Total expenses were $63,947 for the six month period ended December 31, 2009. Expenses had increased during this past quarter
as compared to six month period ended December 31, 2008 - $59,031. A
total of $1,782,504 in expenses has been incurred by Molecular USA since
inception on July 14, 2004 through to December
31, 2009. The increase in costs
over this quarter has occurred as the result of Molecular USA's wholly
owned subsidiary increasing its consulting fees. The costs can be subdivided into the
following categories.
-
Office Expenses and Rent
: $14,575 in office expenses (for
administrative costs) were incurred for the six month period ended December 31, 2009 as compared to $13,951
for the six month period ended December 31, 2008; while a total of $188,345
was incurred in the period from inception on July
14, 2004
25
-
to December 31, 2009. 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 six month period ended December 31, 2009, $25,934 in
consulting and analysis expenses were incurred as compared to $15,830
during the six month period ended December 31,
2008. We have incurred a
total of $1,154,788 in consulting and analyst fees since our inception on July 14, 2004 to December
31, 2009.
-
Advertising and Promotion
Fees
: Molecular USA has spent no money in this area this year. During the six month period ended December 31, 2009 we spent $0 on
advertising and public relations and $0 for six month period ended December
31, 2008. A total of $23,739 has
been incurred in this area during the period from inception on July 14, 2004 to December 31, 2009.
-
Professional Fees
: Molecular USA
incurred $18,362 in professional fees for the six month period ended on December 31, 2009 as compared to $23,864
for the six month period ended December 31, 2008. From inception to December 31, 2009, we have incurred
a total of $242,430 professional fees mainly spent on legal and accounting
matters.
-
Travel Costs
: Molecular USA
incurred $0 in travel costs for the six month period ended December 31,
2009 as compared to $1,760 for the six month period ended December 31, 2008 and $104,249 has been incurred in the period
from inception on July 14, 2004 to December
31, 2009.
-
Salaries and Benefit
Costs
: Molecular USA and its subsidiary relies primarily on outside
consultants and not salaried employees. As a result, Molecular USA incurred
$0 in salaries and benefits for the six month period ended December 31,
2009 and $0 in salaries and benefits during the six month period ended December, 2008. For the period
July
14, 2004 (inception) through December 31, 2009, 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 December 31,
2009. There are no current or
deferred tax expenses for the period ended December 31, 2009 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 six month period ended December 31, 2009, Molecular USA satisfied
its working capital needs by borrowing cash from its parent company PharmaNet. As of December 31, 2009, the Company had
cash and cash equivalents on hand in the amount of $5,695 ($7,543 - June
30, 2009) and current payable and accrued liabilities of $22,240 ($30,829
- June 30, 2009). As of December
31 , 2009, Molecular USA currently owes its parent company PharmaNet, $1,428,429,
an additional $59,787 to other related parties, and $22,240 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, proceeds received from the exercise of outstanding options,
future financing from our majority shareholder PharmaNet.
We plan to use any additional funds that we might be
successful in raising for development, as well as for strategic acquisition of
existing businesses that complement our market niche, and general working
capital purposes.
If we are unsuccessful in obtaining new capital, our
ability to seek and consummate strategic acquisitions to build our company internationally
and to expand of our business development and marketing programs could be
adversely affected.
26
Off-Balance Sheet Arrangement
As of December
31, 2009, 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.
During the period Molecular USA, continued to support MPLA
and Cambridge Scientific Pty Ltd in the process of expanding the intellectual
property portfolio. Further details on the scope of these activities is
presented in the section.
Patents & Trademarks.
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; 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 six month period ended December
31, 2009, amounted to $0. Molecular USA does not anticipate any significant
purchase or sale of equipment over the next 12 months.
27
Recent Accounting
Pronouncements
From June 2009 to October 2009, the FASB issued various updates,
Accounting Standard Update ("ASU") No. 2009-2 through ASU No.
2009-15, which contain technical corrections to existing guidance or affect
guidance to specialized industries or entities. These updates have no current
applicability to the Company or their effect on the interim consolidated
financial statements is insignificant.
In June 2009, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 167, "
Amendments to FASB Interpretation No. 46(R)
". SFAS No. 167, which amends ASC
810-10, "
Consolidation
", prescribes a
qualitative model for identifying whether a company has a controlling financial
interest in a variable interest entity ("VIE") and eliminates the
quantitative model. The new model
identifies two primary characteristics of a controlling financial interest: (1)
provides a company with the power to direct significant activities of the VIE,
and (2) obligates a company to absorb losses of and/or provides rights to receive
benefits from the VIE. SFAS 167
requires a company to reassess on an ongoing basis whether it holds a
controlling financial interest in a VIE.
