SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended September 30, 2008
OR
|
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from __________________
to __________________
Commission
file number
001-16043
SYNVISTA
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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13-3304550
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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221
West Grand Avenue, Suite 200, Montvale, New Jersey
07645
(Address
of principal executive offices)
(Zip
Code)
(201)
934-5000
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name, former address and former 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 Securities Exchange Act of 1934 during
the
preceding 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
a
large
accelerated filer,
an
accelerated filer
,
a
non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting
company)
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
On
November 1, 2008, 2,586,326 shares of the registrant’s Common Stock were
outstanding.
Page
1 of
28 pages
The
Exhibit Index is on page 28
SYNVISTA
THERAPEUTICS, INC.
INDEX
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1. Condensed Consolidated Financial Statements (Unaudited)
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Condensed
Consolidated Balance Sheets as of September 30, 2008
and
December 31, 2007
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5
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Condensed
Consolidated Statements of Operations for the three and nine months
ended
September 30, 2008 and 2007
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6
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Condensed
Consolidated Statement of Changes in Stockholders’ Equity
for
the nine months ended September 30, 2008
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7
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Condensed
Consolidated Statements of Cash Flows for the nine months
ended
September 30, 2008 and 2007
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8
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Notes
to Condensed Consolidated Financial Statements
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9
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Item
2. Management’s Discussion and Analysis of
Financial
Condition and Results of Operations
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15
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk
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22
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Item
4T. Controls and Procedures
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22
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PART
II - OTHER INFORMATION
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Item
1A. Risk Factors
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23
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Item
4. Submission of Matters to a Vote of Security-holders
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26
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Item
6. Exhibits
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26
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SIGNATURES
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27
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INDEX
TO EXHIBITS
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28
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Forward-Looking
Statements and Cautionary Statements
Statements
in this Form 10-Q that are not statements or descriptions of historical facts
are "forward-looking" statements under Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995, and are subject to numerous risks and uncertainties. These forward-looking
statements and other forward-looking statements made by us or our
representatives are based on a number of assumptions. The words "believe,"
"expect," "anticipate," "intend," "estimate" or other expressions, which are
predictions of or indicate future events and trends and which do not relate
to
historical matters, identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, as they involve
risks and uncertainties, and actual results could differ materially from those
currently anticipated due to a number of factors, including those set forth
in
this section and elsewhere in this Form 10-Q.
The
forward-looking statements represent our judgments and expectations as of the
date of this Report. We assume no obligation to update any such forward-looking
statements.
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the instructions to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all of the information
and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December
31,
2008. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2007, as filed with the Securities and Exchange Commission (the
“Form 10-K”). The December 31, 2007 balance sheet is derived from the audited
balance sheet included in the Form 10-K.
Our
condensed consolidated financial statements have been prepared on the basis
of a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. We have not made any
adjustments to the condensed consolidated financial statements as a result
of
the outcome of the uncertainty described above. Accordingly, the value of the
Company in liquidation may be different from the amounts set forth in our
condensed consolidated financial statements.
Our
ability to continue operations will depend on our ability to continue to raise
capital immediately in order to fund the operation of our business and the
development and commercialization of our products. Failure to raise additional
capital may result in substantial adverse circumstances, including delisting
of
our common stock from the American Stock Exchange, which could substantially
decrease the liquidity and value of such shares, or ultimately result in our
liquidation.
Note
regarding Rights of Holders of Series B Preferred
Stock
The
holders of our Series B preferred stock are entitled to a number of rights
and
preferences which holders of shares of our outstanding common stock do not
and
will not have. Among these rights and preferences is a preferential payment
in
the event of a liquidation of the Company, which means that holders of the
Series B preferred stock would be entitled to receive the proceeds out of any
sale or liquidation of the Company before any such proceeds are paid to holders
of our common stock. In general, if the proceeds received upon any sale or
liquidation do not exceed the total liquidation proceeds payable to the holders
of the Series B preferred stock, holders of common stock would receive no value
for their shares upon such a sale or liquidation. Given these rights of the
Preferred Stock, we cannot assure you that the proceeds from any sale or
liquidation would be sufficient to provide for any value whatsoever to be paid
to our common stockholders.
In
addition, shares of the Series B preferred stock accrue dividends at a rate
of
8% per year for a period of five years from the date on which the shares of
Series B preferred stock were issued. As of September 30, 2008, the amount
of
the accrued dividend on our outstanding shares of Series B preferred stock
was
$2,375,000. If the holders of Series B preferred stock were to elect to require
the payment of these accrued dividends in cash, this would severely reduce
the
Company’s liquidity, and could force the Company to promptly cease its
operations or to curtail them drastically in order to make the required
payments. We cannot assure you as to when, if ever, the holders of Preferred
Stock will demand the payment of these dividends in cash, nor can we assure
you
that we will have adequate cash to make such payments if and when the demand
is
made.
Holders
of the Series B Preferred Stock also have significant rights with respect to
specific actions that we may wish to take from time to time. At any time when
any shares of Series B Preferred Stock remain outstanding, we may not, without
the consent of the holders of a majority of the shares held by holders of at
least $4,000,000 (measured as of the original issue date) worth of Series B
preferred stock take the following actions, among others:
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·
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incur
debt in excess of $2,000,000;
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·
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authorize
the sale of securities at a price per share less than the price per
share
that the Series B preferred stock was sold under the Series B Purchase
Agreement;
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·
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create
any new classes or series of stock with rights senior to the common
stock;
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·
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amend
any provision of our Certificate of Incorporation or Bylaws that
changes
the rights of the Series B preferred stock;
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·
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pay
or declare any dividend on any capital stock of the Company other
than the
Series B preferred stock;
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·
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purchase
or redeem any securities;
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·
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liquidate,
dissolve or wind-up;
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·
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merge
with another entity;
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·
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sell
or dispose of any of our assets, including the sale or license of
intellectual property;
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·
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amend
any portion of our Certificate of Incorporation or Bylaws;
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·
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intentionally
take any action that may result in our stock no longer being approved
for
quotation on the AMEX or NASDAQ, or that would cause our common stock
to
no longer be registered pursuant to Section 12 of the Securities
Exchange
Act of 1934, as amended; or
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·
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amend
any material agreement that has been filed with the Securities and
Exchange Commission.
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As
a
result, we will not be able to take any of these actions without first seeking
and obtaining the approval of the holders of the Series B Preferred Stock.
We
may not be able to obtain such approval in a timely manner or at all, even
if we
think that taking the action for which we seek approval is in the best interests
of the Company. Our failure to obtain approval for such actions could result
in
a material adverse effect on our business and results of operations.
PART
I - FINANCIAL INFORMATION
ITEM
l.
Condensed
Consolidated Financial Statements (Unaudited).
