UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2005
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the
transition period from ____________ to ____________
Commission
file number: 333-125699
NEURO-HITECH
PHARMACEUTICALS, INC.
(Name
of
Small Business Issuer in Its Charter)
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Delaware
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20-4121393
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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One
Penn Plaza, Suite 2514, New York, NY
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10119
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(Address
of principal executive offices)
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(Zip
Code)
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(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Exchange Act: None.
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Title
of each class
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Name
of each exchange on which registered
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Securities
registered pursuant to Section 12(g) of the Act: None.
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(Title
of Class)
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Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
ý No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ý
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o No
ý
State
issuer’s revenues for its most recent fiscal year. $208,343
State
the
issuer’s aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of
a
specified date within the past 60 days. Approximately
$54.4 million as of March 27, 2006.
State
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date.
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Class
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Outstanding
at March 27, 2006
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Common
Stock, $0.001 par value per share
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9,431,256
shares
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Class
A Common Stock, $0.001 par value per share
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100
shares
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Transitional
Small Business Disclosure Format (check one): Yes
o No
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ITEM
NUMBER AND CAPTION
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Description
of the Company
We
are an
early stage pharmaceutical company engaged in the development and
commercialization Huperzine A (“HupA”) for a variety of degenerative
neurological disorders. Through a collaboration with the Alzheimer’s Disease
Cooperative Study (“ADCS”), formed in 1991 as a cooperative agreement between
the National Institute of Aging and the University of California San Diego,
for
advancing the research of drugs for treating patients with Alzheimer’s disease
(“AD”), the National Institutes of Health (“NIH”) and Georgetown University
Medical Center (“Georgetown”), the Company has completed Phase I studies and is
currently conducting Phase II clinical trials for HupA. HupA is a cholinesterase
inhibitor that the Company believes may be effective in the treatment of AD
and
Mild Cognitive Impairment (“MCI”), although, to date, its efforts have been
focused upon HupA’s effectiveness in AD.
History
We
were
originally formed on February 1, 2005, as Northern Way Resources, Inc., a Nevada
corporation, for the purpose of acquiring exploration and early stage natural
resource properties. On January 24, 2006, we entered into an Agreement and
Plan
of Reorganization (the “Merger Agreement”) by and among us, Marco Hi-Tech JV
Ltd., a privately held New York corporation (“Marco”), and Marco Acquisition I,
Inc., a newly formed wholly-owned Delaware subsidiary of ours (“Acquisition
Sub”). Upon closing of the transactions contemplated under the Merger Agreement
(the “Merger”), Acquisition Sub was merged with and into Marco, and Marco became
a wholly-owned subsidiary of ours. The merger was consummated on that date
and
in connection with that merger, we changed our name to Neuro-Hitech
Pharmaceuticals, Inc.
Pursuant
to the Merger Agreement, at closing, shareholders of Marco received .5830332
shares of our Common Stock for each issued and outstanding share of Marco’s
common stock, par value $.01 per share. As a result, at closing of the Merger,
we issued 6,164,006 shares of our Common Stock to the former stockholders of
Marco, which represented approximately 80% of our outstanding Common Stock
following the Merger, in exchange for 100% of the outstanding capital stock
of
Marco.
All
references to the “Company” for periods prior to the closing of the Merger refer
to Marco, and references to the “Company” for periods subsequent to the closing
of the Merger refer to Neuro-Hitech and its subsidiaries.
Marco
was
incorporated in the State of New York on December 11, 1996. Through 2005, Marco
was focused primarily on licensing proprietary HupA technology from independent
third-party developers and investigators, including the Mayo Foundation for
Medical Education and Research in Rochester, Minnesota (the “Mayo Foundation”),
and conducting analytical work and clinical trials of HupA, and until such
time
operated with no full-time employees and minimal internal resources. In
addition, from time to time, Marco has imported and sold inventories of natural
huperzine and other dietary supplement ingredients to vitamin and supplement
suppliers to generate revenues. In 2005, Marco determined to raise additional
capital to pursue additional approvals and undertake necessary studies for
the
development and commercialization of HupA, including securing rights to
third-party transdermal patch technology.
After
the
Merger, the Company succeeded to the business of Marco as its sole line of
business and adopted the name Neuro-Hitech Pharmaceuticals, Inc.
Description
of the Business
AD
and MCI
AD
is a
chronic neurodegenerative disorder characterized by a loss of cognitive ability,
severe behavioral abnormalities, and ultimately death. MCI is a relatively
new
classification of memory disorder that is characterized by noticeable memory
loss, but otherwise normal behavior. According to the Mayo Clinic, MCI converts
to AD at a rate of 10 to 15% a year.
According
to the ADCS there is no known cure for AD or MCI. However, for some people
in
the early and middle stages of the disease, the drugs donepezil (Aricept®),
rivastigmine (Exelon®), or galantamine (Razadyne®, previously known as Reminyl®)
may help prevent some symptoms from becoming worse for a limited time. Another
drug, memantine (Namenda®), has been approved to treat moderate to severe AD,
although it also is limited in its effects. Also, some medicines may help
control behavioral symptoms of AD such as sleeplessness, agitation, wandering,
anxiety, and depression. Treating these symptoms often makes patients more
comfortable and makes their care easier for caregivers.
Huperzine
A
HupA
is a
compound that is used in China as a prescription drug for treating AD and other
forms of dementia. The Company has sought to identify and license HupA compounds
for approval as HupA drugs.
Both
pre-clinical and animal and human clinical studies using United States Food
and
Drug Administration (“FDA”) and other protocol end points conducted both in
China and in the U.S. suggest that HupA:
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may
prove to be more efficacious in improving cognitive function in patients
suffering from dementia than the other currently approved drugs for
early
and middle stage AD;
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may
have significantly longer inhibitory action at lower doses than the
other
approved drugs for early and middle stage
AD;
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may
prove to not induce the unpleasant side effects resulting from use
of
other approved drugs for early and middle stage
AD;
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may
be effective not only in increasing the brain’s acetylcholine levels, but
also levels of other important neurotransmitters such as dopamine
and
noradrenaline;
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may
have high oral bioavailability, and good penetration through the
blood-brain barrier; and
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may
exhibit neuroprotective properties, and may significantly decrease
neuronal cell death due to glutamate-induced excitotoxicity.
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Although
not being pursued by the Company at this time, Chinese clinical studies have
indicated that HupA may also have potential in the treatment of myasthenia
gravis, a progressive autoimmune disease resulting in neuromuscular failure,
which, untreated can lead to blindness and death from respiratory failure.
In a
1986 study by Y.S. Cheng et al., it was shown that HupA controlled the clinical
manifestations of the disease in 99% of the 128 patients treated. Additional
research at the Walter Reed Institute of Research indicates that HupA may also
have application as a nerve gas antidote.
Licenses/Patents
The
Company holds an exclusive license for two composition of matter patents and
four process patents for Racemic Huperzine A, HupA and their analogues and
derivatives from the Mayo Foundation. The Company holds licenses from the Mayo
Foundation under the following patents: United States Patent Nos. 4,929,731,
5,104,880, 5,106,979, 5,547,960, 5,663,344, 5,869,672.
The
Company has an exclusive worldwide license to the four patents pursuant to
a
Technology License Contract with the Mayo Foundation (the “Mayo Licensing
Agreement”) and rights to patents or future developments. The Company made an
initial, nonrefundable royalty payment of $82,500 when it entered into the
Mayo
Licensing Agreement in 1997 and upon filing of an investigational new drug
application (IND) the Company paid $25,000 to Mayo in 2002, and will be required
to make, once FDA approval is received, quarterly royalty payments of 5% of
net
sales of the Licensed Products and 1% of net sales of any Natural Products
(as
such terms are defined in the Mayo Licensing Agreement) sold by the Company
prior to May 29, 2007, with a minimum annual royalty of $300,000. The Company
is
also obligated to make certain maintenance and milestone royalties payments.
Prior to obtaining FDA approval of a Licensed or a Natural Product the Company
is obligated to pay the Mayo Foundation $10,000 annually. The Company also
has
an option to license any patents that issue as a result of continuations,
continuations-in-part, divisional or foreign applications filed based on the
licensed patent upon payment of $15,000. The Mayo Foundation has the option
under the Mayo Licensing Agreement to purchase products from the Company at
a
30% discount to market.
Strategy
The
Company’s strategy is to make HupA available in both oral and transdermal form.
The Company believes that HupA can effectively be delivered transdermally
because of its low dosage requirement and low molecular weight.
The
Company’s primary focus is completing the Phase II clinical trial for HupA in
conjunction with Georgetown University Medical Center (“Georgetown”) and the
ADCS. The Company presently anticipates that this phase will be completed in
the
fourth quarter of 2006, with data compilation expected to be completed in the
first quarter of 2007, subject to the study recruitment level. In December
2003,
the Company entered into a clinical research agreement, which was amended in
November 2005, with Georgetown pursuant to which Georgetown will provide the
Company with Phase II research. The costs associated with this agreement total
$3,146,667 and will be partially funded by the National Institutes of Health.
Our portion of the total cost is $1,846,667 and payable in installments upon
the
achievement of certain milestones. Our portion of the total cost would increase
if the total cost of the program was increased at our election. This agreement
may be terminated by either party upon 30 days notice and expires on August
31,
2007.
On
February 1, 2006, the Company entered into an exclusive development agreement
(the “Development Agreement”) with Org Syn Laboratory, Inc. (“Org Syn”) for the
development by Org Syn of synthetic HupA. Under the terms of the Development
Agreement, Org Syn received an aggregate of $175,894 upon the execution of
the
Development Agreement, $175,916 six months from the execution date and an
additional $67,664 seven months from the execution date (subject to the
achievement of certain milestones) for services rendered under the Development
Agreement. The Development Agreement may be terminated by the Company if Org
Syn
fails to achieve certain stated milestones.
On
March
15, 2006, the Company entered into a development agreement with Xel
Herbaceuticals, Inc. (“XEL”) for XEL to develop a HupA Transdermal Delivery
System (“Delivery Product”). Under the terms of the agreement, the Company paid
XEL a $250,000 fee upon the execution of the agreement and will pay XEL $92,500
per month during the development of the Delivery Product, which development
is
estimated to take approximately 16 months. The monthly payment is subject to
quarterly adjustment and subject to a limit on aggregate development cost
overruns of $250,000. XEL has agreed to pay any cost overruns in excess of
$250,000. The Company and XEL intend to seek domestic and foreign patent
protection for the Delivery Product.
If
the
Company elects to exercise its right to license the Delivery Product in the
United States and Canada (“North America”) and to develop the Delivery Product
on its own, the Company will pay XEL an initial license fee of $400,000 and
up
to an aggregate of $2.4 million in additional payments upon the achievement
of
certain milestones, including completion of a prototype, initial submission
to
the FDA, completion of phases of clinical studies and completion of the FDA
submission and FDA approval. Similarly, if the Company elects to exercise its
option to license the Delivery Product worldwide excluding China, Taiwan, Hong
Kong, Macau and Singapore (“Worldwide”), and develop the Delivery Product on its
own, the Company will pay XEL an additional initial license fee of $400,000
and
up to an aggregate of $2.4 million in additional payments upon the achievement
of comparable milestones. If XEL fails to obtain a U.S. or international patent,
the corresponding license fee and milestone payments will be reduced by 50%
until such time as XEL obtains such patent, at which time the unpaid 50% of
all
such milestone payments previously not made will be due.
The
Company will also be obligated to pay XEL royalty payments of between 7% and
10%
of net sales, with such royalty payments subject to reduction upon the
expiration of the patent or the launch of a generic product in the applicable
territory. If a patent has not been issued in either the United States or
Canada, the royalty payments will be subject to reduced rates of between 3%
and
5% of net sales. Royalty payments for sales in the Worldwide territory will
be
subject to good faith negotiations between the parties.
If
the
Company exercises its right to license the Delivery Product in North America
and
to develop the Delivery Product with a third party, the Company will pay XEL
50%
of any initial signing fees and milestone fees (excluding any research and
development fees) paid by such third party. Similarly, in the event that the
Company decides to exercise its option to license the Delivery Product Worldwide
and to develop the Delivery Product with a third party, the Company will pay
XEL
50% of any initial signing fees and milestone fees (excluding any research
and
development fees) paid by such third party. If XEL fails to obtain a U.S. or
international patent, the percentage of the corresponding fees will be reduced
to 25%. The Company will pay XEL 20% of any royalty payments received by the
Company from third-party sublicensees or if the Delivery Product is not
protected by at least one patent, 10% of any royalty received by the Company
from sublicensees.
If
the
Company elects not to exercise its right to license the Delivery Product and
XEL
elects to further develop the Delivery Product without the Company, XEL will
be
obligated to pay the Company 30% of any net profits realized up to a maximum
of
two times the amount paid by the Company to XEL during development, excluding
the initial $250,000 signing fee. Upon such election, XEL will be entitled
to
full ownership of the intellectual property of the Delivery Product. If the
Company elects to exercise its rights to license the Delivery Product in North
America, but not Worldwide, XEL will have certain rights to obtain intellectual
property protection in any country outside North America upon payment to the
Company for such rights, such fees to be negotiated in good faith by the
parties.
The
Company currently intends to focus upon the development of collaborative, joint
and strategic alliances and licensing arrangements with various pharmaceutical
companies for marketing the Company’s products once FDA approval is obtained,
although there can be no assurance that FDA approval will be obtained.
The
Company presently believes the estimated additional costs to bring the product
to market as an oral dose drug, after completing two Phase III clinical trials,
will be substantial and no assurances as to future cost can be made.
Upon
obtaining FDA approval for HupA, it is anticipated that the Company’s
collaborative partners, if the Company is successful in obtaining collaborative
partners, will be primarily responsible for the sale and distribution of HupA
products. Efforts will be made to reach licensing agreements with collaborative
partners to participate in earlier phases of the drug development process for
the Company’s products, reducing the need for it to obtain financing for the
additional development costs. This strategy may enable the Company to gain
access to the marketing expertise and resources of the Company’s potential
partners and to lower its capital requirements.
Although
the Company’s primary focus is the commercialization of HupA, the Company also
investigates and considers other drugs and compounds with neurological
applications.
Marketing
According
to the ADCS, AD is both the most common cause of dementia and the fourth leading
cause of death in the industrialized world, affecting approximately one in
five
persons over the age of 80 years. Currently, AD afflicts some 4.5 million
Americans, including approximately 5% of the U.S. population between the ages
of
65 and 74, and nearly half of those over 85. According to the ACDS, the annual
cost of caring for those with AD is in excess of $100 billion in the United
States alone. Finding a way to delay the onset of symptoms by five years may
reduce by half the number afflicted, with a corresponding savings in
cost.
In
addition to the market for AD, compounds such as HupA may provide potential
benefits to patients diagnosed with MCI by slowing down the advent of AD or
other forms of dementia. According to the Mayo Clinic, MCI afflicts up to 20%
of
the non-demented population over 65.
