UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM
10-Q
|
þ
|
|
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended July 31, 2012.
|
£
|
|
Transition report under Section 13 or 15(d) of the Exchange Act
|
For the transition period from
to
.
Commission file number 000-28761
CARDIOGENICS HOLDINGS INC.
(Exact name of registrant as specified in
its Charter)
|
Nevada
(State or other jurisdiction of
incorporation or organization)
|
|
88-0380546
(I.R.S. Employer
Identification No.)
|
6295 Northam Drive, Unit
8
Mississauga, Ontario L4V 1WB
(Address of Principal Executive Offices)
(905) 673-8501
(Registrant’s Telephone Number, Including
Area Code)
Indicate by check mark whether the Issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes
þ
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 the definitions of “large accelerated
filer”, “accelerated filer and “smaller reporting company” in Rule 12b-2 or the Exchange Act. (Check one):
|
|
Large Accelerated filer
|
£
|
|
Accelerated Filer
|
o
|
|
|
|
|
|
|
|
|
|
Non-Accelerated Filer
|
¨
|
|
Smaller Reporting Company
|
þ
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act)
Yes
o
No
þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
þ
No
o
As of September 7, 2012 the Registrant had the following number
of shares of its capital stock outstanding: 31,449,239 shares of Common Stock and 1 share of Series 1 Preferred Voting Stock, par
value $0.0001, representing 14 exchangeable shares of the Registrant’s subsidiary, CardioGenics ExchangeCo Inc., which are
exchangeable into 24,176,927 shares of the Registrant’s Common Stock.
CARDIOGENICS HOLDINGS INC.
FORM 10-Q
For the Quarter Ended July 31, 2012
INDEX
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|
Page
|
|
Part I. Financial Information
|
2
|
|
|
|
|
Item 1: Financial Statements (Unaudited)
|
2
|
|
|
|
|
Condensed Consolidated Balance Sheets at July 31, 2012 (Unaudited) and October 31,
2011
|
2
|
|
|
|
|
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months
ended July 31, 2012 and 2011 and Cumulative from November 20, 1997 (Date of Inception) to July 31, 2012
|
3
|
|
|
|
|
Condensed Consolidated Statement of Changes in Equity (Deficiency) (Unaudited) for the Nine Months ended July 31, 2012
|
4
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months ended July 31, 2012 and 2011 and Cumulative from November 20, 1997 (Date of Inception) to July 31, 2012
|
5
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
6
|
|
|
|
|
Item 2: Management’s Discussion and Analysis
|
10
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|
|
|
|
Item 3: Quantitative and Qualitative Disclosures About Market Risk
|
14
|
|
|
|
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Item 4: Controls and Procedures
|
14
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|
Part II. Other Information
|
15
|
|
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|
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Item 1: Legal Proceedings
|
15
|
|
|
|
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Item 1A: Risk Factors
|
16
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|
|
|
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
|
16
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Item 3: Defaults Upon Senior Securities
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16
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Item 4: Removed and Reserved
|
16
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Item 5: Other Information
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16
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|
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Item 6: Exhibits
|
16
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|
|
|
|
Signatures
|
17
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|
|
|
|
EX-31.1: CERTIFICATION
|
18
|
|
EX-31.2: CERTIFICATION
|
18
|
|
EX-32.1: CERTIFICATIONS
|
18
|
CardioGenics Holdings Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
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(Unaudited)
|
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(Note 2)
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Assets
|
|
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|
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|
|
|
|
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|
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Current Assets
|
|
|
|
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|
|
|
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Cash and Cash Equivalents
|
|
$
|
72,732
|
|
|
$
|
669,202
|
|
|
Accounts Receivable
|
|
|
256
|
|
|
|
9,002
|
|
|
Deposits and Prepaid Expenses
|
|
|
51,222
|
|
|
|
51,541
|
|
|
Refundable Taxes Receivable
|
|
|
36,234
|
|
|
|
35,191
|
|
|
Investment Tax Credits Receivable
|
|
|
156,177
|
|
|
|
187,497
|
|
|
|
|
|
316,621
|
|
|
|
952,433
|
|
|
|
|
|
|
|
|
|
|
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|
Property and Equipment, net
|
|
|
72,567
|
|
|
|
82,308
|
|
|
Patents, net
|
|
|
131,287
|
|
|
|
130,732
|
|
|
|
|
|
203,854
|
|
|
|
213,040
|
|
|
Total Assets
|
|
$
|
520,475
|
|
|
$
|
1,165,473
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
646,059
|
|
|
$
|
596,692
|
|
|
Funds Held in Trust for Redemption of Class B Common Shares
|
|
|
4
|
|
|
|
4
|
|
|
Current Portion of Capital Lease Obligation
|
|
|
7,490
|
|
|
|
25,711
|
|
|
Due to Shareholders
|
|
|
262,500
|
|
|
|
▬
|
|
|
|
|
|
916,053
|
|
|
|
622,407
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligation, net of current portion
|
|
|
▬
|
|
|
|
2,630
|
|
|
Total Liabilities
|
|
|
916,053
|
|
|
|
625,037
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities
|
|
|
|
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|
|
|
|
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Equity
|
|
|
|
|
|
|
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Preferred stock; par value $.0001 per share, 5,000,000 shares authorized, 1 issued and outstanding as at July 31, 2012 and October 31, 2011
|
|
|
▬
|
|
|
|
▬
|
|
|
Common stock; par value $.00001 per share; 65,000,000 shares authorized, 31,449,239 and 31,237,262 common shares and 24,176,927 and 24,388,904 exchangeable shares issued and outstanding as at July 31, 2012 and October 31, 2011 respectively
|
|
|
540
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
41,774,001
|
|
|
|
41,774,001
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during development stage
|
|
|
(41,675,280
|
)
|
|
|
(40,731,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(159,491
|
)
|
|
|
(173,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total CardioGenics Holdings Inc. equity
|
|
|
(60,230
|
)
|
|
|
869,960
|
|
|
Non-controlling interest
|
|
|
(335,348
|
)
|
|
|
(329,524
|
)
|
|
Total equity (deficiency)
|
|
|
(395,578
|
)
|
|
|
540,436
|
|
|
Total liabilities and equity
|
|
$
|
520,475
|
|
|
$
|
1,165,473
|
|
See notes to condensed consolidated financial statements.