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September
30,
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December
31,
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2008
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2007
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(Note
1)
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$
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7,957,321
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$
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15,646,225
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Other
current assets
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438,883
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234,338
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Total
current assets
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8,396,204
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15,880,563
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Property
and equipment, net
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25,132
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17,096
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Other
assets
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325,520
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807,646
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Total
assets
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$
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8,746,856
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$
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16,705,305
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LIABILITIES
AND
STOCKHOLDERS' EQUITY
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Current
Liabilities:
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Accounts
payable
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$
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761,052
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$
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1,503,355
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Accrued
expenses
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1,033,265
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458,731
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Preferred
stock dividends payable
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2,375,000
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875,000
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Total
current liabilities
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4,169,317
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2,837,086
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Stockholders'
Equity:
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Preferred
stock, $.01 par value; 15,000,000 shares authorized,
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400,000
shares designated as Series A, none issued and
outstanding,
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12,500,000
shares designated as Series B convertible preferred stock,
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10,000,000
shares issued and outstanding (aggregate liquidation
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preference
of $25,000,000) at September 30, 2008 and December 31,
2007
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100,000
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100,000
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Common
stock, $.01 par value; 150,000,000 shares
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authorized
at September 30, 2008 and 300,000,000 shares authorized
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at
December 31, 2007; 2,586,326 shares issued and outstanding
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at
September 30, 2008
and
2,586,377 issued and outstanding
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at
December 31, 2007
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25,863
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25,864
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Additional
paid-in capital
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282,551,470
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276,834,875
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Accumulated
deficit
|
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|
(278,099,794
|
)
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(263,092,520
|
)
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|
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Total
stockholders' equity
|
|
|
4,577,539
|
|
|
13,868,219
|
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|
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Total
liabilities and stockholders' equity
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$
|
8,746,856
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$
|
16,705,305
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The
accompanying notes are an integral part of these unaudited financial
statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three
Months Ended
September 30,
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Nine
Months Ended
September 30,
|
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|
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2008
|
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2007
|
|
|
2008
|
|
|
2007
|
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|
License
and other revenue
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|
$
|
772
|
|
$
|
1,066
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$
|
54,729
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|
$
|
51,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Research
and development
|
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|
1,717,984
|
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|
2,264,503
|
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|
5,107,974
|
|
|
4,665,580
|
|
|
General
and administrative
|
|
|
990,082
|
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|
894,469
|
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|
2,847,444
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2,534,847
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Selling
and marketing
|
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|
220,995
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|
-
|
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|
362,853
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-
|
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|
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Total
operating expenses
|
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|
2,929,061
|
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|
3,158,972
|
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|
8,318,271
|
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7,200,427
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|
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Loss
from operations
|
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|
(2,928,289
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)
|
|
(3,157,906
|
)
|
|
(8,263,542
|
)
|
|
(7,149,361
|
)
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Investment
income
|
|
|
52,969
|
|
|
194,692
|
|
|
262,734
|
|
|
257,738
|
|
|
Interest
expense
|
|
|
(2,224
|
)
|
|
(1,402,515
|
)
|
|
(5,232
|
)
|
|
(6,637,831
|
)
|
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Other
income/(expense)
|
|
|
5,000
|
|
|
-
|
|
|
(395,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
loss
|
|
|
(2,872,544
|
)
|
|
(4,365,729
|
)
|
|
(8,401,040
|
)
|
|
(13,529,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Preferred
stock dividends - Series B
|
|
|
500,000
|
|
|
375,000
|
|
|
1,500,000
|
|
|
375,000
|
|
|
Deemed
dividends to Series B preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
on beneficial conversion feature
|
|
|
1,702,078
|
|
|
1,244,993
|
|
|
5,106,234
|
|
|
1,244,993
|
|
|
Net
loss applicable to common shares
|
|
$
|
(5,074,622
|
)
|
$
|
(5,985,722
|
)
|
$
|
(15,007,274
|
)
|
$
|
(15,149,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(1.96
|
)
|
$
|
(2.31
|
)
|
$
|
(5.80
|
)
|
$
|
(5.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
2,586,326
|
|
|
2,586,377
|
|
|
2,586,326
|
|
|
2,586,377
|
|
The
accompanying notes are an integral part of these unaudited financial
statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’
EQUITY
(Unaudited)
|
|
|
|
Nine
months ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balances,
December 31, 2007
|
|
|
10,000,000
|
|
$
|
100,000
|
|
|
2,586,377
|
|
$
|
25,864
|
|
$
|
276,834,875
|
|
$
|
(263,092,520
|
)
|
$
|
13,868,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(8,401,040
|
)
|
|
(8,401,040
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional
shares
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividends to Series B preferred stockholders on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beneficial
conversion feature
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,106,234
|
|
|
(5,106,234
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B preferred stock dividend payable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(1,500,000
|
)
|
|
(1,500,000
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
594,002
|
|
|
—
|
|
|
594,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for consulting services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,014
|
|
|
—
|
|
|
4,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
costs related to restricted stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,344
|
|
|
—
|
|
|
12,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2008
|
|
|
10,000,000
|
|
$
|
100,000
|
|
|
2,586,326
|
|
$
|
25,863
|
|
$
|
282,551,470
|
|
$
|
(278,099,794
|
)
|
$
|
4,577,539
|
|
The
accompanying notes are an integral part of these unaudited financial
statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,401,040
|
)
|
$
|
$
(13,529,454
|
)
|
|
Adjustments
to reconcile net loss to cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
594,002
|
|
|
169,180
|
|
|
Options
issued for consulting services
|
|
|
4,014
|
|
|
2,732
|
|
|
Compensation
costs related to restricted stock
|
|
|
12,344
|
|
|
58,741
|
|
|
Non-cash
interest expense
|
|
|
—
|
|
|
164,384
|
|
|
Amortization
of debt discount
|
|
|
—
|
|
|
6,000,000
|
|
|
Amortization
of deferred financing costs
|
|
|
—
|
|
|
466,413
|
|
|
Depreciation
and amortization
|
|
|
9,758
|
|
|
7,567
|
|
|
Write-off
of investment in Oxis stock
|
|
|
400,000
|
|
|
—
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
(204,545
|
)
|
|
(36,386
|
)
|
|
Other
assets
|
|
|
82,126
|
|
|
66,867
|
|
|
Accounts
payable and accrued expenses
|
|
|
(167,769
|
)
|
|
331,391
|
|
|
Net
cash used in operating activities
|
|
|
(7,671,110
|
)
|
|
(6,298,565
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(17,794
|
)
|
|
(13,548
|
)
|
|
Payments
for securities purchased under the Oxis agreement
|
|
|
—
|
|
|
(400,000
|
)
|
|
Net
cash used in investing activities
|
|
|
(17,794
|
)
|
|
(413,548
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from debt financing
|
|
|
—
|
|
|
6,000,000
|
|
|
Proceeds
from issuance of preferred stock
|
|
|
—
|
|
|
18,835,616
|
|
|
Payments
for private placement costs
|
|
|
—
|
|
|
(1,837,954
|
)
|
|
Payments
for debt financing costs
|
|
|
—
|
|
|
(466,413
|
)
|
|
Net
cash provided by financing activities
|
|
|
—
|
|
|
22,531,249
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(7,688,904
|
)
|
|
15,819,136
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
15,646,225
|
|
|
1,478,780
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
7,957,321
|
|
$
|
17,297,916
|
|
|
Supplemental
disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Deemed
dividends to Series B preferred stockholders on beneficial
conversion
|
|
$
|
5,106,234
|
|
$
|
1,244,993
|
|
|
Series
B stock dividends payable
|
|
$
|
1,500,000
|
|
$
|
375,000
|
|
|
Warrants
issued and embedded conversion feature associated
|
|
|
|
|
|
|
|
|
with
debt financing
|
|
$
|
—
|
|
$
|
6,000,000
|
|
|
Beneficial
conversion feature on convertible Series B preferred stock
|
|
$
|
—
|
|
$
|
13,616,625
|
|
|
Preferred
stock issued pursuant to conversion of debt and accrued
interest
|
|
$
|
—
|
|
$
|
6,164,384
|
|
|
Fair
value of warrants issued to placement agents for private placement
allocable
|
|
|
|
|
|
|
|
|
to
private placement
|
|
$
|
—
|
|
$
|
1,619,256
|
|
The
accompanying notes are an integral part of these unaudited financial
statements.
SYNVISTA
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the instructions to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all of the information
and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December
31,
2008. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2007, as filed with the Securities and Exchange Commission (the
“Form 10-K”). The December 31, 2007 balance sheet is derived from the audited
balance sheet included in the Form 10-K.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts
of
Synvista Therapeutics, Inc. and its wholly owned subsidiary, HaptoGuard, Inc.
All inter-company accounts and transactions have been eliminated in
consolidation.
Note
2 - Liquidity
The
Company has devoted substantially all of its resources to research, drug
discovery and development programs. To date, it has not generated any revenues
from the sale of products and does not expect to generate any such revenues
for
a number of years, if at all. As a result, the Company has incurred net losses
since inception, has an accumulated deficit of $278,099,794 as of September
30,
2008, and expects to incur net losses, potentially greater than losses in prior
years, for a number of years, assuming the Company is able to continue as a
going concern, of which there can be no assurance.