A
marketing study funded by the Company has shown that patient compliance is
a
crucial factor in determining patient and doctor choice in choosing a medication
for AD. Often it is the responsibility of a caregiver to remind the patient
to
take the orally given medications. Recognizing this, the Company hopes to
develop and license a multi-day transdermal patch, which, if successfully
realized, will be able to be applied to the patient for more than one day.
The
Company believes that some advantages of a transdermal delivery may
include:
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avoidance
of first-pass metabolism; better control of drug and metabolite plasma
levels leading to improved therapy with reduced side
effects;
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avoidance
of non-compliance resulting, for example, from patients forgetting
to take
the medication; and
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improved
quality of life for caregiver who only needs to replace the patch
up to
once per week.
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Research
and Development
The
Company spent approximately $678,798, $494,633 and $243,010 in the fiscal years
ended December 2005, 2004 and 2003, respectively, on research and
development.
Manufacturing
and Raw Materials
The
Company does not have, and does not intend to establish, manufacturing
facilities to produce its product candidates in the near or mid-term. The
Company plans to control capital expenditures by using contract manufacturers
to
produce product candidates. It is the Company’s belief that there are a
sufficient number of high quality GLP (Good Laboratory Practice) and GMP (Good
Manufacturing Practice) contract manufacturers available, and the Company has
had discussions and in some instances established relationships to fulfill
its
production needs for research and clinical use.
The
manufacturer of Neuro-Hitech’s product candidates or any future product, whether
done by third-party contractors as planned or internally, will be subject to
rigorous regulations, including the need to comply with the FDA’s current GMP
standards. As part of obtaining FDA approval for each product, each of the
manufacturing facilities must be inspected, approved by and registered with
the
FDA. In addition to obtaining FDA approval of the prospective manufacturer’s
quality control and manufacturing procedures, domestic and foreign manufacturing
facilities are subject to periodic inspection by the FDA and/or foreign
regulatory authorities.
The
Company currently attempts to manage the risk associated with sole-sourced
raw
materials by active inventory management. A material shortage, contamination,
and/or recall could adversely affect the manufacturing of the Company’s
products.
Government
Regulation
The
research and development, manufacture and marketing of controlled-release
pharmaceuticals are subject to regulation by U.S., Canadian and foreign
governmental authorities and agencies. Such national agencies and other federal,
state, provincial and local entities regulate the testing, manufacturing, safety
and promotion of the Company’s products. Regulations applicable to the Company’s
products may change as the currently limited number of approved
controlled-release products increases and regulators acquire additional
experience in this area.
United
States Regulation
New
Drug Application
The
Company will be required by the FDA to comply with New Drug Application (“NDA”)
procedures for its products prior to commencement of marketing by the Company
or
the Company’s licensees. New drug compounds and new formulations for existing
drug compounds are subject to NDA procedures. These procedures include (a)
preclinical laboratory and animal toxicology tests; (b) scaling and testing
of
production batches; (c) submission of an investigational new drug application
(“IND”), and subsequent approval is required before any human clinical trials
can commence; (d) adequate and well controlled replicate human clinical trials
to establish the safety and efficacy of the drug for its intended indication;
(e) the submission of an NDA to the FDA; and (f) FDA approval of an NDA prior
to
any commercial sale or shipment of the product, including pre-approval and
post-approval inspections of its manufacturing and testing facilities. If all
of
these data in the product application is owned by the applicant, the FDA will
issue its approval without regard to patent rights that might be infringed
or
exclusivity periods that would affect the FDA’s ability to grant an approval if
the application relied upon data which the applicant did not own. The Company
currently intends to generate all data necessary to support FDA approval of
the
applications the Company files.
Preclinical
laboratory and animal toxicology tests may have to be performed to assess the
safety and potential efficacy of the product. The results of these preclinical
tests, together with information regarding the methods of manufacture of the
products and quality control testing, are then submitted to the FDA as part
of
an IND requesting authorization to initiate human clinical trials. Once the
IND
notice period has expired, clinical trials may be initiated, unless a hold
on
clinical trials has been issued by the FDA.
Clinical
trials involve the administration of a pharmaceutical product to individuals
under the supervision of qualified medical investigators that are experienced
in
conducting studies under “Good Clinical Practice” guidelines. Clinical studies
are conducted in accordance with protocols that detail the objectives of a
study, the parameters to be used to monitor safety and the efficacy criteria
to
be evaluated. Each protocol is submitted to the FDA and to an Institutional
Review Board prior to the commencement of each clinical trial. Clinical studies
are typically conducted in three sequential phases, which may overlap. In Phase
I, the initial introduction of the product into human subjects, the compound
is
tested for absorption, safety, dosage, tolerance, metabolic interaction,
distribution, and excretion. Phase II involves studies in a limited patient
population with the disease to be treated to (1) determine the efficacy of
the
product for specific targeted indications, (2) determine optimal dosage and
(3)
identify possible adverse effects and safety risks. In the event Phase II
evaluations demonstrate that a pharmaceutical product is effective and has
an
acceptable safety profile, Phase III clinical trials are undertaken to further
evaluate clinical efficacy of the product and to further test its safety within
an expanded patient population at geographically dispersed clinical study sites.
Periodic reports on the clinical investigations are required.
The
Company, or the FDA, may suspend clinical trials at any time if it is believed
that clinical subjects may be exposed to unacceptable health risks. The results
of the product development, analytical laboratory studies and clinical studies
are submitted to the FDA as part of an NDA for approval of the marketing and
commercialization of a pharmaceutical product.
In
certain companies where the objective is to develop a generic version of an
approved product already on the market in controlled-release dosages, an
Abbreviated New Drug Application (“ANDA”) may be filed in lieu of filing an NDA.
Under the ANDA procedure, the FDA waives the requirement to submit complete
reports of preclinical and clinical studies of safety and efficacy and instead
requires the submission of bio-equivalency data, that is, demonstration that
the
generic drug produces the same effect in the body as its brand-name counterpart
and has the same pharmacokinetic profile, or change in blood concentration
over
time. The advantages of an ANDA over an NDA include reduced research and
development costs associated with bringing a product to market, and generally
a
shorter review and approval time at the FDA. This procedure is not available
to
the Company’s planned products but might be available to the Company’s
competitors if the Company receives FDA approval for one or more of its
products.
Exclusivity
Issues
Under
U.S. law, the expiration of a patent on a drug compound does not create a right
to make, use or sell that compound. There may be additional patents relating
to
a person’s proposed manufacture, use or sale of a product that could potentially
prohibit such person’s proposed commercialization of a drug
compound.
The
Food
Drug and Cosmetic Act (“FDC”) contains non-patent market exclusivity provisions
that offer protection to pioneer drug products and are independent of any patent
coverage that might also apply. Five years of exclusivity are granted to the
first approval of a “new chemical entity.” Three years of exclusivity may apply
to products which are not new chemical entities, but for which new clinical
investigations are essential to the approval. For example, a new indication
for
use, or a new dosage strength of a previously approved product, may be entitled
to exclusivity, but only with respect to that indication or dosage strength.
Exclusivity only offers protection against a competitor entering the market
via
the ANDA route, and does not operate against a competitor that generates all
of
its own data and submits a full NDA.
If
applicable regulatory criteria are not satisfied, the FDA may deny approval
of
an NDA or an ANDA or may require additional testing. Product approvals may
be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. The FDA may require further
testing and surveillance programs to monitor the pharmaceutical product that
has
been commercialized. Noncompliance with applicable requirements can result
in
additional penalties, including product seizures, injunction actions and
criminal prosecutions.
Additional
Regulatory Considerations
Sales
of
the Company’s products by licensees outside the United States and Canada are
subject to regulatory requirements governing the testing, registration and
marketing of pharmaceuticals, which vary widely from country to
country.
In
addition to the regulatory approval process, pharmaceutical companies are
subject to regulations under provincial, state and federal law, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and future local, provincial, state, federal and foreign regulations, including
possible future regulations of the pharmaceutical industry. The Company believes
that it is in compliance in all material respects with such regulations as
are
currently in effect.
Environmental
Laws
The
Company is subject to comprehensive federal, state, and provincial environmental
laws and regulations that govern, among other things, air polluting emissions,
waste water discharges, solid and hazardous waste disposal, and the remediation
of contamination associated with current or past generation handling and
disposal activities, including the past practices of corporations as to which
the Company is the successor. The Company does not expect that compliance with
such environmental laws will have a material effect on its capital expenditures,
earnings or competitive position in the foreseeable future. There can be no
assurance, however, that future changes in environmental laws or regulations,
administrative actions or enforcement actions, or remediation obligations
arising under environmental laws will not drain the Company’s capital
expenditures, and affect its earnings or competitive position.
Competition
The
Company seeks to develop and market (either on its own or by license to third
parties) proprietary pharmaceutical products based on HupA. The Company’s
competition consists of those companies which develop drugs to treat AD, MCI
and
other forms of dementia, and companies that develop AD and MCI drugs and drug
delivery systems for theses drugs.
In
recent
years, research into AD and MCI has increased as the population ages. An
increasing number of pharmaceutical companies are interested in the development
and commercialization of products that treat these diseases. The Company also
expects that competition in the field of drug delivery will significantly
increase in the future since smaller specialized research and development
companies are beginning to concentrate on this aspect of the business. For
each
area, some of the major pharmaceutical companies have invested and are
continuing to invest significant resources in the development of these products,
and some have invested funds in specialized drug delivery
companies.
Other
companies may develop new drug formulations and products for AD or MCI, or
may
improve existing drug formulations and products more efficiently than the
Company can. In addition, almost all of the Company’s competitors have vastly
greater resources than the Company does. While the Company’s product development
capabilities and exclusive patent licenses may help it maintain a market
position in the field of drug delivery, there can be no assurance that others
will not be able to develop these capabilities, or alternative technologies
outside the scope of the Company’s patents, if any, or that even if patent
protection is obtained, these patents will not be successfully challenged in
the
future.
Employees
As
of
March 27, 2006, the Company had no full-time employees and its activities were
directed by the efforts of Reuben Seltzer and Alan Kestenbaum and several
part-time personnel. Messrs. Seltzer and Kestenbaum, and other personnel, are
primarily employed by other organizations and will continue to participate
on a
part-time basis and will not devote full-time efforts to the affairs of the
Company for the foreseeable future. The Company may hire several full-time
employees to be engaged in administration, research and
development.
Corporate
Information
The
Company’s corporate headquarters are located at One Penn Plaza, New York, NY
10119. The Company’s telephone number is (212) 798-8100, and its fax number is
(212) 798-8183.
Risk
Factors
Investing
in the Company’s common stock involves a high degree of risk. Prospective
investors should carefully consider the risks described below, together with
all
of the other information included or referred to in this Annual Report on Form
10-KSB, before purchasing shares of the Company’s common stock. There are
numerous and varied risks, known and unknown, that may prevent the Company
from
achieving its goals. The risks described below are not the only ones the Company
will face. If any of these risks actually occur, the Company’s business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of the Company’s common stock could
decline and investors in the Company’s common stock could lose all or part of
their investment.
Risks
Related to the Company and the Company’s Business
The
failure to complete development of HupA, obtain government approvals, including
required FDA approvals, or to comply with ongoing governmental regulations
could
delay or limit introduction of proposed products and result in failure to
achieve revenues or maintain the Company’s ongoing
business.
The
Company’s research and development activities, and the manufacture and marketing
of its intended products, are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the United States
and
abroad. Before receiving FDA clearance to market the Company’s proposed
products, the Company will have to demonstrate that its products are safe and
effective on the patient population and for the diseases that are to be treated.
Clinical trials, manufacturing and marketing of drugs are subject to the
rigorous testing and approval process of the FDA and equivalent foreign
regulatory authorities. The FDA and other federal, state and foreign statutes
and regulations govern and influence the testing, manufacture, labeling,
advertising, distribution and promotion of drugs and medical devices. As a
result, clinical trials and regulatory approval can take a number of years
or
longer to accomplish and require the expenditure of substantial financial,
managerial and other resources.
In
order
to be commercially viable, the Company must successfully research, develop,
obtain regulatory approval for, manufacture, introduce, market and distribute
its technologies. For each drug the Company must successfully meet a number
of
critical developmental milestones, including:
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demonstrate
benefit from each specific drug
technology,
|
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· |
demonstrate
through pre clinical and clinical trials that the drug and patient
specific therapy is safe and effective,
and
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establish
a viable Good Manufacturing Process capable of potential scale
up.
|
The
time
frame necessary to achieve these developmental milestones may be long and
uncertain, and the Company may not successfully complete these milestones for
any of its intended products in development.
In
addition to the risks previously discussed, HupA is subject to additional
developmental risks which include the following:
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· |
the
uncertainties arising from the rapidly growing scientific aspects
of drug
therapies and potential treatments,
|
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|
· |
uncertainties
arising as a result of the broad array of potential treatments related
to
neurological disease, and
|
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anticipated
expense and time believed to be associated with the development and
regulatory approval of treatments for neurological
disease.
|
In
order
to conduct clinical trials that are necessary to obtain approval by the FDA
to
market a product, it is necessary to receive clearance from the FDA to conduct
such clinical trials. The FDA can halt clinical trials at any time for safety
reasons or because the Company or its clinical investigators do not follow
the
FDA’s requirements for conducting clinical trials. If the Company is unable to
receive clearance to conduct clinical trials or the trials are halted by the
FDA, the Company would not be able to achieve any revenue from such product,
as
it is illegal to sell any drug or medical device for human consumption without
FDA approval.
Data
obtained from clinical trials is susceptible to varying interpretations, which
could delay, limit or prevent regulatory clearances.
Data
already obtained, or in the future obtained, from pre clinical studies and
clinical trials (as of the date of this Annual Report Phase II clinical trials
of HupA have been undertaken) do not necessarily predict the results that will
be obtained from later pre clinical studies and clinical trials. Moreover,
pre-clinical and clinical data is susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. The Company is also not
able
to assure that the results of the tests already conducted will be consistent
with prior observations or support the Company’s applications for regulatory
approval. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. The failure to adequately demonstrate the safety and
effectiveness of an intended product under development could delay or prevent
regulatory clearance of a potential drug, resulting in delays to
commercialization, and could materially harm the Company’s business. The
Company’s clinical trials may not demonstrate sufficient levels of safety and
efficacy necessary to obtain the requisite regulatory approvals for the
Company’s drugs, and thus its proposed drugs may not be approved for marketing.
Even after approval, further studies could result in withdrawal of FDA and
other
regulatory approvals and voluntary or involuntary withdrawal of products from
the market.
