Item
2.
Managements Discussion and Analysis
The following discussion of our financial condition, changes in
financial condition and results of operations for the three months ended
December 31, 2007 should be read in conjunction with our unaudited consolidated
interim financial statements and related notes for the three months ended
December 31, 2007.
Overview of Our Business
NextGen Bioscience Inc. (we, us, our or the Company) is
focused on the discovery, development and commercialization of novel
therapeutics to fight cancer,. We currently own two compounds, both of which we
acquired in November 2007, for which we have filed patent applications in
Europe: (i) prostaganin peptide for the treatment of prostate cancer and (ii)
tetanolic acid for the treatment of breast cancer. In addition, we acquired a
patent application for an improved method for the purification of
undifferentiated stem cells from solid breast carcinomas that are normally
resistant to conventional therapies which we acquired in January 2008. We plan
to acquire other new products and technologies in the future.
We are also the owner of certain proprietary technology
comprised of a suite of software programs and a computer peripheral device known
as the IRMA device, which provides for the delivery of high-quality color
presentations stored on mobile smart phones and PDAs. These assets are related
to our prior Infrablue business.
Our current board has determined to pursue our biotechnology
business and is currently evaluating the sale or abandonment of our Infrablue
technology business as we have not been successful in exploiting the technology.
Acquisition of the Oxon Assets on November 27, 2007
On November 27, 2007, pursuant to an asset purchase agreement
(the Asset Purchase Agreement) among the Company, NextGen Bioscience Inc., a
former wholly-owned subsidiary of the Company, and Oxon Life Science Limited
(Oxon), dated October 12, 2007, we completed the acquisition of certain
intellectual property assets from Oxon. A copy of the Asset Purchase Agreement
is attached as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC
on October 17, 2007.
Pursuant to the Asset Purchase Agreement, we purchased certain
intellectual property assets and undertakings of Oxon relating to the
development of therapies for treatment of certain types of cancer in
consideration for 14,000,000 post-split (3,500,000 pre-split) shares of our
common stock. Pursuant to the terms of the Asset Purchase Agreement, we
completed a forward stock split of our outstanding shares on a four new shares
for one old share basis (and a corresponding increase to the authorized capital
of the Company from 100,000,000 shares to 400,000,000 shares of common stock,
par value $0.001 per share), and changed our name to NextGen Bioscience Inc.
(pursuant to a merger with our wholly-owned subsidiary NextGen Bioscience Inc.),
which we completed effective October 26, 2007. In addition, we added two
nominees of Oxon to our board of directors upon completion of the acquisition of
the assets from Oxon. The stock split and name change were disclosed in our
Current Report on Form 8-K filed with the SEC on November 1, 2007.
The acquisition of the assets constituted a change in the
principal business of the Company to a biotechnology company focused on the
research, development and, if warranted in the future, commercialization of
novel therapeutic proteins that we believe have the potential to disrupt the
advance of life-threatening cancers.
- 2 -
Acquisition of the Oxon Assets on January 31, 2008
We entered into an intellectual property asset purchase
agreement dated January 31, 2008 (the 2008 Asset Purchase Agreement) with Oxon
Life Science Limited (Oxon) pursuant to which we agreed to purchase a third
patent application and associated intellectual property rights from Oxon in
consideration of the issuance to Oxon of 22,000,000 shares of our common stock.
A copy of the 2008 Asset Purchase Agreement is attached as Exhibit 10.1 to our
Current Report on Form 8-K filed with the SEC on February 6, 2008.
We completed the acquisition of a third patent application and
associated intellectual property rights from Oxon pursuant to the 2008 Asset
Purchase Agreement on January 31, 2008 concurrently with the execution of the
2008 Asset Purchase Agreement. The third patent application relates to the
development of therapies for treatment of certain types of cancer. The patent
application and associated intellectual property rights were acquired in
consideration for the issuance by us to Oxon of 22,000,000 shares of our common
stock. As a result of the completion of this acquisition, Oxon holds 36,000,000
shares of our common stock, representing approximately 22.55% of our outstanding
shares.