The
Company has financed its operations through proceeds from the sale of common
and
preferred equity securities, debt securities, revenue from former collaborative
relationships, reimbursement of certain of its research and development expenses
by collaborative partners, investment income earned on cash and cash equivalent
balances and short-term investments and the sale of a portion of the Company’s
New Jersey state net operating loss carryforwards and research and development
tax credit carryforwards.
As
of
September 30, 2008, the Company had working capital of $4,226,887, including
$7,957,321 of cash and cash equivalents. The Company’s net cash used in
operating activities for the nine months ended September 30, 2008 was $7,671,110
and for the year ended December 31, 2007 was $7,946,700.
In
August
2007, we entered into a share purchase agreement for the purchase of $500,000
of
newly issued shares of Oxis International Limited (“Oxis”) common stock at a
premium over the then current market price. It is our understanding that Oxis
held some value as of June 30, 2008, but it is our position that we will not
recoup our investment in Oxis. On June 19, 2008, Oxis received a Notice of
Disposition of Collateral from certain debenture holders. Our investment in
Oxis
of $400,000 was written off as of June 30, 2008. This security is restricted
for
sale until the early part of February 2009.
The
Company expects to continue to utilize cash and cash equivalents to fund its
operating activities, including continued development of SYI-2074, alagebrium
and its diagnostic test kits. Based on the projected spending levels for the
Company, it does not currently have adequate cash and cash equivalents to
complete its clinical trials and/or the development of its diagnostic test
kits
and, therefore, urgently requires additional funding in order to continue
operations. The Company is actively pursuing fund-raising possibilities through
the sale of its equity securities. If the Company is unsuccessful in its efforts
to raise additional funds through the sale of additional equity securities
or if
the level of cash and cash equivalents falls below anticipated levels, Synvista
will not have the ability to continue as a going concern after the first quarter
of 2009. If we are unsuccessful in our efforts to raise additional funds through
the sale of additional equity securities, we will be required to significantly
reduce or curtail our research and product development activities, to sell
or
out-license our assets and may be required to curtail our other operations
significantly or cease operations altogether. We have the intent and ability
to
quickly and significantly reduce the cash expenditure rate, if necessary, as
we
have limited fixed commitments, which include executed, but cancelable,
agreements with outside organizations.
At
the
request of the holders of its Series B preferred stock, the Company may be
required to pay accrued dividends on its Series B preferred stock, totaling
$2,375,000 as of September 30, 2008, in cash rather than in shares of its Series
B preferred stock. If the holders of Series B preferred stock were to
elect to require the payment of these accrued dividends in cash, this would
severely reduce the Company’s liquidity, and could force the Company to promptly
cease its operations or to curtail them drastically in order to make the
required payments. The Company believes that its ability to adjust spending
levels quickly in a number of its programs will permit its continued operations
into the first quarter of 2009, regardless of the form of dividend payment
elected by the holders of its Series B preferred stock.
The
Company will require substantial new funding in early 2009 in order to continue
the development and commercialization of its product candidates and to continue
its operations. The Company believes that satisfying these capital requirements
over the long term will require successful commercialization of its product
candidates and/or its diagnostic test kits. However, it is uncertain whether
any
of its products or diagnostic test kits will be approved or will be commercially
successful. The amount and timing of the Company’s future capital requirements
will depend on numerous factors, including the progress
of
its
research
and development programs, the number and characteristics of product candidates
that the Company pursues, the conduct of preclinical tests and clinical studies,
the status and timelines of regulatory submissions, the costs associated with
protecting patents and other proprietary rights, the ability to complete
strategic collaborations and the availability of third-party funding, if any.
Selling
securities to satisfy its capital requirements may have the effect of materially
diluting the current holders of the Company’s outstanding stock. The Company may
also seek additional funding through corporate collaborations and other
financing vehicles. There can be no assurances that such funding will be
available at all or on terms acceptable to the Company. If funds are obtained
through arrangements with collaborative partners or others, the Company may
be
required to relinquish rights to its technologies or product candidates and
alter its plans for the development of its technologies or product candidates.
If the Company is unable to obtain the necessary funding, it will likely be
forced to cease operations.
Note
3 - Stock-Based Compensation
The
Company has stockholder-approved stock incentive plans for employees, directors,
officers and consultants.
The
Company follows Statement of Financial Accounting Standards No. 123(R) (“SFAS
123(R)”), “Share-Based Payment,” for employee options and uses the Black-Scholes
option pricing model in valuing its options granted to employees and Directors.
The
following table shows the weighted average assumptions the Company used to
develop the fair value estimates for the determination of compensation charges
relating to its option grants:
|
|
|
Nine
months ended
|
|
|
|
|
September
30
|
|
|
|
|
2008
|
|
2007
|
|
|
Expected
volatility
|
|
|
112
|
%
|
|
148
|
%
|
|
Dividend
yield
|
|
|
—
|
|
|
—
|
|
|
Expected
term (in years)
|
|
|
6.57
|
|
|
6.12
|
|
|
Risk-free
interest rate
|
|
|
4.25
|
%
|
|
4.88
|
%
|
The
weighted average grant date fair value of options granted during the first
nine
months of 2008 was $1.58 as determined by the Black-Scholes option valuation
model using the assumptions listed in the chart above.
Options
granted to consultants and other non-employees are accounted for in accordance
with Emerging Issues Task Force No. 96-18 "Accounting for Equity Instruments
That Are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." Accordingly, such options are recorded at
fair value at the date of grant and subsequently adjusted to fair value at
the end of each reporting period. For the nine-months ended September 30,
2008 and September 30, 2007, the Company recognized research and development
consulting expenses of $4,014 and $2,732, respectively.
For
the
three and nine month periods ended September 30, 2008, the Company recognized
share-based employee compensation cost of $177,037 and $594,002, respectively
and for the three and nine month periods ended September 30, 2007, the Company
recognized share-based employee compensation cost of approximately $84,618
and
$169,180 respectively, in accordance with SFAS 123(R), “Share-Based Payment,”
which was recorded as general and administrative and research and development
expense. This expense related to the granting of stock options to employees,
directors and officers on or after January 1, 2006. None of this expense
resulted from the grants of stock options prior to January 1, 2006. The Company
recognized compensation expense related to these stock options, taking into
consideration a forfeiture rate of approximately 1% based on historical
experience, on a straight-line basis over the vesting period. The Company did
not capitalize any share-based compensation cost.
As
of
September 30, 2008, the total compensation cost related to non-vested option
awards not yet recognized is $1,195,898. The weighted-average period over which
this cost is expected to be recognized is approximately 2.2 years.
A
summary
of the status of the Company’s stock options outstanding as of September 30,
2008 and changes during the nine months then ended is presented below:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
|
average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
|
exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
price
|
|
Term
(years)
|
|
Value
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
876,706
|
|
$
|
16.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
76,000
|
|
|
1.88
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(25,265
|
)
|
|
108.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
|
927,441
|
|
|
12.33
|
|
|
8.17
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
|
334,091
|
|
|
29.30
|
|
|
6.55
|
|
$
|
—
|
|
Restricted
Stock
The
Company periodically grants awards of restricted stock to its Board of Directors
as compensation for service on the Board of Directors. The awards vest during
various periods ranging from one to three years. There were no shares of
restricted stock granted during the nine month period ended September 30, 2008,
and 2,148 shares vested during the period. The total fair value of shares vested
during the period was $16,110.
There
were 19,200 shares of restricted stock granted during the year ended December
31, 2006, of which 6,400 were forfeited and 8,520 vested in prior periods.
Of
the 10,668 total shares of restricted stock that vested, the vesting of 4,280
shares had been accelerated by the Board of Directors. The total fair value
of
all shares vested is $80,010.