The
Company may encounter delays or rejections based upon additional government
regulation from future legislation or administrative action or changes in FDA
policy during the period of development, clinical trials and FDA regulatory
review. The Company may encounter similar delays in foreign countries. Sales
of
the Company’s products outside the U.S. would be subject to foreign regulatory
approvals that vary from country to country. The time required to obtain
approvals from foreign countries may be shorter or longer than that required
for
FDA approval, and requirements for foreign licensing may differ from FDA
requirements. The Company may be unable to obtain requisite approvals from
the
FDA and foreign regulatory authorities, and even if obtained, such approvals
may
not be on a timely basis, or they may not cover the uses that the Company
requests.
In
the
future, the Company may select drugs which may contain controlled substances
which are subject to state, federal and foreign laws and regulations regarding
their manufacture, use, sale, importation and distribution. For such drugs
containing controlled substances, the Company and any suppliers, manufacturers,
contractors, customers and distributors may be required to obtain and maintain
applicable registrations from state, federal and foreign law enforcement and
regulatory agencies and comply with state, federal and foreign laws and
regulations regarding the manufacture, use, sale, importation and distribution
of controlled substances. These regulations are extensive and include
regulations governing manufacturing, labeling, packaging, testing, dispensing,
prescription and procurement quotas, record keeping, reporting, handling,
shipment and disposal. Failure to obtain and maintain required registrations
or
comply with any applicable regulations could delay or preclude the Company
from
developing and commercializing drugs containing controlled substances and
subject the Company to enforcement action. In addition, because of their
restrictive nature, these regulations could limit the Company’s
commercialization of drugs containing controlled substances.
As
a
result, the Company’s drug and technology research program may be curtailed,
redirected or eliminated at any time.
Because
the Company has accumulated deficits in the research and development of HupA
since inception, there is no guarantee that the Company will ever become
profitable even if one or more of the Company’s drugs are approved for
commercialization.
Since
inception the Company has recorded operating losses. As of December 31, 2005,
the Company had a stockholder’s equity of approximately $(49,526) and an
accumulated deficit of approximately $(2,626,445). In addition, the Company
expects to incur increasing operating losses over the next several years as
the
Company continues to incur increasing costs for research and development and
clinical trials, compliance with governmental regulations and in other
development activities. The Company’s ability to generate revenue and achieve
profitability depends upon its ability, alone or with others, to complete the
development of its proposed products, obtain the required regulatory approvals
and manufacture, market and sell its proposed products. Development is costly
and requires significant investment. In addition, the Company may choose to
license rights to particular drugs. The license fees for such drugs may increase
the Company’s costs.
The
Company has not generated any revenue from the commercial sale of its proposed
products in development or any drugs and do not expect to receive such revenue
in the near future. The Company’s primary activity to date has been research and
development. Revenues to date are primarily from sales of inventory of imported
huperzine, which may be continued by the Company, but which may be reduced
or
eliminated entirely as the Company refocuses its efforts on drug development
and
approval.
A
substantial portion of the research results and observations on which the
Company relies were performed by third-parties at those parties’ facilities,
cost and expense. The Company cannot be certain as to when or whether to
anticipate commercializing and marketing its proposed products in development,
and do not expect to generate sufficient revenues from proposed product sales
to
cover its expenses or achieve profitability in the near future.
The
Company has limited cash available, and the Company may not have sufficient
cash
to continue its business operations.
As
of
March 27, 2006 the Company had approximately $4.2 million in cash and cash
equivalents which reflects the completion of a private placement in January
2006. Prior to the closing of the private placement, the Company had $90,606
in
cash and cash equivalents at December 31, 2005. For the year ended December
31,
2005, the Company’s net losses were $954,841, and its accumulated deficit was
$(2,626,445). Moreover, the Company expects this rate to increase in future
months as the Company engages in further expenditures to develop its business
infrastructure and pursue its business plan. Presently, the Company expects
that
its available cash, cash equivalents and interest income, are sufficient to
meet
its operating expenses and capital requirements for a period of at least twelve
months, however, if the Company fails to raise additional capital it may not
have sufficient cash to meet its operating expenses and capital requirements
in
the future. Even with additional capital, the Company may not be able to execute
its current business plan and fund business operations long enough to achieve
positive cash flow. Furthermore, the Company may be forced to reduce its
expenses and cash expenditures to a material extent, which would impair the
Company’s ability to execute its business operations.
Acceptance
of the Company’s products in the marketplace is uncertain and failure to achieve
market acceptance will prevent or delay its ability to generate
revenues.
The
Company’s future financial performance will depend, at least in part, upon the
introduction and acceptance of the Company’s proposed HupA products by
physicians, patients, payors and the broader medical community. Even if approved
for marketing by the necessary regulatory authorities, the Company’s products
may not achieve market acceptance. The degree of market acceptance will depend
upon a number of factors, including:
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the
receipt of regulatory clearance of marketing claims for the uses
that the
Company is developing;
|
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· |
the
establishment and demonstration of the advantages, safety and efficacy
of
HupA;
|
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· |
pricing
and reimbursement policies of government and third party payors such
as
insurance companies, health maintenance organizations and other health
plan administrators;
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· |
the
Company’s ability to attract corporate partners, including pharmaceutical
companies, to assist in commercializing the Company’s intended products;
and
|
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the
Company’s ability to market its
products.
|
The
Company may face costly and time consuming litigation from third parties which
claim that the Company’s products infringe on their intellectual property
rights, particularly because there is substantial uncertainty about the validity
and breadth of medical patents.
There
is
significant litigation in the biotechnology field regarding patents and other
intellectual property rights. Biotechnology companies of roughly the Company’s
size and financial position have gone out of business after fighting and losing
an infringement battle. The Company may be exposed to future litigation by
third
parties based on claims that the Company’s technologies, products or activities
infringe the intellectual property rights of others or that the Company has
misappropriated the trade secrets of others. This risk is exacerbated by the
fact that the validity and breadth of claims covered in medical technology
patents and the breadth and scope of trade secret protection involve complex
legal and factual questions for which important legal principles are unresolved.
In particular, there are many patents relating to specific genes, nucleic acids,
polypeptides or the uses thereof to treat Alzheimer’s disease and other central
nervous system diseases. Some of these may encompass genes or polypeptides
that
the Company utilizes in its drug development activities. Any litigation or
claims against the Company, whether or not valid, could result in substantial
costs, could place a significant strain on the Company’s financial and
managerial resources and could harm the Company’s reputation. Most of the
Company’s license agreements would likely require that the Company pay the costs
associated with defending this type of litigation. In addition, intellectual
property litigation or claims could force the Company to do one or more of
the
following:
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· |
cease
selling, incorporating or using any of the Company’s HupA products and/or
products that incorporate the challenged intellectual property, which
would adversely affect the Company’s future
revenue;
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pay
significant damages and the patentee could prevent the Company from
using
the patented genes or polypeptides for the identification or development
of drug compounds;
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obtain
a license from the holder of the infringed intellectual property
right,
which license may be costly or may not be available on reasonable
terms,
if at all; or
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redesign
the Company’s products, which would be costly and time
consuming.
|
As
of
March 27, 2006, the Company has not engaged in discussions, received any
communications, nor does the Company have any reason to believe that any third
party is challenging or has the proper legal authority to challenge the
Company’s intellectual property rights or those of the actual patent holders, or
the Company’s licenses.
If
the Company is unable to adequately protect or enforce its rights to
intellectual property or secure rights to third party patents, the Company
may
lose valuable rights, experience reduced market share, assuming any, or incur
costly litigation to protect such rights.
The
Company’s ability to obtain licenses to patents, apply for new patents on a HupA
product, maintain trade secret protection and operate without infringing the
proprietary rights of others will be important to its commercializing any
products under development. Therefore, any disruption in access to the
technology could substantially delay the development of HupA.
The
patent positions of biotechnology and pharmaceutical companies, including ours,
which also involve licensing agreements, are frequently uncertain and involve
complex legal and factual questions. In addition, the coverage claimed in a
patent application can be significantly reduced before the patent is issued.
Consequently, the Company’s patent applications and any issued and licensed
patents may not provide protection against competitive technologies or may
be
held invalid if challenged or circumvented. The Company’s competitors may also
independently develop drug technologies or products similar to the Company’s or
design around or otherwise circumvent patents issued or licensed to the Company.
In addition, the laws of some foreign countries may not protect the Company’s
proprietary rights to the same extent as U.S. law.
The
Company also relies upon trade secrets, technical know how and continuing
technological innovation to develop and maintain the Company’s competitive
position. The Company generally will seek to require its employees, consultants,
advisors and collaborators to execute appropriate confidentiality and assignment
of inventions agreements. These agreements typically provide that all materials
and confidential information developed or made known to the individual during
the course of the individual’s relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances, and that all inventions arising out of the individual’s
relationship with the Company shall be the its exclusive property. These
agreements may be breached, or unavailable, and in some instances, the Company
may not have an appropriate remedy available for breach of the agreements.
Furthermore, the Company’s competitors may independently develop substantially
equivalent proprietary information and techniques, reverse engineer the
Company’s information and techniques, or otherwise gain access to its
proprietary technology. The Company may be unable to meaningfully protect its
rights in trade secrets, technical know how and other non patented
technology.
Although
the Company’s trade secrets and technical know how are important, the Company’s
continued access to the patents and ability to develop, and apply for, new
patents is a significant factor in the development and commercialization of
HupA. Aside from the general body of scientific knowledge from other drug
processes and technology, these patents and processes, to the best of the
Company’s knowledge and based upon its current scientific data, are the only
intellectual property necessary to develop its proposed drugs. The Company
does
not believe that it is or will be knowingly violating any other patents in
developing HupA.
The
Company may have to resort to litigation to protect its rights for certain
intellectual property, or to determine their scope, validity or enforceability.
Enforcing
or defending the Company’s rights is expensive, could cause diversion of its
resources and may not prove successful. Any failure to enforce or protect the
Company’s rights could cause it to lose the ability to exclude others from using
HupA or to develop or sell competing products.
The
Company may rely on third party contract research organizations, service
providers and suppliers to support development and clinical testing of its
products.
Failure
of any of these contractors to provide the required services in a timely manner
or on reasonable commercial terms could materially delay the development and
approval of the Company’s products, increase its expenses and materially harm
its business, financial condition and results of operations.
Key
components of the Company’s drug technologies may be provided by sole or limited
numbers of suppliers, and supply shortages or loss of these suppliers could
result in interruptions in supply or increased costs.
Certain
components used in the Company’s research and development activities such as
naturally occurring or synthetic Huperzine are currently purchased from a single
or a limited number of sources primarily located in China in the case of
naturally occurring supplies. The reliance on a sole or limited number of
suppliers could result in:
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potential
delays associated with research and development and clinical and
pre
clinical trials due to an inability to timely obtain a single or
limited
source component;
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potential
inability to timely obtain an adequate supply;
and
|
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potential
of reduced control over pricing, quality and timely
delivery.
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The
Company does not have long-term agreements with any of its suppliers, and
therefore the supply of a particular component could be terminated without
penalty to the supplier. Any interruption in the supply of components could
cause the Company to seek alternative sources of supply or manufacture these
components internally. If the supply of any components is interrupted,
components from alternative suppliers may not be available in sufficient volumes
within required timeframes, if at all, to meet the Company’s needs. This could
delay the Company’s ability to complete clinical trials, obtain approval for
commercialization or commence marketing, or cause the Company to lose sales,
incur additional costs, delay new product introductions or harm the Company’s
reputation. Further, components from a new supplier may not be identical to
those provided by the original supplier. Such differences if they exist could
affect product formulations or the safety and effect of the Company’s products
that are being developed and delay regulatory approvals.
Due
to the Company’s limited marketing, sales and distribution experience, the
Company may be unsuccessful in its efforts to sell its products, enter into
relationships with third parties or develop a direct sales
organization.
The
Company has yet to establish marketing, sales or distribution capabilities
for
its proposed products. Until such time as the Company’s products are further
along in the regulatory process, the Company will not devote meaningful time
and
resources to this effort. At the appropriate time, the Company intends to enter
into agreements with third parties to sell its products or the Company may
develop its own sales and marketing force. The Company may be unable to
establish or maintain third party relationships on a commercially reasonable
basis, if at all. In addition, these third parties may have similar or more
established relationships with the Company’s competitors.
If
the
Company does not enter into relationships with third parties for the sales
and
marketing of its products, the Company will need to develop its own sales and
marketing capabilities. The Company has limited experience in developing,
training or managing a sales force. If the Company chooses to establish a direct
sales force, the Company may incur substantial additional expenses in
developing, training and managing such an organization. The Company may be
unable to build a sales force on a cost effective basis or at all. Any such
direct marketing and sales efforts may prove to be unsuccessful. In addition,
the Company will compete with many other companies that currently have extensive
marketing and sales operations. The Company’s marketing and sales efforts may be
unable to compete against these other companies. The Company may be unable
to
establish a sufficient sales and marketing organization on a timely basis,
if at
all.
The
Company may be unable to engage qualified distributors. Even if engaged, these
distributors may:
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fail
to satisfy financial or contractual obligations to the
Company;
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fail
to adequately market the Company’s
products;
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cease
operations with little or no notice;
or
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offer,
design, manufacture or promote competing
products.
|
If
the
Company fails to develop sales, marketing and distribution channels, the Company
would experience delays in product sales and incur increased costs, which would
harm the Company’s financial results. If the Company is unable to convince
physicians as to the benefits of its intended products, it may incur delays
or
additional expense in its attempt to establish market acceptance.
Broad
use
of the Company’s drug technology may require physicians to be informed regarding
its intended products and the intended benefits. The time and cost of such
an
educational process may be substantial. Inability to successfully carry out
this
physician education process may adversely affect market acceptance of the
Company’s products. The Company may be unable to timely educate physicians
regarding its intended products in sufficient numbers to achieve the Company’s
marketing plans or to achieve product acceptance. Any delay in physician
education may materially delay or reduce demand for the Company’s products. In
addition, the Company may expend significant funds towards physician education
before any acceptance or demand for the Company’s products is created, if at
all.
The
Company will require additional funding which will be significant and may have
difficulty raising needed capital in the future because of its limited operating
history and business risks associated with HupA.
The
Company’s business currently does not generate significant revenue from the
Company’s proposed products and its limited revenue may not be sufficient to
meet its future capital requirements. The Company does not know when, or if,
this will change. The Company has expended and will continue to expend
substantial funds in the research, development and clinical and pre clinical
testing of its drug technology. The Company will require additional funds to
conduct research and development, establish and conduct clinical and pre
clinical trials, establish commercial scale manufacturing arrangements and
to
provide for the marketing and distribution of its products. Additional funds
may
not be available on acceptable terms, if at all. If adequate funds are
unavailable from any available source, the Company may have to delay, reduce
the
scope of or eliminate one or more of its research or development programs or
product launches or marketing efforts which may materially harm the Company’s
business, financial condition and results of operations.