CardioGenics Holdings Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations (unaudited)
For the Three and Nine Months Ended July 31, 2012 and 2011
and
Cumulative from November 20, 1997 (Date of Inception) to
July 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
For the three months Ended
|
|
|
For the nine months Ended
|
|
|
Inception) to
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
6,400
|
|
|
$
|
1,136
|
|
|
$
|
6,400
|
|
|
$
|
10,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of Property and Equipment
|
|
|
4,541
|
|
|
|
5,409
|
|
|
|
13,635
|
|
|
|
14,938
|
|
|
|
215,074
|
|
|
Amortization of Patent Application Costs
|
|
|
1,215
|
|
|
|
1,090
|
|
|
|
3,775
|
|
|
|
3,222
|
|
|
|
16,186
|
|
|
Write-off of Patent Application Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
214,625
|
|
|
General and Administrative
|
|
|
154,869
|
|
|
|
278,314
|
|
|
|
516,357
|
|
|
|
958,963
|
|
|
|
8,105,047
|
|
|
Write-off of Goodwill
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,780,214
|
|
|
Research and Product Development, Net of Investment Tax Credits
|
|
|
73,715
|
|
|
|
141,206
|
|
|
|
422,453
|
|
|
|
534,776
|
|
|
|
4,136,211
|
|
|
Cost of Settlement of Lawsuit
|
|
|
▬
|
|
|
|
1,753,800
|
|
|
|
▬
|
|
|
|
1,753,800
|
|
|
|
1,753,800
|
|
|
Total operating expenses
|
|
|
234,340
|
|
|
|
2,179,819
|
|
|
|
956,220
|
|
|
|
3,265,699
|
|
|
|
27,221,157
|
|
|
Operating Loss
|
|
|
(234,340
|
)
|
|
|
(2,173,419
|
)
|
|
|
(955,084
|
)
|
|
|
(3,259,299
|
)
|
|
|
(27,211,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense and Bank Charges, Net
|
|
|
5,402
|
|
|
|
6,440
|
|
|
|
14,887
|
|
|
|
15,340
|
|
|
|
2,151,523
|
|
|
Loss on Change in Value of Derivative Liability
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,421,023
|
|
|
Loss (Gain) on Foreign Exchange Transactions
|
|
|
(915
|
)
|
|
|
7,149
|
|
|
|
(20,041
|
)
|
|
|
139,312
|
|
|
|
189,224
|
|
|
Total other expenses (income)
|
|
|
4,487
|
|
|
|
13,589
|
|
|
|
(5,154
|
)
|
|
|
154,652
|
|
|
|
14,761,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(238,827
|
)
|
|
|
(2,187,008
|
)
|
|
|
(949,930
|
)
|
|
|
(3,413,951
|
)
|
|
|
(41,972,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Subsidiary
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
90,051
|
|
|
Loss from Discontinued Operations
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
(127,762
|
)
|
|
Net Loss
|
|
|
(238,827
|
)
|
|
|
(2,187,008
|
)
|
|
|
(949,930
|
)
|
|
|
(3,413,951
|
)
|
|
|
(42,010,626
|
)
|
|
Net Loss attributable to non-controlling interest
|
|
|
(1,393
|
)
|
|
|
(14,638
|
)
|
|
|
(5,824
|
)
|
|
|
(22,850
|
)
|
|
|
(335,348
|
)
|
|
Net Loss attributable to CardioGenics Holdings Inc.
|
|
$
|
(237,434
|
)
|
|
$
|
(2,172,370
|
)
|
|
$
|
(944,106
|
)
|
|
$
|
(3,391,101
|
)
|
|
$
|
(41,675,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Fully Diluted Net Loss per Common Share attributable to CardioGenics Holdings Inc. Shareholders
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
Weighted-average shares of Common Stock outstanding
|
|
|
55,626,166
|
|
|
|
54,626,166
|
|
|
|
55,626,166
|
|
|
|
54,256,408
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
CardioGenics Holdings Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Changes in
Equity (unaudited)
For the nine months ended July 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
the
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Interest
|
|
|
(Deficiency)
|
|
|
Balance October 31, 2011
|
|
|
55,626,166
|
|
|
$
|
540
|
|
|
$
|
41,774,001
|
|
|
$
|
(40,731,174
|
)
|
|
$
|
(173,407
|
)
|
|
$
|
(329,524
|
)
|
|
$
|
540,436
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,824
|
)
|
|
|
(5,824
|
)
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(944,106
|
)
|
|
|
|
|
|
|
|
|
|
|
(944,106
|
)
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,916
|
|
|
|
|
|
|
|
13,916
|
|
|
Total Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(930,190
|
)
|
|
Balance at July 31, 2012
|
|
|
55,626,166
|
|
|
$
|
540
|
|
|
$
|
41,774,001
|
|
|
$
|
(41,675,280
|
)
|
|
$
|
(159,491
|
)
|
|
$
|
(335,348
|
)
|
|
$
|
(395,578
|
)
|
See notes to condensed consolidated financial statements.