The
Company recognized compensation cost of $7,008 and $12,344 for the three and
nine months ended September 30, 2008, respectively, which was recorded as
general and administrative expense in the condensed consolidated statement
of
operations.
A
summary
of the status of the Company’s non-vested shares as of September 30, 2008 and
changes during the nine months ended September 30, 2008, is presented
below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
grant
|
|
|
Nonvested
Shares
|
|
Shares
|
|
date
fair value
|
|
|
|
|
|
|
|
|
|
Nonvested
at
|
|
|
|
|
|
|
January
1, 2008
|
|
|
4,280
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
Vested
|
|
|
2,148
|
|
|
7.50
|
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
|
2,132
|
|
|
7.50
|
|
As
of
September 30, 2008, there was $4,279 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted. That cost
is
expected to be recognized over a weighted-average period of 0.80 years.
Note
4 - Net Loss Per Share Applicable to Common Stockholders
Basic
net
loss per share is computed by dividing net loss applicable to common
stockholders by the weighted average number of shares outstanding during the
period. Diluted net loss per share is the same as basic net loss per share
applicable to common stockholders, since the assumed exercise of stock options
and warrants and the conversion of preferred stock would be antidilutive. The
amount of potentially dilutive shares excluded from the calculation as of
September 30, 2008 and 2007, was 14,412,421 and 13,770,766 shares,
respectively.
|
|
|
September
30,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
10,000,000
|
|
|
10,000,000
|
|
|
Restricted
Stock
|
|
|
12,800
|
|
|
12,800
|
|
|
Warrants
|
|
|
3,530,716
|
|
|
3,551,640
|
|
|
Options
|
|
|
868,905
|
|
|
206,326
|
|
|
Potentially
dilutive shares excluded from calculation
|
|
|
14,412,421
|
|
|
13,770,766
|
|
Note
5 - Collaborative Research and Development Agreement
On
January 20, 2008, the Company entered into a License Agreement (the “Agreement”)
with Novel Therapeutic Technology Inc. (“NTT”). The Agreement states that NTT
will develop a formulation of the Company’s product candidate SYI-2074. The
Agreement also states that NTT will grant the Company an exclusive worldwide
license to the product formulation developed as well as to the intellectual
property rights resulting under the Agreement. An insignificant upfront payment
was made in January 2008. The Company will also make specified payments to
NTT
upon the occurrence of certain milestone events in the clinical development
of
the product formulated under the Agreement. In addition, the Company would
also
have to pay NTT royalties on any sales of the developed product and a separate
fee if any of the rights granted under the Agreement are sublicensed by the
Company.
The
license granted under the Agreement will be terminated upon the earlier to
occur
of (i) the date the Company notifies NTT that it does not intend to proceed
further with development of formulation of SYI-2074 subject to the Agreement,
(ii) the date the Company notifies NTT that it does not intend to continue
to
commercialize the products developed pursuant to the Agreement, and (iii) the
later of (a) the expiration of the last valid patent covering the formulation
of
the Company’s intellectual property pursuant to the Agreement, which, absent the
Agreement, would infringe an existing patent, or (b) 15 years from the date
of
the first commercial sale of a product pursuant to the Agreement.
Note
6 - Series B Preferred Stock and Warrant Purchase
Agreement
On
July
20, 2007, at the Company’s annual meeting of stockholders, the stockholders of
the Company approved
the
issuance of securities pursuant to the Series B Preferred Stock and Warrant
Purchase Agreement dated as of January 11, 2007, as amended. At the closing
of
the financing on July 25, 2007, the Company issued 10,000,000 shares of its
Series B Preferred Stock and warrants to purchase 2,500,000 shares of Series
B
Preferred Stock to the investors. The Series B Preferred Stock accrues dividends
at a rate of 8% per year on the original issue price of $2.50 per share for
a
period of five years from the date on which the shares of Series B Preferred
Stock were issued. As of November 1, 2008, the holders of the Series B Preferred
Stock have not designated their dividends as payable either in cash or preferred
stock.
ITEM
2.
Management's
Discussion and Analysis of Financial Condition
Overview
We
are a
product-based biotechnology company developing diagnostic and therapeutic
products to deliver personalized medicine. Our primary therapeutic interest
is
the cardiovascular complications of diabetes. Our diagnostic products under
development are being designed to identify patients at risk for cardiovascular
complications of diabetes such as stroke, heart attack and death, and may be
used to guide medical therapy.
We
are
primarily focused on fund-raising activities and exploring strategic
relationships to support our development programs. If we are unsuccessful
in our efforts to raise additional funds through the sale of additional equity
securities or the out-license of our technology, or if the level of cash and
cash equivalents falls below anticipated levels, we may be required to
significantly curtail the research, product development, preclinical testing
and
clinical trials of our product candidates or cease our operations altogether.
We
are
developing a diagnostic test to identify the subset of patients with diabetes
who are at increased risk for cardiovascular disease. The technology underlying
this test relates to a serum protein called haptoglobin, or Hp. A common variant
of this protein, known as Hp2-2, which is found in 40% of the population, is
associated with increased cardiovascular risk in diabetic patients. We own
intellectual property relating to typing haptoglobin, which is a protein found
in the blood. This diagnostic test may be useful in determining a patient’s risk
for adverse cardiovascular events. It may also be useful to identify a subset
of
diabetic patients in whom daily use of vitamin E could potentially reduce the
rate of heart attack. We are evaluating arrangements that would allow our
technology or intellectual property to be used by commercial enterprises for
the
aforementioned purposes and would be further developed and validated by a
clinical laboratory that is certified under the Clinical Laboratory Improvement
Amendments, or CLIA, and offered as a testing service. Further, we are
developing a kit for use in determining cardiovascular disease risk in diabetic
patients that will be submitted to the U.S. Food and Drug Administration for
premarket clearance under the 510(k) pathway. Any successful commercialization
of such a kit, if cleared, could generate revenues for us in future years and
could help focus the development of one of our therapeutic product programs,
known as glutathione peroxidase mimetics, described below.
We
also
own intellectual property relating to CML testing. CML, or
carboxy-methyl-lysine, is a marker of cardiovascular aging that can predict
adverse health outcomes in the general population and a subpopulation with
heart
failure in particular. A “Research Use Only” kit for quantifying CML levels was
developed by MicroCoat GmbH of Bernried, Germany, using our proprietary
reagents, and has been sold in the research community in recent years. Given
the
correlation of CML levels and cardiovascular outcomes that has been appearing
in
the scientific literature, the Company believes that a CML test may
strategically complement the haptoglobin test in the clinical diagnostic
setting.
Research
and discovery relating to haptoglobin testing has revealed that some patients,
identified using the haptoglobin test, exhibit dysfunction in their HDL, or
high
density lipoprotein. This HDL dysfunction may explain the increased
atherosclerosis and adverse cardiovascular outcomes observed in this patient
population. We have developed a family of new chemical entities that work by
virtue of their ability to reduce oxidized lipids. Some of these compounds
have
been shown to reverse the HDL dysfunction seen in some diabetic patients. We
are
evaluating these personalized medicines in animal models designed to better
characterize HDL function.
As
previously reported, one of our GPx mimetics, SYI-2074, which was under
development for the treatment of diabetic patients with Haptoglobin subtype
2-2,
did not demonstrate a dose-related improvement in all oxidized lipids and all
markers of oxidative stress after treatment with SYI-2074 for one month in
Trial
201. In addition, in Trial 203, SYI-2074 did not provide evidence of protection
against cardiac injury in diabetic patients who were undergoing angioplasty.
The
Company has therefore decided not to advance the development of SYI-2074 as
a
treatment for acute coronary syndrome, while it continues to review and analyze
the results of these studies.
SYI-2074
has been formulated into an ointment that may permit topical application and
the
treatment of mild-moderate plaque psoriasis.