The
Company’s long term capital requirements are expected to depend on many factors,
including:
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the
number of potential products and technologies in
development;
|
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continued
progress and cost of the Company’s research and development
programs;
|
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progress
with pre clinical studies and clinical
trials;
|
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the
time and costs involved in obtaining regulatory
clearance;
|
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costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
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costs
of developing sales, marketing and distribution channels and the
Company’s
ability to sell its drugs;
|
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· |
costs
involved in establishing manufacturing capabilities for clinical
trial and
commercial quantities of the Company’s
drugs;
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competing
technological and market
developments;
|
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· |
market
acceptance or the Company’s
products;
|
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costs
for recruiting and retaining management, employees and consultants;
and
|
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costs
for training physicians.
|
The
Company may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. In the near future, the Company
may seek to raise any necessary additional funds through the exercising of
warrants, equity or debt financings, collaborative arrangements with corporate
partners or other sources, which may be dilutive to existing stockholders or
otherwise have a material effect on the Company’s current or future business
prospects. In addition, in the event that additional funds are obtained through
arrangements with collaborative partners or other sources, the Company may
have
to relinquish economic and/or proprietary rights to some of the Company’s
technologies or products under development that the Company would otherwise
seek
to develop or commercialize by itself. If adequate funds are not available,
the
Company may be required to significantly reduce or refocus its development
efforts with regards to its drug technology, compounds and drugs.
The
market for the Company’s products is rapidly changing and competitive, and new
drug mechanisms, drug technologies, new therapeutics, new drugs and new
treatments which may be developed by others could impair the Company’s ability
to maintain and grow its business and remain
competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial
technological change. Developments by others may render the Company’s
technologies and intended products noncompetitive or obsolete, or the Company
may be unable to keep pace with technological developments or other market
factors.
Technological
competition from pharmaceutical and biotechnology companies, universities,
governmental entities and others diversifying into the field is intense and
is
expected to increase. Many of these entities have significantly greater research
and development capabilities and budgets than the Company do, as well as
substantially more marketing, manufacturing, financial and managerial resources.
These entities represent significant competition for the Company. Acquisitions
of, or investments in, competing pharmaceutical or biotechnology companies
by
large corporations could increase such competitors’ financial, marketing,
manufacturing and other resources.
The
Company’s resources are limited and the Company may experience management,
operational or technical challenges inherent in such activities and novel
technologies.
Competitors
have developed or are in the process of developing technologies that are, or
in
the future may be, the basis for competition.
Some
of
these technologies may have an entirely different approach or means of
accomplishing similar therapeutic effects compared to HupA. The Company’s
competitors may develop drug technologies and drugs that are safer, more
effective or less costly than its intended products and, therefore, present
a
serious competitive threat to the Company.
The
Company has no manufacturing capabilities. If third-party manufacturers of
the
Company’s product candidates fail to devote sufficient time and resources to the
Company’s concerns, or if their performance is substandard, its clinical trials
and product introductions may be delayed.
Currently,
the Company has no internal manufacturing capabilities for any of its product
candidates. The Company cannot be sure that the Company will be able to: (i)
acquire or build facilities that will meet quality, quantity and timing
requirements; or (ii) enter into manufacturing contracts with others on
acceptable terms. Failure to accomplish these tasks would impede the Company’s
efforts to bring its product candidates to market, which would adversely affect
its business. Moreover, if the Company decides to manufacture one or more
product candidates, the Company would incur substantial start-up expenses and
need to expand the Company’s facilities and hire additional
personnel.
The
Company currently expects to utilize third-party manufacturers to produce the
drug compounds used in clinical trials and for the potential commercialization
of future products. If the Company is unable to obtain or retain third-party
manufacturers, the Company will not be able to commercialize its products.
The
Company’s reliance on contract manufacturers also will expose the Company to the
following risks:
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contract
manufacturers may encounter difficulties in achieving volume production,
quality control and quality assurance and also may experience shortages
in
qualified personnel. As a result, the Company’s contract manufacturers
might not be able to meet its clinical schedules or adequately manufacture
the Company’s products in commercial quantities when
required;
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switching
manufacturers may be difficult because the number of potential
manufacturers is limited. It may be difficult or impossible for the
Company to find a replacement manufacturer quickly on acceptable
terms, or
at all;
|
|
|
· |
the
Company’s contract manufacturers may not perform as agreed or may not
remain in the contract manufacturing business for the time required
to
successfully produce, store or distribute the Company’s products;
and
|
|
|
· |
if
the Company’s primary contract manufacturer should be unable to
manufacture any of its product candidates for any reason, or should
fail
to receive FDA approval or Drug Enforcement Administration approval,
commercialization of the Company’s product candidates could be delayed
which would negatively impact its
business.
|
Third-party
manufacturers also must comply with the FDA, the Drug Enforcement Administration
and other regulatory requirements for their facilities. The Company does not
have control over third-party manufacturers’ compliance with the regulations and
standards established by these agencies. In addition, manufacture of product
candidates on a limited basis for investigational use in animal studies or
human
clinical trials does not guarantee that large-scale, commercial production
is
viable. Small changes in methods of manufacture can affect the safety, efficacy,
controlled release or other characteristics of a product. Changes in methods
of
manufacture, including commercial scale-up, can, among other things, require
the
performance of new clinical studies.
The
Company’s product development efforts may not result in commercial
products.
The
Company intends to continue its aggressive research and development program.
Successful product development in the biotechnology industry is highly
uncertain, and very few research and development projects produce a commercial
product. Products that appear promising in the early phases of development,
such
as in early human clinical trials, may fail to reach the market for a number
of
reasons, such as:
|
|
· |
the
product did not demonstrate acceptable clinical trial results even
though
it demonstrated positive preclinical trial
results;
|
|
|
· |
the
product was not effective in treating a specified condition or
illness;
|
|
|
· |
the
product had harmful side effects on
humans;
|
|
|
· |
the
necessary regulatory bodies, such as the FDA, did not approve the
Company’s product for an intended
use;
|
|
|
· |
the
product was not economical for the Company to
commercialize;
|
|
|
· |
other
companies or people have or may have proprietary rights over the
Company’s
product, such as patent rights, and will not let the Company sell
it on
reasonable terms, or at all; or
|
|
|
· |
the
product is not cost effective in light of existing
therapeutics.
|
As
a
result, there can be no assurance that any of the Company’s products currently
in development will ever be successfully commercialized.
If
the Company fails to negotiate or maintain successful collaborative arrangements
with third parties, the Company’s development and commercialization activities
may be delayed or reduced.
In
the
past, the Company has entered into, and expect to enter into in the future,
collaborative arrangements with third parties, such as universities,
governmental agencies, charitable foundations, manufacturers, contract research
organizations and corporate partners, who provide the Company with funding
and/or who perform research, development, regulatory compliance, manufacturing
or commercialization activities relating to some or all of the Company’s product
candidates. If the Company fails to secure or maintain successful collaborative
arrangements, its development and commercialization activities may be delayed
or
reduced.
The
Company currently depends and will continue to depend heavily on third parties
for support in research and development and clinical and pre clinical testing.
The Company expects to conduct activities with Georgetown and Xel, among others,
to provide the Company with access to a HupA testing and for a transdermal
HupA
patch. The Company also expects to conduct activities with Org Syn to develop
synthetic methods to produce HupA. Under certain circumstances, the
universities, and other collaborators, may acquire certain rights in newly
developed intellectual property developed in conjunction with the
Company.
Research
and development and clinical trials involve a complex process, and these
universities’ facilities may not be sufficient. Inadequate facilities could
delay clinical trials of the Company’s drugs and result in delays in regulatory
approval and commercialization of its drugs, either of which would materially
harm the Company’s business. The Company may utilize a portion of its available
cash to establish an independent facility to replace or supplement university
facilities.
These
collaborative agreements can be terminated under certain conditions by the
Company’s partners. The Company’s partners may also under some circumstances
independently pursue competing products, delivery approaches or technologies.
Even if the Company’s partners continue their contributions to the Company’s
collaborative arrangements, they may nevertheless determine not to actively
pursue the development or commercialization of any resulting products. Also,
the
Company’s partners may fail to perform their obligations under the collaborative
arrangements or may be slow in performing their obligations. In addition, the
Company’s partners may experience financial difficulties at any time that could
prevent them from having available funds to contribute to these collaborations.
In these circumstances, the Company’s ability to develop and market potential
products could be severely limited.
If
the Company is unable to hire and retain additional qualified personnel, the
Company’s ability to grow its business may be harmed.
The
Company is a small company. If the Company is unable to continue to attract,
retain and motivate highly qualified management and scientific personnel and
to
develop and maintain important relationships with leading academic institutions
and scientists, the Company may not be able to achieve its research and
development objectives. Competition for personnel and academic collaborations
is
intense. Loss of the services of Reuben Seltzer or Alan Kestenbaum could
adversely affect progress of the Company’s research and development
programs.
Although
the Company has outsourced and intends to continue to outsource its development
programs, the Company also may need to hire additional qualified personnel
with
expertise in preclinical testing, clinical research and testing, government
regulation, formulation and manufacturing and sales and marketing. The Company
competes for qualified individuals with numerous biopharmaceutical companies,
universities and other research institutions and other emerging entrepreneurial
companies. Competition for such individuals, particularly in the New York City
area, where the Company is located, is intense and the Company cannot be certain
that the Company’s search for such personnel will be successful. Attracting and
retaining qualified personnel will be critical to the Company’s success. Skilled
employees in the Company’s industry are in great demand. The Company is
competing for employees against companies located in the New York metropolitan
area that are more established than the Company is and has the ability to pay
more cash compensation than the Company does. the Company will require
experienced scientific personnel in many fields in which there are a limited
number of qualified personnel and will have to compete with other technology
companies and academic institutions for such personnel. As a result, depending
upon the success and the timing of clinical tests, the Company may continue
to
experience difficulty in hiring and retaining highly skilled employees,
particularly scientists. If the Company is unable to hire and retain skilled
scientists, its business, financial condition, operating results and future
prospects could be materially adversely affected.
The
Company’s business may incur substantial expense to comply with environmental
laws and regulations.
The
Company may incur substantial costs to comply with environmental laws and
regulations. In addition, the Company may discover currently unknown
environmental problems or conditions. The Company is subject to extensive
federal, state, provincial and local environmental laws and regulations which
govern the discharge, emission, storage, handling and disposal of a variety
of
substances that may be used in, or result from, the Company’s operations.
Environmental laws or regulations (or their interpretation) may become more
stringent in the future.
If
users of the Company’s products are unable to obtain adequate reimbursement from
third party payors, or if new restrictive legislation is adopted, market
acceptance of the Company’s products may be limited and the Company may not
achieve anticipated revenues.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payors of healthcare costs to contain or reduce costs
of
health care may affect the Company’s future revenues and profitability, and the
future revenues and profitability of the Company’s potential customers,
suppliers and collaborative partners and the availability of capital. For
example, in certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, given
recent federal and state government initiatives directed at lowering the total
cost of health care, the U.S. Congress and state legislatures will likely
continue to focus on health care reform, the cost of prescription
pharmaceuticals and on the reform of the Medicare and Medicaid systems. While
the Company cannot predict whether any such legislative or regulatory proposals
will be adopted, the announcement or adoption of such proposals could materially
harm the Company’s business, financial condition and results of
operations.
The
Company’s ability to commercialize its products will depend in part on the
extent to which appropriate reimbursement levels for the cost of its products
and related treatment are obtained by governmental authorities, private health
insurers and other organizations, such as HMOs. Third party payors are
increasingly challenging the prices charged for medical drugs and services.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and drugs, as
well
as legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices for or rejection of the Company’s
drugs. The cost containment measures that health care payors and providers
are
instituting and the effect of any health care reform could materially harm
the
Company’s ability to operate profitably.
Changes
in the healthcare industry that are beyond the Company’s control may be
detrimental to its business.
The
healthcare industry is changing rapidly as the public, government, medical
professionals and the pharmaceutical industry examine ways to broaden medical
coverage while controlling the increase in healthcare costs. Potential changes
could put pressure on the prices of prescription pharmaceutical products and
reduce the Company’s business or prospects. The Company cannot predict when, if
any, proposed healthcare reforms will be implemented, and these changes are
beyond the its control.
The
Company’s limited operating history makes evaluating its common stock more
difficult, and therefore, investors have limited information upon which to
rely.
An
investor can only evaluate the Company’s business based on a limited operating
history. The Company’s operations are expected to change dramatically as the
Company evolves from primarily a “virtual” technology holding company with no
full-time employees to a capitalized company with larger internal operations
and
costs. This limited history may not be adequate to enable an investor to fully
assess the Company’s ability to develop HupA and proposed drugs, obtain FDA
approval, and achieve market acceptance of the Company’s proposed products and
respond to competition, or conduct such affairs as are presently
contemplated.
The
Company does not currently have specific plans for its available cash and its
management will have broad discretion in determining future
allocation.
The
principal purposes of the Company’s cash are to conduct research and development
of HupA, pursue steps towards regulatory approval for HupA, arrange for
synthesis and manufacturing of products, hire employees and expand the Company’s
access to facilities. Currently, the Company does not have specific plans for
all of its available cash. The Company expects to use a percentage of its cash
for general corporate purposes, including working capital, salaries,
professional fees, pursuing further financing alternatives, development of
HupA,
regulatory approvals and capital expenditures.
The
Company’s compliance with the reporting requirements of federal securities laws
and SEC rules concerning internal controls may be time consuming, difficult
and
expensive.
The
Company is a public reporting company and, accordingly, subject to the
information and reporting requirements of the Exchange Act and other federal
securities laws, including compliance with the Sarbanes-Oxley Act. It may be
time consuming, difficult and costly for the Company to develop and implement
the internal controls and reporting procedures required by the Sarbanes-Oxley
Act. The costs of preparing and filing annual and quarterly reports, proxy
statements and other information with the SEC and furnishing audited reports
to
stockholders would cause the Company’s expenses to be higher than they would be
if the Company remained privately-held and did not consummate the Merger. The
Company may need to hire additional financial reporting, internal controls
and
other finance personnel in order to develop and implement appropriate internal
controls and reporting procedures. If the Company is unable to comply with
the
internal controls requirements of the Sarbanes-Oxley Act, the Company may not
be
able to obtain the independent accountant certifications required by the
Sarbanes-Oxley Act. Additionally, the Company will incur substantial expenses
in
connection with the preparation of a registration statement and related
documents to register certain shares of the Company’s common stock which it is
obligated to register.
Because
the Company became public by means of a reverse merger, it may not be able
to
attract the attention of major brokerage firms.
There
may
be risks associated with the Company becoming public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of the
Company since there is no incentive to brokerage firms to recommend the purchase
of the Company’s common stock. No assurance can be given that brokerage firms
will, in the future, want to conduct any secondary offerings on behalf of the
Company.
Risks
Relating to the Company’s Common Stock
Applicable
SEC rules governing the trading of “penny stocks” may limit the trading and
liquidity of the Company’s common stock in the future, which could affect its
trading price.