CardioGenics Holdings Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended July 31, 2012 and 2011 and
Cumulative from November 20, 1997 (Date of Inception) to
July 31, 2012
|
|
|
|
|
|
|
|
|
Cumulative from
|
|
|
|
|
|
|
|
|
|
|
November 20, 1997
|
|
|
|
|
Nine Months Ended
|
|
|
(Date of Inception)
|
|
|
|
|
July 31,
|
|
|
To July 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss for the Period
|
|
$
|
(949,930
|
)
|
|
$
|
(3,413,951
|
)
|
|
$
|
(42,010,626
|
)
|
|
Adjustments to reconcile net loss for the period to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of Property and Equipment
|
|
|
13,635
|
|
|
|
14,938
|
|
|
|
215,074
|
|
|
Amortization of Patent Application Costs
|
|
|
3,775
|
|
|
|
3,222
|
|
|
|
16,186
|
|
|
Write-off of Patent Application Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
214,625
|
|
|
Write-off of Goodwill
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,780,214
|
|
|
Amortization of Deferred Debt Issuance Costs
|
|
|
▬
|
|
|
|
▬
|
|
|
|
511,035
|
|
|
Loss on Extinguishment of Debt
|
|
|
▬
|
|
|
|
▬
|
|
|
|
275,676
|
|
|
Loss on Change in Value of Derivative Liability
|
|
|
▬
|
|
|
|
▬
|
|
|
|
12,421,023
|
|
|
Interest Accrued and Foreign Exchange Loss on Debt
|
|
|
▬
|
|
|
|
▬
|
|
|
|
922,539
|
|
|
Unrealized Foreign Currency Exchange Gains
|
|
|
▬
|
|
|
|
▬
|
|
|
|
25,092
|
|
|
Beneficial Conversion Charge included in Interest Expense
|
|
|
▬
|
|
|
|
▬
|
|
|
|
452,109
|
|
|
Re-pricing of Options for Services Rendered
|
|
|
▬
|
|
|
|
163,750
|
|
|
|
163,750
|
|
|
Common Stock and Warrants issued on Settlement Of Lawsuit
|
|
|
▬
|
|
|
|
▬
|
|
|
|
1,653,800
|
|
|
Common Stock Issued as Employee or Officer/Director Compensation
|
|
|
▬
|
|
|
|
▬
|
|
|
|
2,508,282
|
|
|
Common Stock Issued for Services Rendered
|
|
|
▬
|
|
|
|
100,000
|
|
|
|
2,726,262
|
|
|
Stock Options Issued for Services Rendered
|
|
|
▬
|
|
|
|
▬
|
|
|
|
192,238
|
|
|
Stock Options Issued to Directors and Committee Chairman
|
|
|
▬
|
|
|
|
▬
|
|
|
|
54,582
|
|
|
Changes in Operating Assets and Liabilities, Net of Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
8,746
|
|
|
|
(6,400
|
)
|
|
|
(256
|
)
|
|
Share Subscriptions Receivable
|
|
|
▬
|
|
|
|
115,000
|
|
|
|
▬
|
|
|
Deposits and Prepaid Expenses
|
|
|
319
|
|
|
|
38,673
|
|
|
|
(50,433
|
)
|
|
Refundable Taxes Receivable
|
|
|
(1,043
|
)
|
|
|
(16,101
|
)
|
|
|
(35,370
|
)
|
|
Investment Tax Credits Receivable
|
|
|
31,320
|
|
|
|
156,482
|
|
|
|
(136,115
|
)
|
|
Accounts Payable and Accrued Expenses
|
|
|
49,370
|
|
|
|
1,835,883
|
|
|
|
(121,850
|
)
|
|
Advances
|
|
|
▬
|
|
|
|
▬
|
|
|
|
131
|
|
|
Cash used in operating activities
|
|
|
(843,808
|
)
|
|
|
(1,008,504
|
)
|
|
|
(7,222,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Acquired from Acquisition
|
|
|
▬
|
|
|
|
▬
|
|
|
|
195,885
|
|
|
Purchase of Property and Equipment
|
|
|
(3,893
|
)
|
|
|
(12,772
|
)
|
|
|
(223,559
|
)
|
|
Patent Application Costs
|
|
|
(4,329
|
)
|
|
|
▬
|
|
|
|
(318,899
|
)
|
|
Cash used in investing activities
|
|
|
(8,222
|
)
|
|
|
(12,772
|
)
|
|
|
(346,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of Capital Lease Obligations
|
|
|
(20,851
|
)
|
|
|
(5,139
|
)
|
|
|
(36,427
|
)
|
|
Due to Shareholders
|
|
|
262,500
|
|
|
|
▬
|
|
|
|
262,500
|
|
|
Due to Director
|
|
|
▬
|
|
|
|
(15,149
|
)
|
|
|
725,330
|
|
|
Issue of Debentures
|
|
|
▬
|
|
|
|
▬
|
|
|
|
1,378,305
|
|
|
Issue of Common Shares on Exercise of Stock options
|
|
|
▬
|
|
|
|
2,750
|
|
|
|
2,781
|
|
|
Issue of Common Shares on Exercise of Warrants
|
|
|
▬
|
|
|
|
▬
|
|
|
|
45,652
|
|
|
Issue of Common Shares for Cash
|
|
|
▬
|
|
|
|
359,411
|
|
|
|
5,624,169
|
|
|
Refund of Share Subscription
|
|
|
▬
|
|
|
|
(15,378
|
)
|
|
|
(15,000
|
)
|
|
Redemption of 10% Senior Convertible Debentures
|
|
|
▬
|
|
|
|
▬
|
|
|
|
(394,972
|
)
|
|
Cash provided by financing activities
|
|
|
241,649
|
|
|
|
326,495
|
|
|
|
7,592,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents
|
|
|
13,911
|
|
|
|
(32,327
|
)
|
|
|
48,999
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents during the period
|
|
|
(596,470
|
)
|
|
|
(727,108
|
)
|
|
|
72,732
|
|
|
Beginning of Period
|
|
|
669,202
|
|
|
|
1,844,752
|
|
|
|
▬
|
|
|
End of Period
|
|
$
|
72,732
|
|
|
$
|
1,117,644
|
|
|
$
|
72,732
|
|
See notes to condensed consolidated financial
statements.