The patent application is entitled Method for inducing breast
carcinoma stem cell death and was filed with the Danish patent office under
Patent Application No PA 2007 01846, patent application reference P2039EP00. The
patent application describes an improved method for the purification of
undifferentiated stem cells from solid breast carcinomas that are normally
resistant to conventional therapies. Such stem cells are valuable for
identifying new tumour markers and novel therapeutic targets both for early
diagnosis and for targeted therapeutic strategies. Such therapeutic strategies
are based on the use of neutralizing antibodies against the cytokines
interleukin-4 (IL-4) and interleukin-10 (IL-10) and antibodies reactive with
HMW-MAA, proteins which are found at high levels in stem cells from solid breast
carcinomas.
Our Plan of Operations
Our plan of operations for the next twelve months is to:
-
undertake the pre-clinical studies and plan Phase 1 clinical assessment of
our proprietary drug candidates;
-
appoint additional members to our Scientific Advisory Board;
-
expand our intellectual property portfolio;
-
engage contract research organizations and collaborators to undertake the
preclinical studies; and
-
explore new in-licensing and acquisition candidates.
We anticipate that we will incur an aggregate of approximately
$2 million in expenses for the next twelve months as follows:
-
salaries of $300,000;
-
overhead and travel expenses of $250,000; and
-
outsource costs of research and development to contract research
organizations of $1,450,000.
- 3 -
During the next twelve months, we anticipate that we will not
generate any revenue. We had cash of $66,380 and a working capital deficit of
$1,289,730 at December 31, 2007. We presently do not have sufficient funds to
fund our operations for more than the next two months based on our current cash
expenditures and our plan of operations. Accordingly, we will require additional
financing to enable us to pay our planned expenses for the next twelve months
and pursue our plan of operations.
We will be required to obtain additional financing in order to
continue to pursue our business plan. We believe that debt financing will not be
an alternative for funding as we do not have tangible assets to secure any debt
financing. We anticipate that additional funding will be in the form of equity
financing from the sale of our common stock. We cannot provide investors with
any assurance that we will be able to raise sufficient funding from the sale of
our common stock to fund our business plan going forward. In the absence of such
financing, our business plan will fail. Even if we are successful in obtaining
equity financing to fund our business plan, there is no assurance that we will
obtain the funding necessary to pursue our plan over the long-term.
We have achieved only minimal revenues to date. Accordingly, we
are considered a development stage company. To date, we have only sold a minimal
number of units of our InfraBlue technology, our revenues from these sales are
substantially less than our operating costs and we have incurred significant
operating losses since inception. Accordingly, our board of directors is
currently evaluating the sale or abandonment of our InfraBlue technology.
Presentation of Financial Information
Effective August 31, 2005, we acquired 100% of the issued and
outstanding shares of InfraBlue UK by issuing 12,000,000 shares of our common
stock. Notwithstanding its legal form, our acquisition of InfraBlue UK has been
accounted for as a reverse acquisition, since the acquisition resulted in the
former shareholders of InfraBlue UK owning the majority of our issued and
outstanding shares. Because Tomi Holdings Inc. (now InfraBlue (US) Inc.) was a
newly incorporated company with nominal net non-monetary assets, the acquisition
has been accounted for as an issuance of stock by InfraBlue UK accompanied by a
recapitalization. Under the rules governing reverse acquisition accounting, the
results of operations of InfraBlue (US) Inc. are included in our consolidated
financial statements effective August 31, 2005. Our date of inception is the
date of inception of InfraBlue UK, being February 18, 2004, and our financial
statements are presented with reference to the date of inception of InfraBlue
UK. Financial information relating to periods prior to August 31, 2005 is that
of InfraBlue UK.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts and timing of revenues and expenses, the reported amounts and
classification of assets and liabilities, and disclosure of contingent assets
and liabilities. These estimates and assumptions are based on the Companys
historical results as well as managements future expectations. The Companys
actual results could vary materially from managements estimates and
assumptions.
Development Stage Company
The Company is a development stage company as defined by
Financial Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business. All losses accumulated since
inception has been considered as part of the Companys development stage
activities.
- 4 -
Revenue Recognition
Revenues are recognized when all of the following criteria have
been met: persuasive evidence for an arrangement exists; delivery has occurred;
the fee is fixed or determinable; and collection is reasonably assured. Revenue
derived from the sale of services is initially recorded as deferred revenue on
the balance sheet. The amount is recognized as income over the term of the
contract.
Revenue from time and material service contracts is recognized
as the services are provided. Revenue from fixed price, long-term service or
development contracts is recognized over the contract term based on the
percentage of services that are provided during the period compared with the
total estimated services to be provided over the entire contract. Losses on
fixed price contracts are recognized during the period in which the loss first
becomes apparent. Payment terms vary by contract.