The
Company’s common stock is quoted on the OTCBB. If the Company’s common stock
trades below $5.00 per share in the future, it may be considered a “penny stock”
and subject to SEC rules and regulations which impose limitations upon the
manner in which such shares may be publicly traded. These regulations require
the delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the associated risks. Under
these
regulations, certain brokers who recommend such securities to persons other
than
established customers or certain accredited investors must make a special
written suitability determination regarding such a purchaser and receive such
purchaser’s written agreement to a transaction prior to sale. These regulations
have the effect of limiting the trading activity of the common stock and
reducing the liquidity of an investment in the common stock.
The
market price of the Company’s common stock is likely to be highly volatile and
subject to wide fluctuations.
The
market price of the Company’s common stock is likely to be highly volatile and
could be subject to wide fluctuations in response to a number of factors, some
of which are beyond the Company’s control, including:
|
|
· |
announcements
of new products or services by the Company’s
competitors;
|
|
|
· |
quarterly
variations in the Company’s revenues and operating
expenses;
|
|
|
· |
announcements
of technological innovations or new products or services by the Company;
and
|
|
|
· |
sales
of the common stock by the Company’s founders or other selling stock
holders.
|
There
may be a limited public market for the Company’s securities and the Company may
fail to qualify for Nasdaq or other listing.
Although
the Company intends to apply for listing of its common stock on either the
Nasdaq Stock Market or a registered exchange, there can be no assurance if
and
when initial listing criteria could be met or if such application would be
granted, or that the trading of the common stock will be sustained. In the
event
that the common stock fails to qualify for initial or continued inclusion on
the
Nasdaq Stock Market or for initial or continued listing on a registered stock
exchange, trading, if any, in the common stock, would then continue to be
conducted on the OTCBB and in what are commonly referred to as “pink sheets.” As
a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of the common stock, and the common
stock would become substantially less attractive for margin loans, for
investment by financial institutions, as consideration in future capital raising
transactions or other purposes.
The
common stock is controlled by insiders.
The
founders of Marco and certain affiliated parties beneficially own a large
percentage of the Company’s outstanding shares of common stock. Such
concentrated control of the Company may adversely affect the price of the common
stock. The Company’s principal security holders may be able to control matters
requiring approval by security holders, including the election of directors.
Such concentrated control may also make it difficult for stockholders to receive
a premium for their shares of common stock in the event of a merger with a
third
party or different transaction that requires stockholder approval. In addition,
certain provisions of Delaware law could have the effect of making it more
difficult or more expensive for a third party to acquire, or of discouraging
a
third party from attempting to acquire, control of the Company. Accordingly,
under certain circumstances, investors may have no effective voice in the
management of the Company.
The
Company does not expect to pay dividends for the foreseeable
future.
The
Company currently intends to retain any future earnings to support the
development and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Any payment of future dividends will be
at
the discretion of the board of directors after taking into account various
factors, including but not limited to the Company’s financial condition,
operating results, cash needs, growth plans and the terms of any credit
agreements that the Company may be a party to at the time.
Mergers
of the type the Company just completed are usually heavily scrutinized by the
SEC and the Company may encounter difficulties or delays in obtaining future
regulatory approvals.
Historically,
the SEC and Nasdaq have not generally favored transactions in which a
privately-held company merges into a largely inactive company with publicly
traded stock, and there is a significant risk that the Company may encounter
difficulties in obtaining the regulatory approvals necessary to conduct future
financing or acquisition transactions, or to eventually achieve a listing of
shares on one of the Nasdaq stock markets or on a national securities exchange.
On June 28, 2005, the SEC adopted rules dealing with private company mergers
into dormant or inactive public companies. As a result, it is likely that the
Company will be scrutinized carefully by the SEC and possibly by the National
Association of Securities Dealers or Nasdaq, which could result in difficulties
or delays in achieving SEC clearance of any future registration statements
or
other SEC filings that the Company may pursue, in attracting NASD-member
broker-dealers to serve as market-makers in the Company’s stock, or in achieving
admission to one of the Nasdaq stock markets or any other national securities
market. As a consequence, the Company’s financial condition and the value and
liquidity of the Company’s shares may be negatively impacted.
The
Company’s office space at One Penn Plaza, Suite 2514, New York, New York 10119
is provided by Marco Realty, an affiliate of Alan Kestenbaum, an officer,
director and principal shareholder of the Company, at no expense to the Company.
The Company does not maintain any dedicated office or laboratory facilities
at
this time.
None.
None.
|
|
Market
for Common Equity, Related Stockholder Matters and Small Business
Issuer
Purchases of Equity
Securities.
|
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“NHPI.”
The
following table sets forth the range of the high and low bid prices for our
common stock since February 2, 2006, the first day our stock was traded on
the
Over-the-Counter Bulletin Board market, as reported by the National Quotation
Bureau, and represents interdealer quotations, without retail markup, markdown
or commission and may not be reflective of actual transactions.
| |
Bid
Price Per Share
|
| |
High
|
Low
|
|
February
2006 - March 2006
|
$10.73
|
$5.49
|
Stockholders
As
of
March 27, 2006, we believe there were approximately 126 holders of record of
our
common stock. We believe that a greater number of holders of our common stock
are “street name” or beneficial holders, whose shares are held of record by
banks, brokers and other financial institutions.
Dividends
We
have
never declared or paid any cash dividends on our common stock. We currently
intend to retain all available funds and any future earnings to fund the
development and growth of our business and do not anticipate declaring or paying
any cash dividends on our common stock in the foreseeable future.
Equity
Compensation Plan Information
As
of
December 31, 2005, we had not adopted any equity compensation plans. We
subsequently adopted a 2006 Non-Employee Directors Stock Option Plan and a
2006
Incentive Stock Plan on January 24, 2006. A summary of the key features of
the
plans is provided in Item 10 below.
Recent
Sales of Unregistered Securities
The
following unregistered equity securities were sold by us during the fiscal
year
ended December 31, 2005.
We
completed an offering of 3,000,000 shares of our common stock at a price of
$0.001 per share to Keith Andrews, our former president, chief executive
officer, secretary, treasurer and a former director. The total amount received
from this offering was $3,000. These shares were issued pursuant to Regulation
S
of the Securities Act.
We
completed an offering of 4,555,000 shares of our common stock at a price of
$0.005 per share to a total of fifteen purchasers on March 9, 2005. The total
amount received from this offering was $22,775. We completed this offering
pursuant to Regulation S of the Securities Act. The purchasers were as
follows:
|
Name
of Purchaser
|
|
Number
of Shares Purchased
|
|
|
Steven
Andrews
|
|
|
360,000
|
|
|
Henry
Touwslager
|
|
|
320,000
|
|
|
Johnny
Reinsma
|
|
|
320,000
|
|
|
Janine
Brunelle
|
|
|
320,000
|
|
|
Dave
Packman
|
|
|
320,000
|
|
|
Jason
Schlombs
|
|
|
275,000
|
|
|
Peter
Ruzyski
|
|
|
360,000
|
|
|
Greg
Funk
|
|
|
275,000
|
|
|
Robin
Bjorklund
|
|
|
275,000
|
|
|
Darryl
Woronchak
|
|
|
360,000
|
|
|
Amber
Houssian
|
|
|
275,000
|
|
|
Mike
Hamer
|
|
|
360,000
|
|
|
Chris
Norton
|
|
|
275,000
|
|
|
Ian
Zweig
|
|
|
230,000
|
|
|
Elaine
Zweig
|
|
|
230,000
|
|
We
completed an offering of 17,250 shares of our common stock at a price of $0.10
per share to a total of fifteen shareholders on March 29, 2005. The total amount
received from this offering was $1,725. We completed this offering pursuant
to
Regulation S of the Securities Act. The purchasers were as follows:
|
Name
of Purchaser
|
|
Number
of Shares Purchased
|
|
|
Jancis
Andrews
|
|
|
800
|
|
|
Dana
Torrell
|
|
|
1,000
|
|
|
Brenden
Torrell
|
|
|
1,800
|
|
|
Tara
Torrell
|
|
|
1,200
|
|
|
Cal
Wang
|
|
|
750
|
|
|
Jorcelyn
Wang
|
|
|
1,500
|
|
|
Aziza
Ilicic
|
|
|
1,000
|
|
|
Dan
Ilicic
|
|
|
1,000
|
|
|
Jeff
Warkentin
|
|
|
1,300
|
|
|
Michelle
Warkentin
|
|
|
1,300
|
|
|
Doug
Kwan
|
|
|
900
|
|
|
Tyler
Dawson
|
|
|
1,100
|
|
|
Craig
Turner
|
|
|
1,100
|
|
|
Ryan
Graham
|
|
|
1,200
|
|
|
Shannon
Graham
|
|
|
1,300
|
|
Regulation
S Compliance
Each
offer or sale was made in an offshore transaction;
Neither
we, a distributor, any respective affiliates nor any person on behalf of any
of
the foregoing made any directed selling efforts in the United States;
Offering
restrictions were, and are, implemented;
No
offer
or sale was made to a U.S. person or for the account or benefit of a U.S.
person;
Each
purchaser of the securities certifies that it was not a U.S. person and was
not
acquiring the securities for the account or benefit of any U.S.
person;
Each
purchaser of the securities agreed to resell such securities only in accordance
with the provisions of Regulation S, pursuant to registration under the Act,
or
pursuant to an available exemption from registration; and agreed not to engage
in hedging transactions with regard to such securities unless in compliance
with
the Act;
The
securities contain a legend to the effect that transfer is prohibited except
in
accordance with the provisions of Regulation S, pursuant to registration under
the Act, or pursuant to an available exemption from registration; and that
hedging transactions involving those securities may not be conducted unless
in
compliance with the Act; and
We
are
required, either by contract or a provision in our bylaws, articles, charter
or
comparable document, to refuse to register any transfer of the securities not
made in accordance with the provisions of Regulation S pursuant to registration
under the Act, or pursuant to an available exemption from registration;
provided, however, that if any law of any Canadian province prevents us from
refusing to register securities transfers, other reasonable procedures, such
as
a legend described in paragraph (b)(3)(iii)(B)(3) of Regulation S have been
implemented to prevent any transfer of the securities not made in accordance
with the provisions of Regulation S.
The
securities described in the above transactions were subsequently registered
on a
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission.
|
|
Management’s
Discussion and Analysis or Plan of
Operation.
|
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-KSB contains forward-looking statements (as defined
in
Section 27A of the Securities Act and Section 21E of the Exchange Act). To
the
extent that any statements made in this Report contain information that is
not
historical, these statements are essentially forward-looking. Forward-looking
statements can be identified by the use of words such as “expects,” “plans”
“will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,”
“projects” and other words of similar meaning. These statements are subject to
risks and uncertainties that cannot be predicted or quantified and consequently,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include those outlined
in “Risk Factors” above and include, without limitation, the Company’s limited
cash and ability to raise capital to finance the growth of the Company’s
operations, the ability of the Company to develop its products and obtain
necessary governmental approvals, the Company’s ability to protect its
proprietary information, the Company’s ability to attract or retain qualified
personnel, including scientific and technical personnel and other risks detailed
from time to time in the Company’s filings with the SEC, or
otherwise.
Information
regarding market statistics contained in this Report is included based on
information available to the Company that it believes is accurate. It is
generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. The Company has not
reviewed or included data from all sources, and cannot assure investors of
the
accuracy or completeness of the data included in this Report. Forecasts and
other forward-looking information obtained from these sources are subject to
the
same qualifications and the additional uncertainties accompanying any estimates
of future market size, revenue and market acceptance of products and services.
The Company does not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
All
references to the “Company” for periods prior to the closing of the Merger refer
to Marco, and references to the “Company” for periods subsequent to the closing
of the Merger refer to Neuro-Hitech and its subsidiaries.
THE
FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN
THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-KSB .
History
We
were
originally formed on February 1, 2005, as Northern Way Resources, Inc., a Nevada
corporation, for the purpose of acquiring exploration and early stage natural
resource properties. On January 24, 2006, we entered into the Merger by which
Marco became a wholly-owned subsidiary of ours. In connection with the Merger,
we changed our name to Neuro-Hitech Pharmaceuticals, Inc.
Marco
was
incorporated in the State of New York on December 11, 1996. Through 2005, Marco
conducted analytical work and clinical trials of HupA and was focused primarily
on licensing proprietary HupA technology from independent third-party developers
and investigators, including the Mayo Foundation, and until such time operated
with no full-time employees and minimal internal resources. In addition, from
time to time, Marco has imported and sold inventories of natural huperzine
and
other dietary supplement ingredients to vitamin and supplement suppliers to
generate revenues. In 2005, Marco decided to raise additional capital to pursue
additional approvals and undertake necessary studies for the development and
commercialization of HupA, including funding development and securing rights
to
third-party transdermal patch technology and may change its manner of operations
to reflect increased activity, including personnel needs.
Overall
Operating Results
We
had
revenues of $208,343 in the year ended December 31, 2005, a 23.6% increase
from
the $159,264 in revenue achieved in the prior year. The increase in revenue
was
a result of an increase in product sales to our single customer of natural
huperzine.
Cost
of
goods sold as a percentage of our revenue was 49.3% for the year ended December
31, 2005, compared with 48.7% for the year ended December 31, 2004. Our total
selling, general and administrative expenses increased 33.2% from $802,012
in
the year ended December 31, 2004 to $1,068,504 in the year ended December 31,
2005. The increase in these expenses is largely attributable to an increase
in
Research and Development Costs, Professional Fees, Commissions and Royalties
and
Other Expenses. We also experienced customary increases in Salaries and Payroll
Taxes.
Our
Research and Development costs increased 37.2% from $494,633 in the year ended
December 31, 2004 to $678,798 in the year ended December 31, 2005 largely as
a
result of an increase in the costs paid to sponsored third parties to perform
research and conduct clinical trials. The increase in payments of Professional
Fees from $24,367 in the year ended December 31, 2004 to $57,258 in the year
ended December 31, 2005 was a result of an increase in legal costs associated
with our financing activities and the Merger. In 2005, we also incurred other
expenses that we did not incur in 2004 as a result of financing activities
and
in contemplation of the Merger. The increase in Commissions and Royalties from
$6,554 in the year ended December 31, 2004 to $16,433 in the year ended December
31, 2005 was a result of additional payments triggered under our agreement
with
the Mayo Foundation.
Plan
of Operation
The
Company is an early stage pharmaceutical company engaged in the development
and
commercialization of HupA for Alzheimer’s disease and other degenerative
neurological disorders. Through a collaboration with ADCS, and Georgetown,
the
Company has completed Phase I studies and is currently conducting Phase II
clinical trials for HupA. HupA is a cholinesterase inhibitor that the Company
believes may be effective in the treatment of AD and MCI, although, to date,
its
efforts have been focused upon HupA’s effectiveness in AD.