A company that holds a controlling financial interest is deemed to be
the primary beneficiary of the VIE and is required to consolidate the VIE. SFAS No. 167, which is referenced in ASC
105-10-65, has not yet been adopted into the Codification and remains
authoritative. SFAS No. 167 is
effective 1 January 2010. The
Company does not expect that the adoption of SFAS No. 167 will have a material
impact on its interim consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, "
Accounting for Transfer of Financial Assets
- an amendment of FASB Statement
". SFAS No. 166 removes the concept of a
qualifying special-purpose entity from ASC 860-10, "
Transfers
and Servicing
", and removes the exception from applying ASC 810-10, "
Consolidation
". These
statements also clarifies the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. SFAS No. 166, which is referenced in ASC
105-10-65, has not yet been adopted into the Codification and remains
authoritative. This statement is
effective 1 January 2010. The
Company does not expect that the adoption of SFAS No. 166 will have a material
impact on its interim consolidated financial statements.
In
November 2008, the Securities and Exchange Commission ("SEC") issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board. Under the proposed
roadmap, the Company would be required to prepare financial statements in
accordance with IFRS in fiscal year 2014, including comparative information
also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the
potential impact of IFRS on its interim consolidated financial statements and
will continue to follow the proposed roadmap for future developments.
Changes
in accounting policies
Fair Value Measurement and Disclosure
In August 2009,
the Financial Accounting Standard Board ("FASB") issued ASU No. 2009-05, "
Fair Value Measurement and Disclosure (Topic
820) - Measuring Liabilities at Fair Value
", which
provides valuation techniques to measure fair value in circumstances in which a
quoted price in an active market for the identical liability is not
available. The guidance provided in
this update is effective 1 October 2009.
The adoption of this guidance did not have a material impact on the
Company's interim consolidated financial statements.
The
Accounting Standards Codification
In June 2009, the FASB issued
SFAS No. 168, "
The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principle - a replacement of FASB Statement No. 162
". The Codification reorganized existing U.S.
accounting and reporting standards issued by the FASB and other related private
sector standard setter into a single source of authoritative accounting
principles arranged by topic. The
Codification supersedes all existing U.S. accounting standards; all
other accounting literature not included in the Codification (other than
Securities and Exchange Commission guidance for publicly-traded companies) is
considered non-
28
authoritative. The Codification was effective on a
prospective basis for interim and annual reporting periods ending after 15
September 2009. The adoption of the
Codification changed the Company's references to U.S. GAAP accounting
standards, but did not impact the Company's results of operations,
financial position or liquidity.
Subsequent
Events
In May 2009, the FASB issued
new guidance for accounting for subsequent events. The new guidance, which is now part of
ASC 855, "
Subsequent Events
" is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before financial statements
are issued or are available to be issued.
It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. This disclosure should alert all users
of financial statements that an entity has not evaluated subsequent events
after that date in the set of financial statements being presented. The new guidance was effective on a
prospective basis for interim or annual reporting periods ending after 15 June
2009. The adoption of this guidance
did not have a material impact on the Company's interim consolidated
financial statements.
Convertible
Debt
In May 2008, the FASB issued
new guidance for accounting for convertible debt instruments that may be
settled in cash. The new guidance,
which is now part of ASC 470-20, "
Debt with Conversion and
Other Options
" requires the liability and equity components to
be separately accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate.
The Company will allocate a portion of the proceeds received from the
issuance of convertible notes between a liability and equity component by
determining the fair value of the liability component using the Company's
nonconvertible debt borrowing rate.
The difference between the proceeds of the notes and the fair value of
the liability component will be recorded as a discount on the debt with a
corresponding offset to paid-in capital.
The resulting discount will be accreted by recording additional non-cash
interest expense over the expected life of the convertible notes using the
effective interest rate method. The
new guidance was to be applied retrospectively to all periods presented upon
those fiscal years. The adoption of
this guidance did not have a material impact on the Company's interim
consolidated financial statements.
Useful Life
of Intangible Assets
In April 2008, the FASB issued
new guidance for determining the useful life of an intangible assets, the new
guidance, which is now part of ASC 350, "
Intangibles
- Goodwill and Other
". In determining the useful life of
intangible assets, ASC 350 removes the requirement to consider whether an
intangible asset can be renewed without substantial cost of material
modifications to the existing terms and conditions and, instead, requires an
entity to consider its own historical experience in renewing similar
arrangements. ASC 350 also requires
expanded disclosure related to the determination of intangible asset useful
lives. The new guidance was
effective for financial statements issued for fiscal years beginning after 15
December 2008. The adoption of this
guidance did not have a material impact on the Company's interim
consolidated financial statements.
Derivative
Instruments and Hedging Activities
In March 2008, the FASB issued
new guidance on the disclosure of derivative instruments and hedging
activities. The new guidance, which
is now part of ASC 815, "
Derivatives and Hedging
Activities
" requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of, and gains and losses on, derivative instruments, and disclosures
about credit-risk-related contingent features in derivative agreements. The new guidance was effective
prospectively for financial statements issued for fiscal years beginning after
15 November 2008, with early application encouraged. The adoption of this guidance did not
have a significant impact on the Company's interim consolidated financial
statements.