CardioGenics Holdings Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial
Statements (unaudited)
CardioGenics Inc. (“CardioGenics”)
was incorporated on November 20, 1997 in the Province of Ontario, Canada, and carries on the business of development and commercialization
of diagnostic test products to the In Vitro Diagnostics testing market. CardioGenics has several test products that are in various
stages of development.
CardioGenics’ business
is that of a development-stage company, with a limited history of operations and whose revenues, to date, have been primarily comprised
of grant revenue and Scientific Research Tax Credits from government agencies. There can be no assurance that the Company will
be successful in obtaining regulatory approval for the marketing of any of the existing or future products that the Company will
succeed in developing.
On October 27, 2009, the name
of the Company was changed from JAG Media Holdings, Inc. to CardioGenics Holdings Inc.
In the opinion of management,
the unaudited condensed interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the condensed interim consolidated financial position of CardioGenics Holdings Inc. and its subsidiaries
under generally accepted accounting principles in the United States (“US GAAP”) as of July 31, 2012, its results of
operations for the three and nine months ended July 31, 2012 and 2011, and the period from November 20, 1997 (date of inception)
to July 31, 2012, changes in equity for the nine months ended July 31, 2012 and cash flows for the nine months ended July 31, 2012
and 2011, and the period from November 20, 1997 (date of inception) to July 31, 2012. CardioGenics Holdings Inc and its subsidiaries
are referred to together herein as the “Company”. Pursuant to rules and regulations of the SEC, certain information
and disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from
these consolidated financial statements unless significant changes have taken place since the end of the most recent fiscal year.
Accordingly, these condensed interim consolidated financial statements should be read in conjunction with the consolidated financial
statements, notes to consolidated financial statements and the other information in the audited consolidated financial statements
of the Company as of October 31, 2011 and 2010 (the “Audited Financial Statements”) included in the Company’s
Form 10-K/A that was previously filed with the SEC on April 13, 2012 and from which the October 31, 2011 consolidated balance sheet
was derived.
The results of the Company’s
operations for the three and nine months ended July 31, 2012 are not necessarily indicative of the results of operations to be
expected for the full year ending October 31, 2012.
The condensed interim consolidated
financial statements have been prepared using the accounting principles generally accepted in the United States of America applicable
to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business.
The Company has incurred operating
losses and has experienced negative cash flows from operations since inception. The Company has an accumulated deficit at July
31, 2012 of approximately $41.7 million. The Company has not yet established an ongoing source of revenues sufficient to cover
its operating costs and to allow it to continue as a going concern. The Company has funded its activities to date almost exclusively
from debt and equity financings. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern.
CardioGenics Holdings Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial
Statements (unaudited)
The Company will continue to
require substantial funds to continue research and development, including preclinical studies and clinical trials of its products,
and to commence sales and marketing efforts, if the FDA and other regulatory approvals are obtained. In order to meet its operating
cash flow requirements Management’s plans include financing activities such as private placements of its common stock and
issuances of convertible debt instruments. Management is also actively pursuing industry collaboration activities including product
licensing and specific project financing.
While the Company believes it
will be successful in obtaining the necessary financing to fund its operations, meet revenue projections and manage costs, there
are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The accompanying
condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence.
|
|
3.
|
Summary of Significant Accounting Policies
.
|
Recent Accounting Pronouncements
In December 2011, the FASB issued
ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity
to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect
of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S.
GAAP with financial statements prepared under International Financial Reporting Standards (IFRS). The new standards are effective
for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required.
The Company will implement the provisions of ASU 2011-11 beginning in fiscal 2014.
In June 2011, the FASB issued
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under this ASU, an entity will have the option
to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU
eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. An entity should
apply the ASU retrospectively. Early adoption is permitted. The Company plans to implement the provisions of ASU 2011-05 by presenting
a separate statement of other comprehensive income following the statement of operations beginning in fiscal 2013.
Based on the Company’s
evaluation, management has concluded that there are no significant tax reserves requiring recognition in the condensed interim
consolidated financial statements.
The Company has incurred losses
in Canada since inception, which have generated net operating loss carryforwards for income tax purposes. The net operating loss
carryforwards arising from Canadian sources as of July 31, 2012, approximated $6,362,000 (2011 - $5,495,000) which will expire
from 2013 through 2032. All fiscal years have been assessed as originally filed in Canadian jurisdictions.
As of July 31, 2012, the Company
had net operating loss carryforwards from US sources of approximately $40,647,000 available to reduce future US Federal taxable
income which will expire from 2019 through 2032. Returns for the years 2008 through 2011 are yet to be filed.
For the nine months ended July
31, 2012 and 2011, the Company’s effective tax rate differs from the statutory rate principally due to the net operating
losses for which no benefit was recorded.