The
Company’s current strategy is to make HupA available in both oral and
transdermal form. As part of these efforts, on March 15, 2006, the Company
entered into a development agreement with XEL to develop a transdermally
delivered product. The Company believes that HupA can effectively be delivered
transdermally because of its low dosage requirement, and low molecular weight.
The Company currently intends to focus upon the development of collaborative,
joint and strategic alliances and licensing arrangements with various
pharmaceutical companies for marketing the Company’s products once FDA approval
is obtained although there is no assurance that FDA approval will be obtained.
The
Company presently believes the estimated additional costs to bring the product
to market as an oral dose drug, after completing two Phase III clinical trials,
will be substantial and no assurances as to future cost can be
made.
Upon
obtaining FDA approval for HupA, it is anticipated that the Company’s
collaborative partners, if the Company is successful in obtaining collaborative
partners, will be primarily responsible for the sale and distribution of HupA
products. Efforts will be made to reach licensing agreements with collaborative
partners to participate in earlier phases of the drug development process for
the Company’s products, reducing the likelihood of the need for it to obtain
financing for the additional development costs. This strategy may enable the
Company to gain access to the marketing expertise and resources of the Company’s
potential partners, and to lower its capital requirements.
A
marketing study funded by the Company has shown patient compliance is a crucial
factor in determining patient and doctor choice in choosing a medication for
AD.
Often it is the responsibility of a caregiver to remind the patient to take
the
orally given medications. Recognizing this, the Company hopes to develop and
license a multi-day transdermal patch, which, if successfully realized, will
be
able to be applied to the patient for more than one day. Although the Company’s
primary focus is the commercialization of HupA, the Company may also investigate
and consider other drugs and compounds with neurological applications.
Capital
Resources and Cash Requirements
In
January 2006, the Company received total gross proceeds of $4,375,000 from
a
private placement of securities to certain accredited investors that purchased
1,750,000 shares of the Company’s common stock and warrants to purchase 437,500
shares of the Company’s common stock (the “Offering”). The Offering was
completed on January 30, 2006.
The
principal purposes of the funding from the Offering are to continue clinical
trials, development of transdermal technologies, synthetic processes of HupA
and
general working capital. The Company may also use funds from the Offering to
acquire additional products or technologies and for other working capital needs,
such as the costs related to being a public company including SEC compliance.
The proceeds of the Offering are not expected to be sufficient to provide
funding to pursue many avenues of investigation of the technology, and are
planned to be primarily devoted to clinical testing and development of
transdermal patch technology.
The
Company has not yet determined all of its expected expenditures, accordingly,
management will have significant flexibility in applying a substantial portion
of the net proceeds of the Offering. Pending use of the net proceeds as
described above, the Company may invest the net proceeds of the Offering in
short-term, interest-bearing, investment-grade securities or accounts.
The
amounts and timing of the Company’s actual expenditures will depend upon
numerous factors, including the progress of the Company’s efforts. The foregoing
discussion represents the Company’s best estimate of its allocation of the net
proceeds of the Offering based upon current plans and estimates regarding
anticipated expenditures. Actual expenditures may vary substantially from these
estimates, and the Company may find it necessary or advisable to reallocate
the
net proceeds within the above-described uses or for other purposes.
The
Company anticipates, based on current plans and assumptions relating to
operations, that the net proceeds of the Offering will be sufficient to satisfy
its contemplated cash requirements to implement its business plan for at least
twelve months. In the event that the proceeds of the Offering prove to be
insufficient to fund the implementation of its business plan (due to a change
in
the Company’s plans or a material inaccuracy in its assumptions, or as a result
of unanticipated expenses, technical difficulties or other unanticipated
problems), the Company will be required to seek additional financing sooner
than
currently anticipated in order to proceed with such implementation. Additional
funds may not be available on acceptable terms, if at all. If adequate funds
are
unavailable from any available source, the Company may have to delay, reduce
the
scope of or eliminate one or more of its research or development programs or
product launches or marketing efforts which may materially harm the Company’s
business, financial condition and results of operations.
The
Company has no off balance sheet arrangements.
Our
Financial Statements and the Report of the Independent Accountants appears
at
the end of this annual report.
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
Not
applicable.
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.
Evaluation
The
Company carried out an evaluation, under the supervision, and with the
participation, of the Company’s management, including the Company’s Chief
Executive Officer and the Company’s Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures as of December
31, 2005. Based on the foregoing, the Company’s Chief Executive Officer and
principal financial officer concluded that the Company’s disclosure controls and
procedures were effective as of December 31, 2005.
There
have been no significant changes during the quarter covered by this report
in
the Company’s internal control over financial reporting or in other factors that
could significantly affect the internal control over financial
reporting.
Not
applicable.
|
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance with
Section
16(a) of the Exchange Act.
|
Directors
and Executive Officers
The
following table sets forth information regarding the members of the Company’s
board of directors and its executive officers. All of the Company’s executive
officers and directors were appointed on January 24, 2006, the effective date
of
the Merger. All directors hold office until the first annual meeting of the
stockholders of the Company and until the election and qualification of their
successors or their earlier removal or retirement. Officers are elected annually
by the board of directors and serve at the discretion of the board.
|
Name
|
|
Age
|
|
Position(1)
|
|
John
D. Abernathy
|
|
68
|
|
Director
|
|
Mark
Auerbach
|
|
67
|
|
Chairman
of the Board of Directors
|
|
Alan
Kestenbaum
|
|
44
|
|
Executive
Vice President and Director
|
|
Reuben
Seltzer
|
|
49
|
|
President,
Chief Executive Officer and Director
|
|
Nicholas
LaRosa
|
|
41
|
|
Chief
Financial Officer
|
| |
|
|
|
|
|
(1)
|
Each
of the persons performs services for the Company on a part-time basis
and
is primarily involved in those activities and for those organizations
described below.
|
John
D. Abernathy
has been
a director since January 2006, is a member of the Compensation Committee of
the
Board and is Chairman of the Audit Committee of the Board. Mr. Abernathy served
as chief operating officer of Patton Boggs LLP, a law firm, from January 1995
until his retirement in May 2004, and Mr. Abernathy served as managing partner
of the accounting firm BDO Seidman from 1983 to 1990. Since July 2001, Mr.
Abernathy has served on the board of directors of Par Pharmaceutical Company,
Inc. (“Par”) and as a chairman of its audit committee since September 2003. Mr.
Abernathy is also a director of Sterling Construction Company, Inc. (AMEX:STV),
a civil construction company and chairs its audit committee.
Mark
Auerbach has
been
a director since January 2006, is Chairman of the Board, is a member of the
Compensation Committee of the Board and is a member of the Audit Committee
of
the Board. Mr. Auerbach has served as Executive Chairman of the board of
directors since September 2003, and as director since 1990, of Par, and as
a
director of Optimer Pharmaceuticals, Inc., a biopharmaceutical company with
a
portfolio of late-stage anti-infective products and a range of preclinical
antibiotics from carbohydrate drug discovery platform, since May 2005. From
June
1993 through December 2005, Mr. Auerbach has served as Senior Vice President
and
Chief Financial Officer of Central Lewmar L.P., a distributor of fine papers.
Alan
Kestenbaum has
been
serving as Executive Vice President of the Company since January 2006. Mr.
Kestenbaum has been executive vice president and a director of Marco and Marco
Hi-Tech JV LLC, a raw material and ingredient distribution company serving
the
dietary supplement industry (“Marco LLC”) since January 2002. Mr. Kestenbaum
founded in 1985, and is currently chief executive officer of, Marco
International Corp., an international finance investment and trading company
specializing in raw materials. In March 2004,
Mr.
Kestenbaum founded and is currently chairman and chief executive officer of
International Metals Enterprises. Since May 2004,
Mr.
Kestenbaum has been chairman of the board of Globe Metallurgical, Inc. Mr.
Kestenbaum received a B.A. in Economics cum laude from Yeshiva University,
New
York. From June 1999 to June 2001, Mr. Kestenbaum was the chief executive
officer of Aluminium.com a provider of online metal trading services. In July
2001, following Mr. Kestenbaum’s resignation and after the board of directors of
Aluminium.com voted to cease operations, a group of former consultants filed
an
involuntary chapter 7 petition against Aluminum.com. This petition was
subsequently dismissed by the Bankruptcy court and Aluminium.com wound down
its
affairs in good order, including paying all of its creditors and returning
surplus cash to its shareholders.
Reuben
Seltzer
has been
serving as President and Chief Executive Officer of the Company since January
2006. Mr. Seltzer has been chief executive and president of Marco since 1996,
president of Marco LLC, since January 2002 and a director and consultant for
Hi-Tech Pharmacal Co., Inc. (NASDAQ: HITK), a pharmaceutical company since
1992.
Mr. Seltzer received a B.A. in Economics from Queens College, a J.D. degree
from
Benjamin N. Cardozo School of Law, and an L.L.M. from New York University.
Nicholas
LaRosa
has been
serving as Chief Financial Officer of the Company since January 2006. Since
February 2005, Mr. LaRosa has served as controller of Marco Hi-Tech JV Ltd.
Prior thereto since 1999, Mr. LaRosa served as assistant controller of Loeb
Partners Corp., a privately owned investment banking firm. Mr. LaRosa received
a
B.A. degree in accounting from St. John’s University and an M.A. degree in
finance from Wagner College.
Affiliated
Scientists
| |
·
|
Dr.
Paul Aisen.
Principal Investigator Georgetown University, Dr. Aisen relocated
from
Mount Sinai to Georgetown in June 1999 and established the ADCS site
at
Georgetown. Dr. Aisen also developed and conducted the ADCS Multicenter
Trial of Prednisone and conducted other trials for other compounds
in AD.
Dr. Aisen is the principal investigator of our Phase II clinical
trial.
|
| |
·
|
Dr.
Robert Moriarity.
University of Illinois, is the Chief Scientific Officer of Org Syn.
Dr.
Moriarty received his Ph.D. degree from Princeton University and
completed
his postdoctoral assignment at the University of Munich and Harvard
University. Dr. Moriarty will be working with us under the terms
of our
agreement with Org Syn to develop synthetic
HupA.
|
| |
·
|
Dr.
Dinesh Patel.
Dr. Patel is the Chairman of the Board and Co-founder of XEL. Dr.
Patel
has been the recipient of numerous awards, including U.S. Small Business
Administration’s Business Achiever Award, and Scientific and Technology
Award (State of Utah), and Entrepreneur of the Year Award (Mountain
West
Venture Group). Dr. Patel has agreed to serve as a formal scientific
advisor to us during the development by XEL of the Product pursuant
to the
terms of the Development Agreement.
|
Board
Committees
The
Board
has two (2) standing committees: the Audit Committee and the Compensation
Committee. The functions of each of these committees and their members are
specified below. The Board has determined that each director who serves on
these
committees is “independent.”
The
members of the committees are identified in the following table.
|
Director
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
John
D. Abernathy
|
|
Chair
|
|
X
|
|
Mark
Auerbach
|
|
X
|
|
X
|
The
Audit
Committee is currently comprised of Messrs. Abernathy and Auerbach, each of
whom
meets each of the independence and other requirements for audit committee
members under the rules of The Nasdaq Stock Market. The Board of Directors
has
determined that Mr. Abernathy and Mr. Auerbach are each an “audit committee
financial expert” as defined by SEC regulations. The Audit Committee assists the
Board in its oversight of our financial accounting, reporting and controls
by
meeting with members of management and our independent auditors. The committee
has the responsibility to review our annual audited financial statements, and
meets with management and the independent auditors at the end of each quarter
to
review the quarterly financial results. In addition, the committee considers
and
approves the employment of, and approves the fee arrangements with, independent
auditors for audit and other functions. The Audit Committee reviews our
accounting policies and internal controls.
The
Compensation Committee is currently comprised of Messrs. Abernathy and Auerbach.
The Compensation Committee recommends cash-based and stock compensation for
executive officers of the Company, administers the company’s equity incentive
plans and makes recommendations to the Board regarding such
matters.
Code
of Ethics
The
Board
is committed to legal and ethical conduct in fulfilling its responsibilities.
The Board expects all directors, as well as officers and employees, to act
ethically at all times. Additionally, the Board expects the Chief Executive
Officer, the Chief Financial Officer, and all senior financial and accounting
officials to adhere to the Company’s Code of Ethics which was adopted on
February 23, 2006. We intend to post our Code of Ethics on an Internet website
as soon as the website is established. A copy of the Code of Ethics will be
made
available free of charge by contacting us at (212) 798-8100. A copy of the
Code
of Ethics has been filed as Exhibit 14.1 to this Annual Report on Form
10-K.
Summary
Compensation Table
The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by the Company’s chief executive
officer and all other executive officers who received or are entitled to receive
remuneration in excess of $100,000 during the stated periods.
| |
|
|
|
Annual
Compensation
|
|
Long-term
Compensation
|
|
|
|
| |
|
|
|
|
|
Awards
|
|
Payouts
|
|
|
|
|
Name
and Principal Position (1)
|
|
Fiscal
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Securities
Underlying Options/
SARs
(#)
|
|
LTIP
Payouts
($)
|
|
All
Other Compensation
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reuben
Seltzer
|
|
|
2005
|
|
$
|
165,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| Chief
Executive Officer |
|
|
2004
|
|
$
|
180,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| |
|
|
2003
|
|
$
|
180,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Kestenbaum
|
|
|
2005
|
|
$
|
73,333
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| Executive
Vice President |
|
|
2004
|
|
$
|
80,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| |
|
|
2003
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Keith
Andrews, our former sole executive officer, was not compensated for
services he provided to the Company from its inception through the
closing
of the Merger.
|
Options
Grants in Last Fiscal Year
As
of
fiscal year end 2005, no options had been granted by the Company.
Employment
and Indemnification Agreements
Presently,
the executives of the Company do not perform services pursuant to written
employment agreements. It is anticipated that the executives will enter into
new
two-year employment agreements under which Mr. Seltzer shall serve as Chief
Executive Officer of the Company and Mr. Kestenbaum as Executive Vice President.
Neither of such executives will be required to devote full-time efforts to
the
affairs of the Company. Mr. Seltzer is expected to be compensated at an annual
rate of $225,000 per annum and be entitled to receive such bonus compensation
as
determined by the board of directors from time to time and Mr. Kestenbaum is
expected to be compensated at an annual rate of $80,000 per annum and be
entitled to receive such bonus compensation as determined by the board of
directors from time to time. On January 24, 2006, Mr. Seltzer and Mr. Kestenbaum
were granted options to purchase 220,000 shares and 70,000 shares of our common
stock, respectively, each at an exercise price of $2.50 per share. One-third
of
the shares granted vested on the date of grant and the remaining shares vest
in
equal proportions on the second and third anniversaries of the grant
date.
The
Company has agreed to indemnify each of its directors and executive officers
to
the fullest extent of the law permitted or required by Delaware pursuant to
indemnification agreements with each such person.