We
are
developing a compound relevant to the CML marker described above. Alagebrium
chloride, or alagebrium (formerly ALT-711), is an Advanced Glycation End-product
Crosslink Breaker being developed for diastolic heart failure and diabetic
nephropathy. Alagebrium has demonstrated potential efficacy in two clinical
trials in heart failure, as well as in animal models of heart failure,
nephropathy, hypertension and erectile dysfunction. These diseases represent
rapidly growing markets of unmet medical needs, particularly common among
diabetic patients. The compound has been tested in approximately 1,000 patients,
which represents a sizeable human safety database, in a number of Phase 2
clinical studies.
During
the second quarter of 2008, we announced that we had dosed the first patient
in
a 160-patient Phase 2 study of alagebrium in patients with diastolic heart
failure. BREAK (
B
eginning
a
R
andomized
E
valuation
of the
A.
G.E.
(Advanced Glycation End Product) Brea
k
er
Alagebrium in Diastolic Heart Failure) is a randomized, double-blind, placebo
controlled study to assess the effect of six months of oral treatment with
400mg
(200mg twice daily) alagebrium versus placebo in patients diagnosed with
diastolic heart failure as verified by echocardiography. The trial is ultimately
expected to enroll 80 patients per cohort and be conducted in as many as 25
centers in the United States. It had completed more than 50% enrollment at
the
end of the third quarter of 2008. Investigators intend that at least half of
the
study subjects will have diabetes mellitus. The primary efficacy measure of
the
study is improvement of exercise tolerance as assessed by the six-minute walk
test, an accepted regulatory endpoint. In addition, there will be a number
of
secondary and tertiary measurements including the effect of alagebrium on CML
levels. The Company has also surpassed 75% enrollment in the BENEFICIAL study.
This trial, being conducted at the University of Gronigen, The Netherlands,
is
designed to test the efficacy of alagebrium in heart failure patients with
low
ejection fractions, by measuring their improvement in maxVO2 (maximum oxygen
consumption), a measure of exercise tolerance.
Future
Development Plans
We
are
also managing a discovery and development program aiming to produce small
molecule drugs that mimic the enzyme glutathione peroxidase, or GPx. We believe
that GPx is one of the only enzymes in the human body that reduces oxidized
lipids. By recreating the activity of this enzyme in a small molecule we may
be
able to treat diseases in which oxidized lipids are thought to play a
significant role.
In
January 2008, we announced the signing of an agreement with privately-held
Novel
Therapeutic Technologies Inc. to provide us with formulation work for a topical
cream formulation of one of our GPx mimetics, SYI-2074, for the treatment of
psoriasis. This work will be performed at a major clinical institution in
Israel. SYI-2074 may have potential in the treatment of plaque
psoria
sis
because SYI-2074 can block TNF-α activated expression of cell adhesion
molecules, I-CAM and V-CAM, which may be essential for cellular migration.
TNF-α
is an established target for drug development in psoriasis and other autoimmune
diseases. We have
identified
sites in Israel to perform a planned Phase 2 clinical trial which began in
the
third quarter of 2008.
As
previously reported, we also expect that alagebrium will be studied in a
clinical trial of patients with Type I diabetes and microalbuminuria (protein
in
the urine), funded by the Juvenile Diabetes Research Foundation. This study
has
already dosed its first patient, but as observers of the trial without
responsibility for its performance, we cannot project the date or likelihood
of
this trial’s completion.
We
continue to evaluate potential pre-clinical and clinical studies in other
therapeutic indications in which alagebrium and SYI-2074 may address significant
unmet needs. For alagebrium, in addition to our anticipated clinical studies
in
heart failure, we have conducted preclinical studies focusing on
atherosclerosis; Alzheimer's disease; photoaging of the skin; eye diseases,
including age-related macular degeneration, and glaucoma; and other diabetic
complications, including renal diseases.
Since
our
formation in October 1986, we have devoted substantially all of our resources
to
research, drug discovery and development programs. To date, we have not
generated any revenues from the sale of products and do not expect to generate
any such revenues for a number of years, if at all. We have incurred an
accumulated deficit of $278,099,794 as of September 30, 2008, and expect to
incur net losses, potentially greater than losses in prior years, for a number
of years.
We
have
financed our operations through proceeds from public offerings of common stock,
private placements of common and preferred equity and debt securities, revenue
from former collaborative relationships, reimbursement of certain of our
research and development expenses by our collaborative partners, investment
income earned on cash and cash equivalent balances and short-term investments
and the sale of a portion of our New Jersey State net operating loss
carryforwards and research and development tax credit
carryforwards.
Our
business is subject to significant risks including, but not limited to, (1)
our
ability to obtain and maintain sufficient financial resources to continue as
a
going concern and to conduct and continue enrollment in our clinical studies
of
SYI-2074 and alagebrium, (2) the risks associated with our development of a
diagnostic kit, (3) the risks inherent in our research and development efforts,
including clinical trials and the length, expense and uncertainty of the process
of seeking regulatory approvals for our product candidates, (4) uncertainties
associated with obtaining and enforcing our patents and with the patent rights
of others, (5) uncertainties regarding government healthcare reforms and product
pricing and reimbursement levels, (6) technological change and competition,
(7)
manufacturing uncertainties, and (8) dependence on collaborative partners and
other third parties. Even if our product candidates appear promising at an
early
stage of development, they may not reach the market for numerous reasons. These
reasons include the possibilities that the products will prove ineffective
or
unsafe during preclinical or clinical studies, will fail to receive necessary
regulatory approvals, will be difficult to manufacture on a large scale, will
be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties, or that we will be unable to develop and
commercialize our proposed diagnostic kit. These risks and others are discussed
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007
that we filed with the Securities and Exchange Commission on March 31, 2008
under the heading “Item 1A - Risk Factors” and in this report under the heading
"Part II - Item 1A - Risk Factors."
Results
of Operations
Three
Months ended September 30, 2008 and 2007
License
and Other Revenue
Total
license and other revenue for the three months ended September 30, 2008 and
2007, was $1,000 and $1,000, respectively, attributable to royalty revenue
received from ARUP Laboratories as a result of a royalty agreement entered
into
in September 2004.
Other
Income/Expense
Investment
income for the three months ended September 30, 2008 and 2007, was $53,000
and
$195,000, respectively. Income was derived from interest earned on cash and
cash
equivalents and short-term investments. The decrease in investment income was
due to lower cash balances during the current year. In 2007, there was a higher
cash balance as a result of our preferred stock financing in July 2007.
Our
interest expense was $2,000 for the three months ended September 30, 2008,
compared to $1,403,000 for the period ended September 30, 2007. The decrease
was
the result of interest expense relating to our private debt financing completed
in January 2007.
Operating
Expenses
Total
operating expenses were $2,929,000 for the three months ended September 30,
2008, compared to $3,159,000 for the three months ended September 30, 2007,
and
consisted primarily of research and development expenses and general and
administrative expenses in 2008 and 2007. Research and development expenses
normally include third-party expenses associated with pre-clinical, clinical,
and diagnostic studies, manufacturing costs, including the development and
preparation of clinical supplies, personnel and personnel-related expenses,
and
facility expenses.
Research
and Development
Research
and development expenses were $1,718,000 for the three months ended September
30, 2008, as compared to $2,265,000 for the same period in 2007, a decrease
of
$547,000, or 24%. This decrease was due to lower research study costs resulting
from the discontinuation of SYI-2074 Trials 201 and 203 in June 2008. In
addition, research study costs were higher in 2007 due to the increased spending
on clinical trials after the July 2007 financing. The lower study costs were
partially offset by higher personnel-related costs.
For
the
three months ended September 30, 2008, personnel-related research and
development costs totaled $226,000, compared to $78,000 for the same period
in
2007, an increase of $148,000, or 190%. This increase was primarily driven
by
the hiring of additional personnel within the Clinical, Pre-Clinical, and
Diagnostic departments.