CardioGenics Holdings Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial
Statements (unaudited)
In February 2012 the Company
received $262,500 for the subscription of 1,050,000 of the Company’s common stock. To date, the common stock has not been
issued to the subscribers.
|
|
6.
|
Stock Based Compensation
|
Stock-based employee compensation
related to stock options for the nine months ended July, 2012 and 2011 amounted to $-0-.
The following is a summary of
the common stock options granted, forfeited or expired and exercised under the Plan:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding – October 31, 2010
|
|
|
305,000
|
|
|
$
|
2.34
|
|
|
Granted
|
|
|
▬
|
|
|
|
▬
|
|
|
Forfeited/Expired
|
|
|
▬
|
|
|
|
▬
|
|
|
Exercised
|
|
|
275,000
|
|
|
$
|
0.01
|
|
|
Outstanding – October 31, 2011
|
|
|
30,000
|
|
|
$
|
0.90
|
|
|
Granted
|
|
|
▬
|
|
|
|
▬
|
|
|
Forfeited/Expired
|
|
|
▬
|
|
|
|
▬
|
|
|
Exercised
|
|
|
▬
|
|
|
|
▬
|
|
|
Outstanding – July 31, 2012
|
|
|
30,000
|
|
|
$
|
0.90
|
|
Options typically vest immediately
at the date of grant. As such, the Company does not have any unvested options or unrecognized compensation expense at July 31,
2012.
CardioGenics Holdings Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial
Statements (unaudited)
Outstanding warrants are as follows:
|
|
|
July 31,
2012
|
|
|
October 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued to subscribers to the debenture financing of 2003 and its related extension entitling the holder to purchase 1 common share of the Company at an exercise price of $0.47 per common share up to and including July 31, 2012 expired unexercised
|
|
|
▬
|
|
|
|
2,046,808
|
|
|
Issued to subscribers to the debenture financing of 2004 and its related extension entitling the holder to purchase 1 common share in the Company at an exercise price of $0.47 per common share up to and including July 31, 2012 expired unexercised
|
|
|
▬
|
|
|
|
1,021,654
|
|
|
Issued to agents for the debenture financings of 2003 and 2004 entitling the holder to purchase 1 common share in the Company at an exercise price of $0.47 per common share up to and including July 31, 2012 expired unexercised
|
|
|
▬
|
|
|
|
208,417
|
|
|
Issued to former employee entitling the holder to purchase 1 common share in the Company at an exercise price of $0.47 per common share up to and including July 31, 2012 expired unexercised
|
|
|
▬
|
|
|
|
136,220
|
|
|
Issued to consultants July 31, 2009, entitling the holder to purchase 1 common share of the Company at an exercise price of $0.90 per share up to and including July 31, 2012 expired unexercised
|
|
|
▬
|
|
|
|
104,785
|
|
|
Issued to consultant August 1, 2009, entitling the holder to purchase 1 common share in the company at an exercise price of $0.90 per common share up to and including July 31, 2017
|
|
|
287,085
|
|
|
|
287,085
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit in August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $0.30 per common share up to and including August 23, 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $0.50 per common share up to and including August 23, 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $0.75 per common share up to and including August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $1.00 per common share up to and including August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to Flow Capital Advisors Inc. on settlement of lawsuit August 2011, entitling the holder to purchase 1 common share in the Company at an exercise price of $0.75 per common share up to and including August 23, 2016
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Issued to consultants in September 2011 entitling the holders to purchase 1 common share in the Company at an exercise price of $0.10 per common share up to and including March 20, 2013
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
Issued to consultants in September 2011 entitling the holders to purchase 1 common share in the Company at an exercise price of $0.34 per common share up to and including March 20, 2013
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
Issued to consultants in September 2011 entitling the holders to purchase 1 common share in the Company at an exercise price of $0.50 per common share up to and including March 20, 2013
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
Total Warrants outstanding
|
|
|
6,287,085
|
|
|
|
9,804,969
|
|
|
|
8.
|
Issuance of Common Stock
|
During the nine months ended
July 31, 2012, the Company issued no common shares, except for 211,977 common shares which were issued in exchange for 211,977
exchangeable shares.
The following table sets forth
the computation of weighted-average shares outstanding for calculating basic and diluted earnings per share (EPS):
|
|
|
Three Months Ended
July 31,
|
|
|
Nine Months Ended
July 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares - basic
|
|
|
55,626,166
|
|
|
|
54,626,166
|
|
|
|
55,626,166
|
|
|
|
54,256,408
|
|
|
Effect of dilutive securities
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
|
▬
|
|
|
Weighted-average shares - diluted
|
|
|
55,626,166
|
|
|
|
54,626,166
|
|
|
|
55,626,166
|
|
|
|
54,256,408
|
|
CardioGenics Holdings Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial
Statements (unaudited)
Basic EPS and diluted EPS for
the three and nine months ended July, 2012 and 2011 have been computed by dividing the net loss available to common stockholders
for each respective period by the weighted average shares outstanding during that period. All outstanding options, warrants and
shares to be issued upon the exercise of the outstanding options and warrants representing 6,317,085 and 4,131,974 incremental
shares respectively have been excluded from the nine months ended July 31, 2012 and 2011 computation of diluted EPS as they are
antidilutive given the net losses generated.
|
|
10.
|
Commitments and Contingent Liabilities
|
Lawsuits
On April 22, 2009, the Company
was served with a statement of claim from a former employee claiming compensation for wrongful dismissal and ancillary causes of
action including payment of monies in realization of his investment in the Company, with an aggregate claim of $514,000. The Company
considers all the claims to be without any merit, has already delivered a statement of defense and intends to vigorously defend
the action. If the matter eventually proceeds to trial, the Company does not expect to be found liable on any ground or for any
cause of action.
|
|
11.