Stock
Option Plans
On
January 24, 2006, Neuro-Hitech’s shareholders approved the Company’s 2006
Non-Employee Directors Stock Option Plan (the “Directors Plan”). Key features of
the Directors Plan include:
|
|
· |
Non-employee
directors of the Company and its subsidiaries are eligible to participate
in the Directors Plan. The term of the Directors Plan is ten years.
400,000 shares of common stock have been reserved for issuance under
the
Directors Plan.
|
|
|
· |
Options
may only be issued as non-qualified stock
options.
|
|
|
· |
Each
newly elected or appointed non-employee director shall be granted
an
option to purchase 50,000 shares of common stock at an exercise price
equal to the fair market value of our common stock; 16,666 of which
will
vest immediately (or six months following appointment in order for
the
plans to comply with Rule 16b-3 under the Securities Exchange Act
of
1934); and 16,667 on each of the second and third anniversaries of
the
date of appointment.
|
|
|
· |
The
initial non-employee director who was appointed Chairman of the Board
received an option to purchase 300,000 shares of common stock at
an
exercise price of $2.50 per share; 100,000 of which vested immediately
and
100,000 of which shall vest on each of the second and third anniversaries
of the date of appointment.
|
|
|
· |
Stockholder
approval is required in order to replace or reprice
options.
|
|
|
· |
The
Directors Plan is administered by the board of directors or a committee
designated by the board.
|
|
|
· |
The
option term may not exceed ten
years.
|
|
|
· |
Upon
a “change in control” any unvested options shall vest and become
immediately exercisable.
|
On
January 24, 2006, Neuro-Hitech’s stockholders adopted the 2006 Incentive Stock
Plan (the “Incentive Plan”). Key features of the Incentive Plan
include:
| |
·
|
The
Company’s officers, directors, key employees and consultants are eligible
to participate in the Incentive Plan. The Incentive Plan terminates
on
January 23, 2016.
|
| |
·
|
The
Incentive Plan provides for the grant of options and the issuance
of
restricted shares. An aggregate of 400,000 shares of Neuro-Hitech
Common
Stock has been reserved under the Incentive Plan.
|
| |
·
|
Both
incentive and nonqualified stock options may be granted under the
Incentive Plan.
|
| |
·
|
The
exercise price of options granted pursuant to this Incentive Plan
is
determined by the Compensation Committee but shall not be less than
100%
of the fair market value of the Neuro-Hitech Common Stock at the
date of
grant.
|
| |
·
|
For
holders of 10% or more of the combined voting power of all classes
of the
Company’s stock, options may not be granted at less than 110% of the fair
market value of the Neuro-Hitech Common Stock at the date of
grant.
|
| |
·
|
The
option term may not exceed ten
years.
|
Director
Compensation
On
January 24, 2006, the Board adopted a Non-Employee Directors Stock Option Plan
(the “Director Plan”) (as more fully described under “Stock Option Plans”) in
order to attract and retain the services of highly-qualified non-employee
directors.
Upon
appointment to the position of Chairman of the Board of Directors, Mr. Auerbach
was granted a five-year option to purchase 300,000 shares of Neuro-Hitech Common
Stock at $2.50 per share, 100,000 of which shares vest immediately upon grant
and 100,000 of which shares vest on each of the second and third anniversaries
of the date of appointment.
Upon
appointment to the Board of Directors, Mr. Abernathy was granted a five-year
option to purchase 50,000 shares of Neuro-Hitech Common Stock at a purchase
price of $2.50 per share; 16,666 shares of which vest immediately upon grant
and
16,666 shares of which vest on each of the second and third anniversaries of
the
date of appointment.
Messrs.
Auerbach and Abernathy will receive $100,000, and $40,000, respectively, per
year as a director’s fee.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the number of shares of the
Company’s common stock beneficially owned as of March 27, 2006:
|
|
· |
each
person who is known by the Company to beneficially own 5% or more
of the
Company’s common stock;
|
|
|
· |
each
of the Company’s directors and executive officers;
and
|
|
|
· |
all
of the Company’s directors and executive officers, as a
group.
|
Except
as
otherwise set forth below, the address of each of the persons listed below
is
c/o Neuro-Hitech Pharmaceuticals, Inc., One Penn Plaza, Suite 2514, New York,
NY
10119.
|
Name
and Address of Beneficial
Owner
|
|
Number
of Shares Beneficially Owned (1)
|
|
Percentage
of Shares Beneficially Owned (2)
|
|
|
5%
or Greater Stockholders:
|
|
|
|
|
|
|
Hi-Tech
Pharmacal Co., Inc.
369
Bayview Avenue
Amityville,
NY 11701
|
|
|
1,125,610(3
|
)
|
|
11.9
|
%
|
|
W.S.
Investments, L.P.
47
Hulfish Street
Suite
305
Princeton,
NJ 08542
|
|
|
618,647
|
|
|
6.6
|
%
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
|
John
D. Abernathy
|
|
|
50,000
|
|
|
*
|
|
|
Mark
Auerbach
|
|
|
300,000(4
|
)
|
|
3.1
|
%
|
|
Alan
Kestenbaum
|
|
|
2,183,843(5
|
)
|
|
23.1
|
%
|
|
Reuben
Seltzer
|
|
|
1,138,943(5
|
)
|
|
12.0
|
%
|
|
Nicholas
LaRosa
|
|
|
0
|
|
|
—
|
|
|
All
Directors and Executive Officers as a Group
|
|
|
3,627,786
|
|
|
37.5
|
%
|
| |
|
|
|
|
|
|
|
|
(1)
|
Unless
otherwise indicated, includes shares owned by a spouse, minor children
and
relatives sharing the same home, as well as entities owned or controlled
by the named person. Also includes options to purchase shares of
common
stock exercisable within sixty (60) days. Unless otherwise noted,
shares
are owned of record and beneficially by the named
person.
|
|
(2)
|
Based
upon 9,431,256 shares of common stock outstanding on March 27, 2006,
but
does not include shares reserved under the Company’s option plans or
warrants sold in the Offering.
|
|
(3)
|
Reuben
Seltzer is a director of Hi-Tech Pharmacal Co., Inc. and disclaims
beneficial ownership as to any of the shares owned by Hi-Tech Pharmacal
Co., Inc.
|
|
(4)
|
Includes
200,000 shares of Neuro-Hitech Common Stock owned by immediate family
members of Mr. Auerbach.
|
|
(5)
|
Excludes
50 shares of Class A Common Stock held by each of Reuben Seltzer
and Alan
Kestenbaum, which together constitutes 100% of the outstanding shares
of
Class A Common Stock. The holders of Class A Common Stock are entitled
to
elect that number of directors that would equal one-half of the number
of
directors that would at any time be required to serve on the board
of
directors of the Company in order to constitute the entire board
of
directors, plus one additional member of the board of
directors.
|
The
Company has entered into indemnification agreements with each of its directors
and executive officers.
On
January 5, 2006, Mark Auerbach, a director, and his wife purchased an aggregate
of 367,046 shares of Marco common stock pursuant to a securities purchase
agreement with Marco for an aggregate purchase price of $321,000. Prior to
the
Merger, Mr. Auerbach transferred an aggregate of such 24,012.36 shares to his
son and daughter-in-law. Upon the effectiveness of the Merger, such shares
of
Marco common stock were converted into 200,000 shares of Neuro-Hitech Common
Stock.
On
January 5, 2006, John Abernathy, a director, purchased 57,173.42 shares of
Marco
common stock for a purchase price of $50,001 pursuant to a securities purchase
agreement with Marco. Upon the effectiveness of the Merger, such shares of
Marco
common stock were converted into 33,334 shares of Neuro-Hitech Common
Stock.
On
January 24, 2006 Hi-Tech Pharmacal Co., Inc., W.S. Investments, L.P., and Alan
Kestenbaum purchased $150,000, $125,000, and $150,000, and on January 27, 2006
Reuben Seltzer purchased $50,000 of Units in the Offering at the same price,
and
subject to the same terms, as other subscribers in the Offering. Each unit
consisted of (i) 10,000 shares of Neuro-Hitech Common Stock and (ii) a
detachable, transferable three-year warrant to purchase 2,500 shares of
Neuro-Hitech Common Stock. The units were sold at a purchase price of $25,000
per unit.
|
Exhibit
No.
|
Description
|
Location
|
|
2.1
|
Agreement
and Plan of Merger, dated January 17, 2006, between Northern Way
Resources, Inc., a Nevada corporation and Northern Way Resources,
Inc., a
Delaware corporation
|
Incorporated
by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
2.2
|
Certificate
of Ownership and Merger merging Northern Way Resources, Inc., a Nevada
corporation into Northern Way Resources, Inc., a Delaware corporation
|
Incorporated
by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
2.3
|
Articles
of Merger merging Northern Way Resources, Inc., a Nevada corporation
into
Northern Way Resources, Inc., a Delaware corporation
|
Incorporated
by reference to Exhibit 2.3 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
2.4
|
Agreement
and Plan of Merger, dated January 17, 2006, between Northern Way
Resources, Inc., a Nevada corporation and Northern Way Resources,
Inc., a
Delaware corporation
|
Incorporated
by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
2.5
|
Agreement
of Merger and Plan of Reorganization, dated as of January 24, 2006,
by and
among Neurotech Pharmaceuticals, Inc., Marco Hi-Tech JV Ltd., and
Marco
Acquisition I, Inc.
|
Incorporated
by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
3.1
|
Certificate
of Incorporation of Neurotech Pharmaceuticals, Inc.
|
Incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
3.2
|
Certificate
of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
JV
Ltd.
|
Incorporated
by reference to Exhibit 3.5 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
3.3
|
Certificate
of Merger of Marco Acquisition I, Inc. with and into Marco Hi-Tech
JV
Ltd.
|
Incorporated
by reference to Exhibit 3.6 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation of Neurotech Pharmaceuticals,
Inc., changing name to Neuro-Hitech Pharmaceuticals, Inc.
|
Incorporated
by reference to Exhibit 3.7 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
3.5
|
By-laws
of Neurotech Pharmaceuticals, Inc.
|
Incorporated
by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K
filed on January 23, 2006
|
|
4.1
|
Form
of Common Stock Purchase Warrant Certificate
|
Incorporated
by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
4.2
|
Warrant
to purchase common stock of Marco-Hitech JV Ltd. issued to Brown
Brothers
Harriman & Co.
|
Incorporated
by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
|
4.3
|
Warrant
to purchase common stock of Marco-Hitech JV Ltd. issued to Barry
Honig
|
Incorporated
by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K
filed on January 30, 2006
|
| Exhibit
No. |
Description |
Location |
|
4.4
|
Form
of Marco Hi-Tech JV Ltd. Registration Rights Agreement
|
Incorporated
by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.1
|
Neurotech
Pharmaceuticals, Inc. 2006 Incentive Stock Plan
|
Incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.2
|
Neurotech
Pharmaceuticals, Inc. 2006 Non-Employee Directors Stock Option
Plan
|
Incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.3
|
Form
of Private Placement Subscription Agreement
|
Incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.4
|
Securities
Purchase Agreement, dated January 5, 2006, by and between Marco Hi-Tech
JV
Ltd. and the investors signatory thereto
|
Incorporated
by reference to Exhibit 10.5 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.5
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Reuben Seltzer
|
Incorporated
by reference to Exhibit 10.6 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.6
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Alan Kestenbaum
|
Incorporated
by reference to Exhibit 10.7 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.7
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and John Abernathy
|
Incorporated
by reference to Exhibit 10.8 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.8
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Mark Auerbach
|
Incorporated
by reference to Exhibit 10.9 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.9
|
Director
and Officer Indemnification Agreement dated January 24, 2006, between
Neurotech Pharmaceuticals, Inc. and Nicholas LaRosa
|
Incorporated
by reference to Exhibit 10.10 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.10
|
Lockup
Agreement, dated as of January 23, 2006, by and among Marco Hi-Tech
JV
Ltd. and the signatories thereto
|
Incorporated
by reference to Exhibit 10.11 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.11
|
Technology
License Contract, dated as of June 1, 1997, by and between Mayo Foundation
for Medical Education and Research and Marco Hi-Tech JV
Ltd.
|
Incorporated
by reference to Exhibit 10.12 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.12
|
Clinical
Research Agreement, dated March 1, 2002, by and between Georgetown
University and Marco Hi-Tech JV Ltd.
|
Incorporated
by reference to Exhibit 10.13 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.13
|
Offer
Letter, dated January 6, 2006, to John Abernathy from Marco Hi-Tech
JV
Ltd.
|
Incorporated
by reference to Exhibit 10.14 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
|
10.14
|
Offer
Letter, dated January 5, 2006, to Mark Auerbach from Marco Hi-Tech
JV
Ltd.
|
Incorporated
by reference to Exhibit 10.15 to the Registrant’s Current Report on Form
8-K filed on January 30, 2006
|
| Exhibit
No. |
Description |
Location |
|
|
Code
of Ethics
|
Provided
herewith
|
|
16.1
|
Letter
from Dale, Matheson, Carr-Hilton Labonte, dated as of January 27,
2006
|
Incorporated
by reference to Exhibit 16.1 to the Registrant’s Current Report on Form
8-K filed on February 6, 2006
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
Provided
herewith
|
|
|
Certification
of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
Provided
herewith
|
|
|
Certification
of the Chief Executive Officer and Chief Financial Officer Pursuant
to 18
U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002
|
Provided
herewith
|
During
the fiscal years ended December 31, 2005 and 2004, the aggregate fees billed
by
Moore Stephens, P.C.:
| |
|
2005
|
|
2004
|
|
|
Audit
Fees
|
|
$
|
15,000
|
|
$
|
4,500
|
|
|
Audit
Related Fees
|
|
$
|
—
|
|
$
|
—
|
|
|
Tax
Fees
|
|
$
|
3,000
|
|
$
|
1,500
|
|
|
All
Other Fees
|
|
$
|
6,000
|
|
$
|
—
|
|
Audit
Fees.
Consists of fees billed for professional services rendered for the audit of
our
annual consolidated financial statements and review of the quarterly
consolidated financial statements and services that are normally provided by
Moore Stephens, P.C., in connection with statutory and regulatory filings or
engagements.
Audit-Related
Fees.
Consists of fees billed for assurance and related services that are reasonably
related to the performance of the audit or review of our consolidated financial
statements and are not reported under “Audit Fees.”
Tax
Fees.
Consists of fees billed for professional services for tax compliance, tax advice
and tax planning.
All
Other Fees.
Consists of fees for products and services other than the services reported
above, including fees associated with the review of the Company’s periodic
reports and reports on Form 8-K.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
| |
|
Page
|
| |
|
|
|
|
|
F-1
|
| |
|
|
|
|
|
F-2
|
| |
|
|
|
|
|
F-3
|
| |
|
|
|
|
|
F-4
|
| |
|
|
|
|
|
F-5
|
| |
|
|
|
|
|
F-6
|
To
the
Stockholders and the Board of Directors of
Marco
Hi-Tech JV, Ltd.