For
the
three months ended September 30, 2008, the total amount spent on research study
costs was $1,467,000, inclusive of $858,000 of clinical trial costs, $195,000
of
manufacturing and storage expenses, $119,000 of third party consulting costs,
$111,000 of patent expenses, $100,000 of license fees, $49,000 of product
liability insurance, and $11,000 of regulatory costs. For the same period in
2007, we incurred $1,794,000 of clinical trial expenses, $181,000 of third
party
consulting expenses, $157,000 of patent expenses, and $41,000 of product
liability insurance.
General
and Administrative
General
and administrative expenses were $990,000 for the three months ended September
30, 2008, as compared to $894,000 for the same period in 2007, for an increase
of $96,000 or 11%. The increase in 2008 was related to the following: higher
Board of Directors expense of $37,000 due to the addition of a new Board member,
an increase in administrative expenses of $37,000, an increase in investor
relations costs of $31,000, higher legal costs of $27,000, and an increase
in
repairs and maintenance expense of $13,000. These increases were partially
offset by lower consulting expenses of $24,000 and lower facilities costs of
$17,000.
Selling
and Marketing
In
the
second quarter of 2008, we began commercial planning efforts surrounding our
haptoglobin diagnostic kits. Selling and marketing expenses for the three months
ended September 30, 2008, were $221,000, inclusive of $62,000 of medical
education expenses, $59,000 of personnel-related expenses, $38,000 of market
research, $20,000 of expenses relating to conferences and tradeshows, and
$12,000 of advertising and promotion expenses. There were no such expenses
during the comparable period in 2007.
Net
Loss
We
had
net losses of $2,873,000, and $4,366,000 in the three months ended September
30,
2008 and 2007, respectively. We had net losses applicable to common stockholders
for the three months ended September 30, 2008 and 2007, of $5,075,000 and
$5,986,000, respectively, inclusive of
preferred
stock dividends and deemed dividends to Series B preferred stockholders of
$2,202,000 and $1,620,000 for the three months ended September 30, 2008 and
2007, respectively.
Nine
Months ended September 30, 2008 and 2007
License
and Other Revenue
Total
license and other revenue for the nine months ended September 30, 2008 and
2007,
was $55,000 and $51,000, respectively, inclusive of $50,000 received from a
licensing agreement with Avon Products, Inc., which we entered into in September
2005. In 2008, we also received $3,000 from a royalty agreement with ARUP
Laboratories, which was entered into in September 2004. We received $1,000
in
royalty payments from ARUP Laboratories in 2007.
Other
Income/Expense
Investment
income for the nine months ended September 30, 2008 and 2007, was $263,000
and
$258,000, respectively. Income was derived from interest earned on cash and
cash
equivalents and short-term investments. There were slightly higher cash balances
during the current year as a result of our preferred stock financing in July
2007.
Our
interest expense was $5,000 for the nine months ended September 30, 2008,
compared to $6,638,000 for the period ended September 30, 2007. The decrease
was
the result of interest expense relating to our private debt financing completed
in January 2007.
We
recognized $400,000 of other expense in June 2008, as a result of the write-off
of our investment in Oxis International common stock.
Operating
Expenses
Total
operating expenses were $8,318,000 for the nine months ended September 30,
2008,
compared to $7,200,000 for the nine months ended September 30, 2007, and
consisted primarily of research and development expenses and general and
administrative expenses in 2008 and 2007. Research and development expenses
normally include third-party expenses associated with pre-clinical, clinical,
and diagnostic studies, manufacturing costs, including the development and
preparation of clinical supplies, personnel and personnel-related expenses,
and
facility expenses.
Research
and Development
Research
and development expenses were $5,108,000 for the nine months ended September
30,
2008, as compared to $4,666,000 for the same period in 2007, an increase of
$442,000 or 9%. This increase was attributed to higher personnel-related costs,
partially offset by slightly lower research study costs. Research study costs
were higher in 2007 due to the increased spending on clinical trials after
the
July 2007 financing. In addition, we discontinued SYI-2074 Trials 201 and 203
in
June 2008, resulting in lower costs for the 2008 period.
For
the
nine months ended September 30, 2008, personnel-related research and development
costs totaled $679,000 compared to $234,000 for the same period in 2007, an
increase of $445,000, or 190%. This increase was primarily driven by the hiring
of additional personnel within the Clinical, Pre-Clinical, and Diagnostic
departments.
For
the
nine months ended September 30, 2008, research study costs totaled $4,343,000,
compared to $4,378,000 for the same period in 2007, a decrease of $35,000,
or
1%. In 2008, research study costs included $2,314,000 of clinical trial costs,
$599,000 of manufacturing and storage expenses, $513,000 of third party
consulting costs, $326,000 of patent expenses, $140,000 of license fees,
$124,000 of product liability insurance, $118,000 of research funding costs,
$95,000 of sponsored research costs, and $63,000 of regulatory costs.
Comparatively, in 2007, research study costs consisted of $2,604,000 of clinical
trial costs, $800,000 of license fees, $524,000 of patent expenses, $361,000
of
third party consulting costs, and $104,000 of product liability insurance
expenses.
General
and Administrative
General
and administrative expenses were $2,847,000 for the nine months ended September
30, 2008, as compared to $2,535,000 for the same period in 2007, for an increase
of $312,000, or 12%. The increase in 2008 was related to the following: higher
personnel-related expenses of $289,000, an increase in investor relations costs
of $121,000, higher franchise taxes of $64,000, higher repairs and maintenance
expense of $40,000, and higher Board of Directors expense of $38,000 due to
the
addition of a new Board member. These increases were partially offset by lower
consulting and administrative expenses of $102,000 and $83,000, respectively,
as
well as lower facility costs of $41,000 and lower insurance costs of
$17,000.
Selling
and Marketing
In
the
second quarter of 2008, we began commercial planning surrounding our haptoglobin
diagnostic kits. Selling and marketing expenses for the nine months ended
September 30, 2008, were $363,000, inclusive of $148,000 of personnel-related
expenses, $90,000 of medical education related expenses, $38,000 of market
research, $33,000 of conferences and tradeshows, and $12,000 of advertising
and
promotion. There were no such expenses during the comparable period in
2007.
Net
Loss
We
had
net losses of $8,401,000 and $13,529,000 in the nine months ended September
30,
2008 and 2007, respectively. We had net losses applicable to common stockholders
for the nine months ended September 30, 2008 and 2007, of $15,007,000 and
$15,149,000, inclusive of
preferred
stock dividends and deemed dividends to Series B preferred stockholders of
$6,606,000 and $1,620,000 for the nine months ended September 30, 2008 and
2007,
respectively.
Liquidity
and Capital Resources
We
had
cash and cash equivalents at September 30, 2008, of $7,957,000, compared to
$15,646,000 at December 31, 2007. The decrease is primarily attributable to
$7,671,000 of net cash used in operating activities. At September 30, 2008,
we
had working capital of $4,227,000.
We
do not
have any approved products and currently derive cash from sales of our
securities and interest on cash and cash equivalents. We are highly susceptible
to conditions in the global financial markets and in the pharmaceutical
industry. Positive and negative movement in those markets will continue to
pose
opportunities and challenges to us. Previous downturns in the market valuations
of biotechnology companies and of the equity markets more generally have
restricted our ability to raise additional capital on favorable
terms.
We
expect
to utilize cash and cash equivalents to fund our operating activities, including
continued development of SYI-2074, alagebrium and development of our diagnostic
test kit. Based on the projected spending levels for the Company, we do not
currently have adequate cash and cash equivalents to complete our clinical
trials and/or the development of our diagnostic test kits and, therefore, will
require additional funding urgently in order to continue operations. The Company
is actively pursuing fund-raising possibilities through the sale of its equity
securities. If the Company is unsuccessful in its efforts to raise additional
funds through the sale of additional equity securities or if the level of cash
and cash equivalents falls below anticipated levels, we will not have the
ability to continue as a going concern after the first quarter of 2009. As
a
result, the Company will continue to monitor its liquidity position and the
status of its diagnostic development and clinical trials. If we are unsuccessful
in our efforts to raise additional funds through the sale of additional equity
securities, we will be required to significantly reduce or curtail our research
and product development activities, to sell or out-license our assets, and
may
be required to curtail our other operations significantly. We have the intent
and ability to quickly and significantly reduce the cash expenditure rate,
if
necessary, as we have limited fixed commitments, which include executed, but
cancelable, agreements with outside organizations.