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
July 31
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
11,420
|
|
|
$
|
7,480
|
|
|
Income taxes
|
|
$
|
▬
|
|
|
$
|
▬
|
|
Item 2. Management’s Discussion and Analysis
You should read this Management’s
Discussion and Analysis (“MD&A”) in combination with the accompanying unaudited condensed interim consolidated
financial statements and related notes as well as the audited consolidated financial statements and the accompanying notes to the
consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”) included within the Company’s Annual Report on Form 10-K/A filed on April 13, 2012.
Our discussion and analysis of our financial
condition and results of operations are based upon our unaudited condensed interim consolidated financial statements, which have
been prepared in accordance with U.S. GAAP for interim financial statements filed with the Securities and Exchange Commission.
Critical Accounting Policies and Estimates
The preparation of these unaudited condensed
interim consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate
our estimates, including those related to accounts receivable, equipment, stock-based compensation, income taxes and contingencies.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies and estimates used
as of October 31, 2011, as outlined in our previously filed Form 10-K/A, have been applied consistently for the nine months
ended July 31, 2012.
Related Party Transactions
During the nine months ended July 31, 2012,
we utilized advances from shareholders totaling $262,500 for the subscription of 1,050,000 of the Company’s common stock.
To date, the common stock has not been issued to the subscribers.
Off-Balance Sheet arrangements
We are not party to any off-balance sheet
arrangements.
Results of operations
Nine months ended July 31, 2012 as compared to nine months
ended July 31, 2011
|
|
|
Nine Months
|
|
|
|
|
|
|
|
Ended July 31,
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
$ Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,136
|
|
|
$
|
6,400
|
|
|
$
|
(5,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
13,635
|
|
|
|
14,938
|
|
|
|
(1,303
|
)
|
|
Amortization of patent application costs
|
|
|
3,775
|
|
|
|
3,222
|
|
|
|
553
|
|
|
General and administrative expenses
|
|
|
516,357
|
|
|
|
958,963
|
|
|
|
(442,606
|
)
|
|
Research and product development, net of investment tax credits
|
|
|
422,453
|
|
|
|
534,776
|
|
|
|
(112,323
|
)
|
|
Cost of settlement of lawsuit
|
|
|
▬
|
|
|
|
1,753,800
|
|
|
|
(1,753,800
|
)
|
|
Total operating expenses
|
|
|
956,220
|
|
|
|
3,265,699
|
|
|
|
(2,309,479
|
)
|
|
Operating Loss
|
|
|
955,084
|
|
|
|
3,259,299
|
|
|
|
(2,304,215
|
)
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and bank charges, net
|
|
|
14,887
|
|
|
|
15,340
|
|
|
|
(453
|
)
|
|
Loss (gain) on foreign exchange
|
|
|
(20,041
|
)
|
|
|
139,312
|
|
|
|
(159,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
949,930
|
|
|
$
|
3,413,951
|
|
|
$
|
(2,464,021
|
)
|
Revenues
During the nine months ended July 31, 2012
and 2011 we generated revenues of 2012 - $1,136 and 2011 – $6,400 respectively from sales of paramagnetic beads. We anticipate
marginal additional revenues from said sales during the balance of the year.
Operating expenses
Operating expenses include the costs to
a) develop and patent a method for controlling the delivery of compounds to a chemical reaction; b) develop the QL Care Analyzer,
a small, automated, robust and proprietary point of care (“POC”) testing device; and, c) customize paramagnetic beads
through our proprietary method which improves their light collection. In addition, the Company is in the process of adapting test
products for the POC for a disposable, single-use cartridge format. Detailed manufacturing specifications and costing have been
created and custom manufacturers have been sourced.
General and administrative expenses
General and administrative expenses consist
primarily of compensation to officers, occupancy costs, professional fees, listing costs and other office expenses. The decrease
in general and administrative expenses is attributable primarily to a decrease in consulting fees and a charge of 2012 –
Nil and 2011 - $163,750 due to re-pricing of options.
Research and product development, net
of investment tax credits
Research and development expenses consist
primarily of salaries and wages paid to officers and employees engaged in those activities and supplies consumed therefor. The
decrease in research and development expenses is attributable primarily to the decrease in staff engaged in R&D and the inclusion
of a Scientific Tax Credit from Canadian tax authorities of 2012 - $60,000 and 2011 – Nil.
Cost of settlement of lawsuit
On August 17, 2011, the Company and Flow
Capital Advisors Inc. participated in a court mandated mediation session wherein the parties agreed to a settlement of all claims. On
August 23, 2011, the Company’s Board of Directors approved the settlement. As a result, the financial statements
at July 31, 2011 reflect a charge of $1,753,800 for the cost of settlement of lawsuit.
Three months ended July 31, 2012 as compared to three months
ended July 31, 2011
|
|
|
Three Months
|
|
|
|
|
|
|
|
Ended July 31,
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
$ Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
▬
|
|
|
$
|
6,400
|
|
|
$
|
(6,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
4,541
|
|
|
|
5,409
|
|
|
|
(868
|
)
|
|
Amortization of patent application costs
|
|
|
1,215
|
|
|
|
1,090
|
|
|
|
125
|
|
|
General and administrative expenses
|
|
|
154,869
|
|
|
|
278,314
|
|
|
|
(123,445
|
)
|
|
Research and product development, net of investment tax credits
|
|
|
73,715
|
|
|
|
141,206
|
|
|
|
(67,491
|
)
|
|
Cost of settlement of lawsuit
|
|
|
▬
|
|
|
|
1,753,800
|
|
|
|
(1,753,800
|
)
|
|
Total operating expenses
|
|
|
234,340
|
|
|
|
2,179,819
|
|
|
|
(1,945,479
|
)
|
|
Operating Loss
|
|
|
234,340
|
|
|
|
2,173,419
|
|
|
|
(1,939,079
|
)
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and bank charges, net
|
|
|
5,402
|
|
|
|
6,440
|
|
|
|
(1,038
|
)
|
|
Loss (gain) on foreign exchange
|
|
|
(915
|
)
|
|
|
7,149
|
|
|
|
(8,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
238,827
|
|
|
$
|
2,187,008
|
|
|
$
|
(1,948,181
|
)
|
Revenues
During the three months ended July 31,
2012 and 2011 we generated revenues of 2012 - NIL and 2011 – $6,400 respectively from sales of paramagnetic beads.