Business
Combinations
In December 2007, the FASB
issued revised guidance for accounting for business combinations. The revised
29
guidance, which is now part of
ASC 805, "
Business Combination
"
requires the fair value measurement of assts acquired, liabilities assumed and
any noncontrolling interest in the acquiree, at the acquisition date with
limited exceptions. Previously, a
cost allocation approach was used to allocate the cost of the acquisition based
on the estimated fair value of the individual assets acquired and liabilities
assumed. The cost allocation approach
treated acquisition-related costs and restructuring costs that the acquirer
expected to incur as a liability on the acquisition date, as part of the cost
of the acquisition. Under the
revised guidance, those costs are recognized in the statement of income
separately from the business combination.
The revised guidance applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after 15 December 2008. The adoption of this
guidance did not have a material impact on the Company's interim
consolidate 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 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, 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. 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
".
Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Interest Rate Risk
Due to
the short-term nature of our interest bearing assets, which consist primarily
of cash, cash equivalents and restricted cash, we believe that our exposure to
interest rate market risk will not significantly affect our operations.
Foreign Currency Risk
Our
head office and lab operations are based in Australia. Accordingly, we have
been subject to exposure from adverse movements in foreign currency exchange
rates. To date, the effect of changes in foreign currency exchange rates on
revenue and operating expenses has not been material as we have had no revenue
and limited operations. Operating expenses incurred by our foreign subsidiaries
were denominated in local currencies. We have not used financial instruments to
hedge these operating expenses.
30
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures
Disclosure controls are controls and
procedures that are designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by a Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Our management carried out an evaluation (with
the participation of our CEO and CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act").
Based upon that evaluation, the Company's CEO and CFO have concluded that the
Company's disclosure controls and procedures were effective as of December 31,
2009.
(b) Internal control over
financial reporting
Management's annual report on internal
control over financial reporting
Management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is intended to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. GAAP. Our internal control over
financial reporting should include those policies and procedures that:
-
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;
-
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
applicable GAAP, and that receipts and expenditures are being made only in
accordance with authorizations of management and the Board of Directors; and
-
provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15(c) promulgated under the Exchange Act, our
management, with the participation of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), evaluated the
effectiveness of our internal control over financial reporting as of December
31, 2009. Management's assessment took into consideration the size and
complexity of the company and was based on criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control over
Financial Reporting -Guidance for Smaller Public Companies. In performing the
assessment, management has concluded that our internal control over financial
reporting was effective as of December 31, 2009.
31
Attestation report of the registered
public accounting firm
This quarterly report does
not include an attestation report of the company's registered public accounting
firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the company's registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management's report in this annual report.
Changes in internal control over
financial reporting
There were no changes in our
internal controls that occurred during the quarter covered by this report that
have materially affected, or are reasonably likely to materially affect our
internal controls.
Changes in Internal Controls
Based on the evaluation as of
December 31, 2009, Jeff Edwards, our President, Chief Executive Officer, and
Chief Financial Officer has concluded that there were no significant changes in
our internal controls over financial reporting or in any other areas that could
significantly affect our internal controls subsequent to the date of his most
recent evaluation, including corrective actions with regard to significant
deficiencies and material weaknesses.
PART
II - OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, active or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder,
is an adverse party or has a material interest adverse to our interest.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds.
Recent Sale of Unregistered Securities
Not Applicable.
Use of Proceeds from Unregistered Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of
Matters to a Vote of Security Holders
No matters were submitted to the security holders of
Molecular USA during this quarter.
Item 5. Other Information
No items to disclose.
32
Item 6. Exhibits
Exhibit
Number
|
Exhibit Title
|
3.1
|
Articles of Incorporation as Amended
(incorporated by reference to exhibit 3.1 to our Form 10-SB Registration
Statement filed on January 23, 2003).
|
3.2
|
Article of Amendment dated August 29, 2005
|
3.3
|
Bylaws as Amended (incorporated by reference to
exhibit 3.2 to to our Form 10-SB Registration Statement filed on January 23,
2003).
|
31.1
|
Certificate of CEO as Required by Rule
13a-14(a)/15d-14
|
31.2
|
Certificate of CFO as Required by Rule 13a-14(a)/15d-14
|
32.1
|
Certificate of CEO and CFO as Required by Rule
Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of
Chapter 63 of Title 18 of the United States Code
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
February 12, 2010.
|
MOLECULAR PHARMACOLOGY (USA) LIMITED
|
|
BY:
|
/s/ Jeffrey Edwards
|
|
|
Jeff Edwards, President, Chief Executive Officer, Chief Financial Officer and a Member
of the Board of Directors
|
|
|
|
|
33
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