Foreign Currency Translations
The Companys functional currency is pounds sterling (GBP).
The Companys reporting currency is the U.S. dollar. All transactions initiated
in other currencies are re-measured into the functional currency as follows:
|
i)
|
Monetary assets and liabilities at the rate of exchange
in effect at the balance sheet date,
|
|
|
|
|
ii)
|
Non-monetary assets and liabilities, and equity at
historical rates, and
|
|
|
|
|
iii)
|
Revenue and expense items at the average rate of exchange
prevailing during the period.
|
Gains and losses on re-measurement are included in determining
net income for the period
Translation of balances from the functional currency into the
reporting currency is conducted as follows:
|
i)
|
Assets and liabilities at the rate of exchange in effect
at the balance sheet date,
|
|
|
|
|
ii)
|
Equity at historical rates, and
|
|
|
|
|
iii)
|
Revenue and expense items at the average rate of exchange
prevailing during the period.
|
Translation adjustments resulting from translation of balances
from functional to reporting currency are accumulated as a separate component of
shareholders equity as a component of comprehensive income or loss. Upon sale
or liquidation of the net investment in the foreign entity the amount deferred
will be recognized in income.
Results Of Operations Three Months Ended December 31, 2007
and 2006
References to the discussion below to fiscal 2008 are to our
current fiscal year which will end on September 30, 2008. References to fiscal
2007 and fiscal 2006 are to our fiscal years ended September 30, 2007 and 2006,
respectively.
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
Incorporation
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
February 18,
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
2004 to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
Sales
|
$
|
-
|
|
$
|
3,023
|
|
$
|
72,914
|
|
- 5 -
Cost of
Sales
|
|
-
|
|
|
(2,758
|
)
|
|
(64,873
|
)
|
Gross Profit
|
|
-
|
|
|
265
|
|
|
8,041
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
Accounting and auditing
|
|
36,144
|
|
|
27,192
|
|
|
325,350
|
|
Consulting
|
|
99,919
|
|
|
67,195
|
|
|
362,232
|
|
Depreciation
|
|
-
|
|
|
372
|
|
|
3,892
|
|
Development
|
|
-
|
|
|
-
|
|
|
9,567
|
|
Filing fees
|
|
940
|
|
|
135
|
|
|
10,128
|
|
Intellectual Property
|
|
-
|
|
|
-
|
|
|
2,500,000
|
|
Interest expense
|
|
346
|
|
|
2,283
|
|
|
12,413
|
|
Investor relations
|
|
-
|
|
|
11,579
|
|
|
18,250
|
|
Legal
|
|
44,445
|
|
|
3,883
|
|
|
123,013
|
|
Marketing and promotion
|
|
-
|
|
|
-
|
|
|
37,310
|
|
Office and information
technology
|
|
-
|
|
|
94
|
|
|
12,133
|
|
Rent
|
|
3,068
|
|
|
2,874
|
|
|
41,303
|
|
Salaries and wages
|
|
-
|
|
|
5,113
|
|
|
136,584
|
|
Sub-contractors
|
|
-
|
|
|
-
|
|
|
5,551
|
|
Test equipment
|
|
-
|
|
|
-
|
|
|
1,439
|
|
Transfer agent fees
|
|
2,525
|
|
|
-
|
|
|
2,525
|
|
Travel
|
|
-
|
|
|
13
|
|
|
2,691
|
|
|
|
187,387
|
|
|
120,733
|
|
|
3,604,381
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
(187,387
|
)
|
|
(120,468
|
)
|
|
(3,596,340
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
(376
|
)
|
|
-
|
|
|
(9,613
|
)
|
Gain on forgiveness of
debt
|
|
229,082
|
|
|
-
|
|
|
235,286
|
|
Recovery of license fees
|
|
-
|
|
|
-
|
|
|
7,838
|
|
Net Income (Loss)
|
$
|
41,319
|
|
$
|
(120,468
|
)
|
$
|
(3,362,829
|
)
|
Revenue
Our prior sales are comprised of sales of our IRMA devices. We
did not earn any revenues from sales of our IRMA devices during the first
quarter of fiscal 2008. Our revenues decreased to $Nil during the first quarter
of fiscal 2008, from $3,023 during the first quarter of fiscal 2007. Our current
board has determined to pursue our biotechnology business and is currently
valuating the sale or abandonment of our Infrablue technology business as we
have not been successful in exploiting the technology.