We
may be
required to pay accrued dividends on our preferred stock, totaling $2,375,000
as
of September 30, 2008 in cash, rather than in stock, at the request of the
Preferred Stock holders. While this would reduce the Company’s liquidity,
the Company believes that its ability to adjust spending levels quickly in
a
number of programs will permit its continued operations into the first quarter
of 2009, regardless of the form of dividend payment elected by the holders
of
our Series B Preferred stock investors.
We
will
require substantial new funding in early 2009 in order to continue the
development and commercialization of its product candidates and to continue
our
operations. The Company believes that satisfying these capital requirements
over
the long term will require successful commercialization of our product
candidates and/or our diagnostic test kits. However, it is uncertain whether
any
of our products or diagnostic test kits will be approved or will be commercially
successful. The amount and timing of the Company’s future capital requirements
will depend on numerous factors, including the progress
of
our
research
and development programs, the exercise by the holders of the Series B preferred
stock of their right to receive accrued dividends in the form of cash, number
and characteristics of product candidates that the Company pursues, the conduct
of preclinical tests and clinical studies, the status and timelines of
regulatory submissions, the costs associated with protecting patents and other
proprietary rights, the ability to complete strategic collaborations and the
availability of third-party funding, if any.
In
August
2007, we entered into a share purchase agreement for the purchase of $500,000
of
newly issued shares of Oxis International Limited (“Oxis”) common stock at a
premium over the then current market price. It is our understanding that Oxis
held some value as of June 30, 2008, but it is our position that we will not
recoup our investment in Oxis. On June 19, 2008, Oxis received a Notice of
Disposition of Collateral from certain debenture holders. Our investment in
Oxis
was written off as of June 30, 2008. This security was restricted for sale
until
the early part of February 2009.
On
July
25, 2007, institutional investors purchased $25,000,000 of newly created Series
B Preferred Stock and warrants to purchase shares of Series B Preferred Stock.
At the closing of the financing, we issued 10,000,000 shares of our Series
B
Preferred Stock and warrants to purchase 2,500,000 shares of Series B Preferred
Stock. The Series B Preferred Stock accrues dividends at a rate of 8% per year
on the original issue price of $2.50 per share for a period of five years from
the date on which the shares of Series B Preferred Stock were issued. The
warrants are exercisable for a period of five years commencing on July 25,
2007
at an exercise price of $2.50 per share.
We
will
require, in the next few months, substantial additional funding to continue
our
operations, including the development and commercialization of SYI-2074,
alagebrium and our other product candidates. In order to continue funding our
capital requirements over the longer term, we will require successful
commercialization of our product candidates. However, it is uncertain whether
any of our product candidates will be approved or will be commercially
successful.
Selling
securities to satisfy our capital requirements may have the effect of materially
diluting the current holders of our outstanding stock. We may also seek
additional funding through corporate collaborations and other financing
vehicles. There can be no assurances that such funding will be available at
all
or on terms acceptable to us. If funds are obtained through arrangements with
collaborative partners or others, we may be required to relinquish rights to
our
technologies or product candidates and alter our plans for the development
of
our product candidates. If we are unable to obtain the necessary funding, we
may
be forced to cease operations. There can be no assurance that the products
or
technologies that we are currently developing will result in revenues to us
or
any meaningful return on investment to our stockholders.
Critical
Accounting Policies
As
of the
date of the filing of this quarterly report, we believe there have been no
material changes to our critical accounting policies and estimates during the
nine months ended September 30, 2008.
Forward-Looking
Statements and Cautionary Statements
Statements
in this Form 10-Q that are not statements or descriptions of historical facts
are "forward-looking" statements under Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995, and are subject to numerous risks and uncertainties. These forward-looking
statements and other forward-looking statements made by us or our
representatives are based on a number of assumptions. The words "believe,"
"expect," "anticipate," "intend," "estimate" or other expressions, which are
predictions of or indicate future events and trends and which do not relate
to
historical matters, identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, as they involve
risks and uncertainties, and actual results could differ materially from those
currently anticipated due to a number of factors, including those set forth
in
this section and elsewhere in this Form 10-Q.
The
forward-looking statements represent our judgments and expectations as of the
date of this Report. We assume no obligation to update any such forward-looking
statements.
ITEM
3.
Quantitative
and Qualitative Disclosures About Market Risk.
Our
exposure to market risk for changes in interest rates relates primarily to
our
investment in marketable securities. We do not use derivative financial
instruments in our investments. All of our investments reside in money market
accounts. Accordingly, we do not believe that there is any material market
risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this Item.
ITEM
4T.
Controls
and Procedures.
a)
Evaluation
of
Disclosure Controls and Procedures.
Our
management has evaluated, with the participation of our Chief Executive Officer
and our Director of Finance and Administration, Principal Financial Officer,
the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the end of the fiscal quarter covered by this
Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive
Officer and the Director of Finance and Administration, Principal Financial
Officer have concluded that as of the end of such fiscal quarter, our current
disclosure controls and procedures
as
of
that date were effective to ensure that information required to be disclosed
in
the reports filed under the Exchange Act was recorded, processed, summarized
and
reported on an accurate and timely basis.
b)
Changes
in Internal Control Over Financial Reporting.
There
were no changes in our internal control over financial reporting (as defined
in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
September 30, 2008 that have materially affected, or are reasonably likely
to
materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1A. Risk Factors.
Risks
Related To Our Business
If
we are unable to obtain sufficient additional funding in the next few months,
we
may be required to significantly curtail the research, product development,
preclinical testing and clinical trials of our product candidates or we may
be
forced to cease operations altogether.
The
Company is urgently continuing to pursue fund-raising possibilities through
the
sale of its equity securities. If the Company is unsuccessful in its efforts
to
raise additional funds through the sale of additional equity securities or
if
the level of cash and cash equivalents falls below anticipated levels, the
Company will not have the ability to continue as a going concern after the
first
quarter of 2009. We may also sell or out-license some of our assets in order
to
generate funds to continue to operate our business. We cannot assure you that
we
will be able to obtain sufficient financing or to sell sufficient assets in
a
timely manner or at all, nor that any financing or sale of assets will be
available to us on reasonable terms.
The
amount and timing of our capital requirements depend on numerous factors,
including the timing of resuming our research and development programs, if
at
all, the number and characteristics of product candidates that we pursue, the
conduct of preclinical tests and clinical studies, the status and timelines
of
regulatory submissions, the costs associated with protecting patents and other
proprietary rights, the ability to complete strategic collaborations and the
availability of third-party funding, if any.
In
addition, the holders of our Series B preferred stock have the right to receive
dividends either in the form of cash or additional shares of Series B preferred
stock, at the holders’ option. As of September 30, 2008, the amount of the
accrued dividend on our outstanding shares of Series B preferred stock was
$2,375,000. Accordingly, the amount of funds that we will have available in
the
future for the development of our product candidates may be reduced if the
holders of our Series B preferred stock choose to receive dividends in the
form
of cash. We currently do not have committed external sources of funding and
may
not be able to secure additional funding on any terms or on terms that are
favorable to us. If we raise additional funds by issuing additional stock,
further dilution to our existing stockholders will result, and new investors
may
negotiate for rights superior to existing stockholders. If adequate funds are
not available, we may be required to:
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|
·
|
delay,
reduce the scope of or eliminate one or more of our development
programs;
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|
·
|
obtain
funds through arrangements with collaboration partners or others
that may
require us to relinquish rights to some or all of our technologies,
product candidates or products that we would otherwise seek to develop
or
commercialize ourselves;
|
|
|
·
|
license
rights to technologies, product candidates or products on terms that
are
less favorable to us than might otherwise be
available;
|
|
|
·
|
seek
a buyer for all or a portion of our business;
or
|
|
|
·
|
wind
down our operations and liquidate our assets on terms that are unfavorable
to us.
|
Selling
securities to satisfy our capital requirements may have the effect of materially
diluting the current holders of our outstanding stock. We may also seek
additional funding through corporate collaborations and other financing
vehicles. If funds are obtained through arrangements with collaborative partners
or others, we may be required to relinquish rights to our technologies or
product candidates.