Operating expenses
Operating expenses include the costs to
a) develop and patent a method for controlling the delivery of compounds to a chemical reaction; b) develop the QL Care Analyzer,
a small, automated, robust and proprietary point of care (“POC”) testing device; and, c) customize paramagnetic beads
through our proprietary method which improves their light collection. In addition, the Company is in the process of adapting test
products for the POC for a disposable, single-use cartridge format. Detailed manufacturing specifications and costing have been
created and custom manufacturers have been sourced.
General and administrative expenses
General and administrative expenses consist
primarily of compensation to officers, occupancy costs, professional fees, listing costs and other office expenses. The decrease
in general and administrative expenses is attributable primarily to a decrease in consulting fees.
Research and product development, net
of investment tax credits
Research and development expenses consist
primarily of salaries and wages paid to officers and employees engaged in those activities and supplies consumed therefor. The
decrease in research and development expenses is attributable primarily to the decrease in staff engaged in R&D and the inclusion
of a Scientific Tax Credit from Canadian tax authorities of 2012 - $60,000 and 2011 – Nil.
Cost of settlement of lawsuit
On August 17, 2011, the Company and Flow
Capital Advisors Inc. participated in a court mandated mediation session wherein the parties agreed to a settlement of all claims. On
August 23, 2011, the Company’s Board of Directors approved the settlement. As a result, the financial statements
at July 31, 2011 reflect a charge of $1,753,800 for the cost of settlement of lawsuit.
Liquidity and Capital Resources
We have not generated significant revenues
since inception. We incurred a net loss of approximately $950,000 and a cash flow deficiency from operating activities of approximately
$844,000 for the nine months ended July 31, 2012. We have not yet established an ongoing source of revenues sufficient to cover
our operating costs and allow us to continue as a going concern. We have funded our activities to date almost exclusively
from debt and equity financings. These matters raise substantial doubt about our ability to continue as a going concern.
We will continue to require substantial
funds to continue research and development, including preclinical studies and clinical trials of our products, and to commence
sales and marketing efforts. Our plans include financing activities such as private placements of our common stock and
issuances of convertible debt instruments. We are also actively pursuing industry collaboration activities including
product licensing and specific project financing.
We believe we will be successful in obtaining
the necessary financing to fund our operations, meet revenue projections and manage costs; however, there are no assurances that
such additional funding will be achieved and that we will succeed in our future operations.
Seasonality
We do not believe that our business is
subject to seasonal trends or inflation. On an ongoing basis, we will attempt to minimize any effect of inflation on our operating
results by controlling operating costs and whenever possible, seeking to insure that subscription rates reflect increases in costs
due to inflation.
Recent Accounting Pronouncements
The FASB had issued certain accounting
pronouncements as of July 31, 2012 that will become effective in subsequent periods; however, we do not believe that any of those
pronouncements would have significantly affected our financial accounting measurements or disclosures had they been in effect during
the nine months ended July 31, 2012 and 2011 or that they will have a significant effect at the time they become effective.
Item 3. Quantitative and Qualitative Disclosure
About Market Risk
N/A.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this
Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2012, our management, including our principal executive officer
and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such
term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange
Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were not effective as of July 31, 2012.
|
Management’s Report on Internal Control Over Financial Reporting
|
Management is responsible for establishing
and maintaining adequate disclosure controls and procedures and internal control over financial reporting (as defined in the Exchange
Act) to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting principles. A control system, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations
in all control systems, internal controls over financial reporting may not prevent or detect misstatements. The design and operation
of a control system must also reflect that there are resource constraints and management is necessarily required to apply its judgment
in evaluating the cost-benefit relationship of possible controls.
Our management assessed the effectiveness
of our disclosure controls and procedures and internal control over financial reporting for the quarter ended July 31, 2012 based
on the criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on such assessment, our management concluded that during the period covered by this report, our
disclosure controls and procedures and internal control over financial reporting were not effective. Management has identified
the following material weaknesses in our disclosure controls and procedures and internal control over financial reporting:
|
|
•
|
lack of documented policies and procedures;
|
|
|
•
|
there is no effective separation of duties, which includes monitoring controls, between the members of management; and,
|
|
|
•
|
lack of resources to account for complex and unusual transactions.
|
Management is currently evaluating what steps, if any, can be
taken in order to address these material weaknesses in light of our current management structure.
Changes in Internal Control over Financial
Reporting
During the fiscal quarter ended July 31,
2012, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 22, 2009, CardioGenics was
served with a statement of claim in the Province of Ontario, Canada, from a prior contractor claiming compensation for wrongful
dismissal and ancillary causes of action including payment of monies in realization of his investment in CardioGenics, with an
aggregate claim of $514,000. The Company considers all the claims to be without any merit, has already delivered a statement
of defence and intends to vigorously defend the action. If the matter eventually proceeds to trial, the Company does
not expect to be found liable on any ground or for any cause of action.