Cost of Sales
Cost of sales has been comprised of amounts that we have paid
to Flander Oy for purchase of IRMA devices for resale.
Cost of sales decreased to $Nil during the first three month
period of fiscal 2008 from $2,758 during the first three month period of fiscal
2007. The decrease in cost of sales reflected the fact that we did not have any
revenues during this period.
Gross Profit
As we did not have any sales during the first quarter of fiscal
2008, our gross profit during declined to $Nil for the first quarter of fiscal
2008 compared to $265 for the first quarter of fiscal 2007.
- 6 -
Intellectual Property
We expensed the Infrablue intellectual property acquired in
fiscal 2006 due to our determination that the cost of the intellectual property
purchased during fiscal 2005 does not meet the criteria for capitalization as
set out in SFAS No. 86.
Accounting and Auditing
Accounting and auditing expenses are attributable to the
preparation and audit of our financial statements and to our compliance with the
reporting obligations under the Securities Exchange Act of 1934..
Accounting and auditing expenses increased to $36,144 during
the first quarter of fiscal 2008 compared to $27,192 during the quarter of
fiscal 2007.
Consulting
Our consulting expenses are attributable to our consulting
agreements as described herein.
Consulting expenses increased to $99,919 during the first
quarter of fiscal 2008 compared to $67,195 during the first quarter of fiscal
2007, due to increased expenses under our consulting agreements.
Legal
Legal expenses are attributable to legal fees paid to our legal
counsel in connection with the completion of our technology acquisitions, our
corporate organization and our ongoing obligations as a reporting company under
the Securities Exchange Act of 1934.
Legal expenses increased to $44,445 during the first quarter of
fiscal 2008 compared to $3,883 during the first quarter of fiscal 2007 as a
result of the completion of our acquisition of technology assets from Oxon and
our corresponding continuous reporting obligations under the Securities Exchange
Act of 1934 related to this acquisition.
Salaries and Wages
Our salaries and wages decreased to $Nil during the first three
month period of fiscal 2008 compared to $5,113 during the first three month
period of fiscal 2007, as we no longer pay any salaries and wages.
Rent
Rent expense was attributable to amounts paid on account of our
rent of shared office premises in London, England.
Loss from Operations
Our loss from operations increased to $187,387 during the first
quarter of fiscal 2008 compared to $120,468 during the first quarter of fiscal
2007 due to the increase in our consulting, legal, accounting and auditing
expenses during the first three month period of fiscal 2008 in connection with
the reorganization of our business.
Liquidity and Financial Resources
We had cash of $66,380 and working capital deficit of
$1,289,730 as at December 31, 2007. We had cash of $55,080 and working capital
deficit of $379,745 as at September 30, 2007.
- 7 -
Plan of Operations
We estimate that our total expenditures over the next twelve
months will be approximately $2,000,000, as outlined above under the heading
Plan of Operations. Our cash and working capital will not be sufficient to
enable us to undertake our plan of operations over the next twelve months
without our obtaining additional financing. We presently have cash to fund our
operations for the next two months. Accordingly, we will require additional
financing in order to enable us to sustain our operations for the next twelve
months, as outlined above.
Cash used in Operating Activities
We used cash of $106,651 in operating activities during the
first quarter of fiscal 2008 compared to cash used of $3,576 in operating
activities during the first quarter of fiscal 2007.
We have applied cash generated from our financing activities to
fund cash used in operating activities.
Cash from Investing Activities
We did not engage in any investing activities during the first
quarter of fiscal 2008 nor during the first quarter of fiscal 2007.
Cash from Financing Activities
We generated cash of $116,228 from financing activities during
the first quarter of fiscal 2008 compared to $Nil during the first quarter of
fiscal 2007. Of this amount, $106,250 related to shares subscribed for but not
issued during the first quarter of fiscal 2008.
Going Concern
We have not attained profitable operations and are dependent
upon obtaining financing to pursue any extensive business activities. For these
reasons our auditors stated in their report that they have substantial doubt we
will be able to continue as a going concern.
Future Financings
We anticipate continuing to rely on equity sales of our common
shares in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to our existing stockholders. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing to fund our planned activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.