The
holders of the Series B preferred stock are entitled to rights
and preferences that are significantly greater than the rights and preferences
of the holders of our common stock, including preferential payments upon a
liquidation and an accruing 8% dividend.
The
holders of our Series B preferred stock are entitled to a number of rights
and
preferences which holders of shares of our outstanding common stock do not
and
will not have. Among these rights and preferences is a preferential payment
in
the event of a liquidation of the Company, which means that holders of the
Series B preferred stock would be entitled to receive the proceeds out of any
sale or liquidation of the Company before any such proceeds are paid to holders
of our common stock. In general, if the proceeds received upon any sale or
liquidation do not exceed the total liquidation proceeds payable to the holders
of the Series B preferred stock, holders of common stock would receive no value
for their shares upon such a sale or liquidation. Given these rights of the
Preferred Stock, we cannot assure you that the proceeds from any sale or
liquidation would be sufficient to provide for any value whatsoever to be paid
to our common stockholders.
In
addition, shares of the Series B preferred stock accrue dividends at a rate
of
8% per year for a period of five years from the date on which the shares of
Series B preferred stock were issued. As of September 30, 2008, the amount
of
the accrued dividend on our outstanding shares of Series B preferred stock
was
$2,375,000. If the holders of Series B preferred stock were to elect to require
the payment of these accrued dividends in cash, this would severely reduce
the
Company’s liquidity, and could force the Company to promptly cease its
operations or to curtail them drastically in order to make the required
payments. We cannot assure you as to when, if ever, the holders of Preferred
Stock will demand the payment of these dividends in cash, nor can we assure
you
that we will have adequate cash to make such payments if and when the demand
is
made.
Holders
of the Series B Preferred Stock also have significant rights with respect to
specific actions that we may wish to take from time to time. At any time when
any shares of Series B Preferred Stock remain outstanding, we may not, without
the consent of the holders of a majority of the shares held by holders of at
least $4,000,000 (measured as of the original issue date) worth of Series B
preferred stock take the following actions, among others:
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|
·
|
incur
debt in excess of $2,000,000;
|
|
|
·
|
authorize
the sale of securities at a price per share less than the price per
share
that the Series B preferred stock was sold under the Series B Purchase
Agreement;
|
|
|
·
|
create
any new classes or series of stock with rights senior to the common
stock;
|
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|
·
|
amend
any provision of our Certificate of Incorporation or Bylaws that
changes
the rights of the Series B preferred stock;
|
|
|
·
|
pay
or declare any dividend on any capital stock of the Company other
than the
Series B preferred stock;
|
|
|
·
|
purchase
or redeem any securities;
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|
·
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liquidate,
dissolve or wind-up;
|
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·
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merge
with another entity;
|
|
|
·
|
sell
or dispose of any of our assets, including the sale or license of
intellectual property;
|
|
|
·
|
amend
any portion of our Certificate of Incorporation or Bylaws;
|
|
|
·
|
intentionally
take any action that may result in our stock no longer being approved
for
quotation on the AMEX or NASDAQ, or that would cause our common stock
to
no longer be registered pursuant to Section 12 of the Securities
Exchange
Act of 1934, as amended; or
|
|
|
·
|
amend
any material agreement that has been filed with the Securities and
Exchange Commission.
|
As
a
result, we will not be able to take any of these actions without first seeking
and obtaining the approval of the holders of the Series B Preferred Stock.
We
may not be able to obtain such approval in a timely manner or at all, even
if we
think that taking the action for which we seek approval is in the best interests
of the Company. Our failure to obtain approval for such actions could result
in
a material adverse effect on our business and results of operations.
Synvista’s
ability to continue as a going concern is dependent on future financing.
Our
condensed consolidated financial statements have been prepared on the basis
of a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. We have not made any
adjustments to the condensed consolidated financial statements as a result
of
the outcome of the uncertainty described above. Accordingly, the value of the
Company in liquidation may be different from the amounts set forth in our
condensed consolidated financial statements.
Our
ability to continue operations will depend on our ability to continue to raise
capital immediately in order to fund the operation of our business and the
development and commercialization of our products. Failure to raise additional
capital may result in substantial adverse circumstances, including delisting
of
our common stock from the American Stock Exchange, which could substantially
decrease the liquidity and value of such shares, or ultimately result in our
liquidation.
ITEM
4.
Submission
of Matters to a Vote of Security-Holders
The
Annual Meeting of Stockholders of the Company (the “Meeting”) was held on July
22, 2008. The following matters were voted upon at the Meeting: (i) an amendment
to the Company’s 2005 Stock Plan to reserve up to an additional 940,000 shares
of common stock for issuance under the Plan; (ii) an amendment to our Amended
and Restated Certificate of Incorporation, in order to decrease the authorized
number of shares of common stock (iii) election of Dr. Berkowitz as a Class
B
Director; (iv)
and
to
ratify the appointment of J.H. Cohn LLP as the Company’s independent registered
public accounting firm for the fiscal year ending December 31, 2008. There
were
10 million shares of Series B preferred that were eligible to vote at the
Meeting and they are represented in the count below. Each 2 shares of Series
B
preferred stock is equal to the vote of 1 share of Common Stock.
(i)
The
number of votes cast for, against and abstaining from the proposal to approve
an
amendment to our 2005 Stock Plan to reserve up to an additional 940,000 shares
of common stock for issuance under the 2005 Stock Plan, were as
follows:
|
Votes
For
|
|
Votes
Against
|
|
Abstentions
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
10,795,716
|
|
128,948
|
|
1,291
|
|
2,071,090
|
(ii)
The
number of votes cast for, against and abstaining from the proposal to amend
the
Company’s Amended and Restated Certificate of Incorporation, in order to
decrease the authorized number of shares of preferred stock of the Company,
were
as follows:
|
Votes
For
|
|
Votes
Against
|
|
Abstentions
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
11,947,599
|
|
84,091
|
|
39,373
|
|
2,071,090
|
(iii)
The
number of votes cast for and against the proposal to elect Noah Berkowitz,
M.D.,
Ph.D. as a Class B director to hold office until the 2011 annual meeting and
until his successor has been duly elected and qualified, were as
follows:
|
Votes
For
|
|
Votes
Against
|
|
|
|
|
|
11,988,333
|
|
82,757
|
(iv)
The
number of votes cast for, against and abstaining from the ratification the
appointment of J.H. Cohn LLP as the Company’s independent registered public
accounting firm for the fiscal year ending December 31, 2008, were as
follows:
|
Votes
For
|
|
Votes
Against
|
|
Abstentions
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
11,956,935
|
|
37,849
|
|
76,279
|
|
2,071,090
|
ITEM
6.
Exhibits.
Exhibits
See
the
“Exhibit Index” on page 28 for exhibits required to be filed with this Quarterly
Report on Form 10-Q.
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.
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|
SYNVISTA
THERAPEUTICS, INC.
|
Date:
November 14, 2008
|
|
|
|
|
By:
|
/s/ Noah
Berkowitz, M.D., Ph.D.
|
|
|
Noah
Berkowitz, M.D., Ph.D.
|
|
|
President and Chief Executive Officer
(principal executive
officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Wendy
A.
Milici
|
|
|
Wendy
A. Milici
|
|
|
(principal financial
officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Alex
D’Amico
|
|
|
Alex
D’Amico
|
|
|
(principal accounting
officer)
|
EXHIBIT
INDEX
|
No.
|
Description of
Exhibit
|
|
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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