On January 14, 2010, Flow Capital Advisors
Inc. (“Flow Capital”) filed a lawsuit against JAG Media Holdings Inc. in the Circuit Court of the 17
th
Judicial
Circuit In and For Broward County Florida (Case No. 10001713) (the “Flow Capital State Action”). Pursuant to
this lawsuit, Flow Capital alleges that JAG Media Holdings breached a Non-Circumvention Agreement it had entered into with Flow
Capital, dated January 1, 2004.
On January 15, 2010 Flow Capital filed
a lawsuit against CardioGenics Inc., and another defendant in the United States District Court for the Southern District of Florida,
Fort Lauderdale Division (Case No. 10-CV-60066-Martinez-Brown) (the “Flow Capital Federal Action”). This lawsuit alleges
that CardioGenics (i) breached a Finder’s Fee Agreement in connection with the CardioGenics Acquisition; and (ii) breached
a non-circumvention agreement. Flow Capital is claiming that it is entitled to the finder’s fee equal to eight percent (8%)
of the JAG Media Holdings shares received by CardioGenics, or the equivalent monetary value of the stock. Plaintiff subsequently
amended its complaint to add related tort claims.
Pursuant to applicable federal court rules,
the parties to the Flow Capital Federal Action participated in a court mandated mediation session on August 17, 2011 where the
parties attempted to settle their disputes. At the mediation, the parties agreed to a settlement of all claims as described below,
subject to the approval of the Board of Directors of CardioGenics Holdings Inc., which approval was subsequently obtained. Pursuant
to the settlement agreement, Flow Capital agreed to dismiss, with prejudice, the Flow Capital Federal Action and the Flow Capital
State Action and CardioGenics agreed to issue Flow Capital 1,000,000 shares of restricted CardioGenics Holdings common stock and
warrants to purchase restricted CardioGenics Holdings common stock as follows:
|
Type of Warrant
|
|
Number of Shares
|
|
Exercise Price
|
|
Vesting Date
|
|
Term
|
|
Cash Exercise Only
|
|
250,000
|
|
$0.30/share
|
|
immediate
|
|
5 years
|
|
Cash Exercise Only
|
|
250,000
|
|
$0.50/share
|
|
immediate
|
|
5 years
|
|
Cash Exercise Only
|
|
500,000
|
|
$0.75/share
|
|
immediate
|
|
5 years
|
|
Cash Exercise Only
|
|
500,000
|
|
$1.00/share
|
|
immediate
|
|
5 years
|
|
Cash or Cashless Exercise
|
|
500,000
|
|
$0.75/share
|
|
August 1, 2012
|
|
5 years
|
The restricted shares of common stock and
the warrants are subject to the rights and restrictions of Rule 144 and do not have any registration rights. As part of the settlement,
the parties also exchanged mutual general releases and CardioGenics Holdings agreed to pay Flow Capital, in three monthly installments,
$100,000 for Flow Capital’s legal fees.
On August 23, 2011, the Company’s
Board of Directors approved the settlement. As a result, the Company recorded a charge to the Condensed Statement of Operations
at July 31, 2011 of $1,753,800 for Cost of Settlement of Lawsuit, which amount is included in Accounts Payable and Accrued Expenses
at July 31, 2011.
On October 26, 2010 Karver International
Inc. filed a lawsuit in the 11
th
Judicial Circuit in and for Miami-Dade County, Florida against CardioGenics Holdings
Inc. and several other defendants including affiliates, officers and directors of CardioGenics Holdings, Inc. The Plaintiff generally
alleges that the named defendants made certain alleged misrepresentations in connection with the purchase of shares of CardioGenics
Holdings Inc. On December 20, 2010 CardioGenics Holdings Inc. and other defendants filed a motion to dismiss on the basis that
the court lacks personal jurisdiction over most defendants, that an enforceable forum selection clause requires that the action
be litigated in Ontario, Canada that the doctrine of
forum non conveniens
requires dismissal in favor of the Ontario forum,
and that the complaint suffers from numerous other technical deficiencies warranting dismissal (e.g., failure to attach documents
to the Complaint, failure to plead fraud with particularity, etc.). In addition, prior to the motion being heard, Karver’s
attorney filed a motion to withdraw as counsel for Karver. The court granted Karver’s attorney’s motion to withdraw
and Karver had until approximately April 26, 2011 to engage new counsel. On April 20, 2011, having not engaged new counsel as of
that date, Karver filed with the court a Notice of Voluntary Dismissal Without Prejudice, which dismisses the lawsuit against the
named defendants without prejudice to Karver’s rights to recommence the action.
Item 1A. Risk Factors
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
None
Item 5. Other Information
None
Item 6. Exhibits
|
|
31.1
|
Section 302 Certification of Chief Executive Officer.
|
|
|
31.2
|
Section 302 Certification of Chief Financial Officer.
|
|
|
32.1
|
Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
|
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
CARDIOGENICS HOLDINGS INC.
|
|
|
|
|
Date: September 14, 2012
|
By:
|
/s/ Yahia Gawad
|
|
|
|
Name: Yahia Gawad
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
Date: September 14, 2012
|
By:
|
/s/ James Essex
|
|
|
|
Name: James Essex
|
|
|
|
Title: Chief Financial Officer
|
EXHIBIT INDEX
|
|
31.1
|
Section 302 Certification of Chief Executive Officer
|
|
|
31.2
|
Section 302 Certification of Chief Financial Officer
|
|
|
32.1
|
Section 906 Certification of Chief Executive Officer and Chief Financial Officer
|
CardioGenics (CE) (USOTC:CGNH)
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