We
have
audited the accompanying balance sheet of Marco Hi-Tech JV, Ltd. [Neuro-Hitech
Pharmaceuticals, Inc. as of January 24, 2006 [Note 9]] as of December 31, 2005,
and the related statements of operations, changes in stockholders' [deficit],
and cash flows for each of the two years in the period ended December 31, 2005.
These financial statements and the financial statement schedule referred to
below are the responsibility of the Company's management. Our responsibility
is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Marco Hi-Tech JV, Ltd. as of
December 31, 2005, and the results of operations and its cash flows for each
of
the two years in the period ended December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
MOORE
STEPHENS, P. C.
Certified
Public Accountants.
New
York,
New York
March
16,
2006
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
BALANCE
SHEET AS OF DECEMBER 31, 2005.
| |
|
|
|
|
Assets:
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
90,606
|
|
|
Accounts
Receivable
|
|
|
52,125
|
|
|
Total
Current Assets
|
|
|
142,731
|
|
|
Total
Assets
|
|
$
|
142,731
|
|
| |
|
|
|
|
|
Liabilities
and Stockholders' [Deficit]:
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
|
$
|
149,953
|
|
|
Due
to Affiliate
|
|
|
42,304
|
|
|
Total
Liabilities
|
|
|
192,257
|
|
| |
|
|
|
|
|
Stockholders'
[Deficit]:
|
|
|
|
|
|
Convertible
Preferred Stock - Series B, $1.00 Par Value Per Share 50,000 Authorized;
0
Issued and Outstanding
|
|
|
—
|
|
|
Convertible
Preferred Stock - Series A, $1.00 Par Value Per Share 18,000 Authorized;
12,005 Issued and Outstanding
|
|
|
12,005
|
|
|
Common
Stock, $.01 Par Value Per Share 30,000,000 Authorized; 8,654,112
Issued
and Outstanding
|
|
|
86,541
|
|
|
Additional
Paid-in Capital
|
|
|
2,478,373
|
|
|
Accumulated
Deficit
|
|
|
(2,626,445
|
)
|
|
Total
Stockholders' [Deficit]
|
|
|
(49,526
|
)
|
|
Total
Liabilities and Stockholders' [Deficit]
|
|
$
|
142,731
|
|
See
Notes
to Financial Statements.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
| |
|
|
|
|
|
| |
|
Years
ended
|
|
| |
|
December
31,
|
|
| |
|
2
0 0 5
|
|
2
0 0 4
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product
Sales
|
|
$
|
208,343
|
|
$
|
159,264
|
|
| |
|
|
|
|
|
|
|
|
Cost
of Revenues:
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
102,637
|
|
|
77,494
|
|
|
Gross
Profit
|
|
|
105,706
|
|
|
81,770
|
|
| |
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
Research
and Development Costs
|
|
|
678,798
|
|
|
494,633
|
|
|
Salaries
and Payroll Taxes
|
|
|
284,173
|
|
|
265,420
|
|
|
Insurance
|
|
|
5,532
|
|
|
3,752
|
|
|
Commissions
and Royalties
|
|
|
16,433
|
|
|
6,554
|
|
|
Professional
Fees
|
|
|
57,258
|
|
|
24,367
|
|
|
Travel
and Entertainment
|
|
|
1,199
|
|
|
—
|
|
|
Office
Expense
|
|
|
2,127
|
|
|
1,495
|
|
|
Licensing
Expense
|
|
|
—
|
|
|
3,443
|
|
|
Other
Taxes
|
|
|
3,208
|
|
|
2,348
|
|
|
Other
Expense
|
|
|
19,956
|
|
|
—
|
|
|
Total
Selling, General and Administrative Expenses
|
|
|
1,068,504
|
|
|
802,012
|
|
| |
|
|
|
|
|
|
|
|
Operating
[Loss]
|
|
|
(962,798
|
)
|
|
(720,242
|
)
|
| |
|
|
|
|
|
|
|
|
Other
Income:
|
|
|
|
|
|
|
|
|
Interest
Income - Net
|
|
|
7,957
|
|
|
7,461
|
|
|
[Loss]
Before Provision for Income Taxes
|
|
|
(954,841
|
)
|
|
(712,781
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
—
|
|
|
—
|
|
|
Net
[Loss]
|
|
$
|
(954,841
|
)
|
$
|
(712,781
|
)
|
|
Basic
and Diluted [Loss] Earnings Per Common Share
|
|
$
|
(.11
|
)
|
$
|
(.09
|
)
|
|
Weighted
Average Number of Common Shares Outstanding for Basic and Diluted
[Loss]
Earnings Per Common Share
|
|
|
8,327,056
|
|
|
8,000,000
|
|
See
Notes
to Financial Statements.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
STATEMENTS
OF CHANGES IN STOCKHOLDERS' [DEFICIT]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible
|
|
Convertible
|
|
|
|
Capital
in
|
|
|
|
Total
|
|
| |
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
|
|
Excess
of
|
|
Accumulated
|
|
Stockholders'
|
|
| |
|
Series
B
|
|
Series
A
|
|
Stock
|
|
Par
Value
|
|
[Deficit]
|
|
[Deficit]
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
$
|
5,000
|
|
$
|
12,005
|
|
$
|
80,000
|
|
$
|
1,979,914
|
|
$
|
(958,823
|
)
|
$
|
1,118,096
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of Series B Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock - $1.00 Par Value
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
|
495,000
|
|
|
—
|
|
|
500,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
[Loss]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(712,781
|
)
|
|
(712,781
|
)
|
|
Balance
at December 31, 2004
|
|
|
10,000
|
|
|
12,005
|
|
|
80,000
|
|
|
2,474,914
|
|
|
(1,671,604
|
)
|
|
905,315
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series B Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock - $1.00 Par Value
|
|
|
(10,000
|
)
|
|
—
|
|
|
6,541
|
|
|
3,459
|
|
|
—
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
[Loss]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(954,841
|
)
|
|
(954,841
|
)
|
|
Balance
at December 31, 2005
|
|
$
|
—
|
|
$
|
12,005
|
|
$
|
86,541
|
|
$
|
2,478,373
|
|
$
|
(2,626,445
|
)
|
$
|
(49,526
|
)
|
See
Notes
to Financial Statements.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
| |
|
|
|
|
|
| |
|
Years
ended
|
|
| |
|
December
31,
|
|
| |
|
2
0 0 5
|
|
2
0 0 4
|
|
| |
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net
[Loss]
|
|
$
|
(954,841
|
)
|
$
|
(712,781
|
)
|
|
Adjustments
to Reconcile Net [Loss] to Net Cash [Used for] Operating
Activities:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
[Increase]
Decrease in:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(29,370
|
)
|
|
(3,690
|
)
|
|
Inventory
|
|
|
12,587
|
|
|
(9,642
|
)
|
|
Due
to/from Affiliate
|
|
|
27,669
|
|
|
38,548
|
|
|
Prepaid
Expenses
|
|
|
472,345
|
|
|
160,483
|
|
|
Income
Tax Receivable
|
|
|
35,067
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
Increase
[Decrease] in:
|
|
|
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
|
|
22,457
|
|
|
13,054
|
|
|
Total
Adjustments
|
|
|
540,755
|
|
|
198,753
|
|
| |
|
|
|
|
|
|
|
|
Net
Cash - Operating Activities
|
|
|
(414,086
|
)
|
|
(514,028
|
)
|
| |
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the Issuance of Preferred Stock
|
|
|
—
|
|
|
500,000
|
|
|
Net
[Decrease] in Cash and Cash Equivalents
|
|
|
(414,086
|
)
|
|
(14,028
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Years
|
|
|
504,692
|
|
|
518,720
|
|
|
Cash
and Cash Equivalents - End of Years
|
|
$
|
90,606
|
|
$
|
504,692
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the years for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
$
|
14
|
|
|
Income
Taxes
|
|
$
|
—
|
|
$
|
—
|
|
See
Notes
to Financial Statements.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS
[1]
Nature of Operations
Marco
Hi-Tech JV, Ltd. ["Marco"] was incorporated in 1996. Marco's operations
consisted of supplying various raw materials and ingredients to the nutrition
industry. Marco changed its operations during 2002. The Company currently is
focused on the coordinating of research and development studies related to
the
development of a clinically proven treatment for Alzheimer's disease [Note
9].
[2]
Summary of Significant Accounting Policies
Cash
and Cash Equivalents - For
purposes of the statement of cash flows, we consider all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
We
have
no cash equivalents as of December 31, 2005.
Accounts
Receivable - As
of
December 31, 2005, upon evaluation of our accounts receivable, management
estimates that all receivables will be collectible. Accordingly, we have not
established an allowance for doubtful accounts.
Inventory
- Inventory
is stated at the lower of average cost or market.
Use
of Accounting Estimates - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue
Recognition - Revenues
from product sales are recognized when products are shipped to the
customer.
Research
and Development Costs -
All
research and development costs are expensed as incurred and include costs paid
to sponsored third parties to perform research and conduct clinical
trials.
Concentrations
of Credit Risk - Financial
statement items which potentially subject us to concentrations of credit risk
are cash and cash equivalents and trade accounts receivable arising from our
normal business activities. To mitigate cash risks, we place our cash with
a
high credit quality financial institution. At December 31, 2005, we had
approximately $19,000 in this financial institution that is subject to normal
credit risk beyond federally insured amounts. We routinely assess the financial
strength of our customers and based upon factors concerning credit risk,
establish an allowance for uncollectible accounts, if deemed necessary.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS, Sheet #2
[2]
Summary of Significant Accounting Policies
[Continued]
Earnings
Per Share -
We have
adopted the provisions of SFAS No. 128. Basic earnings per share is computed
by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. SFAS No. 128 also requires
a
dual presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from
the
potential exercise or conversion of securities into common stock.
The
computation of diluted earnings per share does not assume conversion, exercise,
or contingent issuance of securities that would have an antidilutive effect
on
per share amounts [i.e., increasing earnings per share or reducing loss per
share]. The dilutive effect of outstanding options and warrants and their
equivalents are reflected in dilutive earnings per share by the application
of
the treasury stock method which recognizes the use of proceeds that could be
obtained upon exercise of options and warrants in computing diluted earnings
per
share. It assumes that any proceeds would be used to purchase common stock
at
the average market price during the period. Options and warrants will have
a
dilutive effect only when the average market price of the common stock during
the period exceeds the exercise price of the options or warrants.
Stock-Based
Compensation -
We
account for stock-based compensation utilizing the intrinsic value method in
accordance with the provisions of Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and related
Interpretations. Accordingly, no compensation expense is recognized because
the
exercise prices of these employee stock options equal or exceed the estimated
fair market value of the underlying stock on the dates of grant.
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based
Payment". SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock
Based Compensation", and supersedes APB 25. Among other items, SFAS 123R
eliminates the use of APB 25 and the intrinsic value method of accounting,
and
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value
of
those awards, in the financial statements. The effective date of SFAS 123R
is
the first interim or annual period beginning after December 15, 2005. We will
adopt SFAS 123R effective January 1, 2006. SFAS 123R requires companies to
adopt
its requirements using a "modified prospective" method. Under the "modified
prospective" method, compensation cost is recognized in the financial statements
beginning with the effective date, based on the requirements of SFAS 123R for
all share-based payments granted after that date, and based on the requirements
of SFAS 123 for all unvested awards granted prior to the effective date of
SFAS
123R. The "modified retrospective" method also permits entities to restate
financial statements of previous periods based on proforma disclosures made
in
accordance with SFAS 123.
We
currently utilize a standard option pricing model (i.e., Black-Scholes) to
measure the fair value of stock options granted to employees. While SFAS 123R
permits entities to continue to use such a model, the standard also permits
the
use of a "lattice" model. We have not yet determined which model we will use
to
measure the fair value of employee stock options upon the adoption of SFAS
123R.
SFAS
123R
also requires that the benefits associated with the tax deductions in excess
of
recognized compensation cost be reported as a financing cash flow, rather than
as an operating cash flow as required under current literature. We have not
yet
determined what effect, if any, this change will have on future
periods.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS, Sheet #3
[2]
Summary of Significant Accounting Policies
[Continued]
Reclassification
- Certain
items in the comparative financial statements have been reclassified to conform
to the current year's presentation.
Income
Taxes -
We
follow the provisions of Statement of Financial Accounting Standards ["SFAS"]
No. 109, "Accounting for Income Taxes." Under the asset and liability method
of
SFAS 109, deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and available
net
operating loss carryforwards and their respective tax basis. Deferred income
tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. Under SFAS 109, the effect on deferred income tax
assets and liabilities of a change in tax rates is recognized in income in
the
period that includes the enactment date.
[3]
Research and License Agreement
During
1997, we entered into an agreement with the Mayo Foundation for Medical
Education and Research [the "Mayo Foundation"]. In accordance with this
agreement, the Mayo Foundation granted us a license to use its patent rights
for
the development of a clinically proven treatment for Alzheimer’s Disease. The
amounts payable to the Mayo Foundation under this agreement are as
follows:
Royalties
- Initial
royalty payment of $ 82,500. Amount is nonrefundable and does not represent
an
advance on future royalties.
Five
percent (5%) of the Net Sales of any Licensed Product
One
percent (1%) of the Net Sales of any Natural Product
Minimum
annual royalties of $300,000 beginning in the year we receive approval from
the
Food and Drug Administration ["FDA"].
As
of
December 31, 2005, we continue to coordinate the research and development
efforts needed in order to complete the clinical studies and have not received
FDA approval. In addition, there have not been any sales of any licensed product
during the year ended December 31, 2005.
Milestone
Royalties - We
are to
pay the Mayo Foundation royalties upon the occurrence of certain milestones
throughout the process of ultimately obtaining FDA approval. The total amount
of
royalties payable under these milestones are $3,225,000. As of December 31,
2005, we have paid $25,000 in milestone royalties. This amount is attributed
to
achieving the first milestone; the FDA approval of an investigational new drug
application.
Maintenance
Royalties - We
are to
pay the Mayo Foundation $10,000 each year until the time we obtain FDA
approval.
The
initial royalty payment of $82,500 along with the milestone and maintenance
royalty payments of $25,000 and $10,000, respectively, were charged to research
and development costs. Upon the expiration of the Mayo Foundation's
last-to-expire patents related to the licensed product, the agreement expires
and there will be no further royalty obligation to the Mayo
Foundation.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS, Sheet #4
[4]
Clinical Research Agreement
During
2003, we entered into a Clinical Research Agreement with a University. In
accordance with this agreement, the University shall carry out agreed upon
research pertaining to the development of an FDA approved treatment for
Alzheimer’s Disease. The costs associated with this agreement total $ 3,146,667.
This amount will be partially funded by the National Institutes of Health [the
"NIH"] which is part of the U.S. Department of Health and Human Services. The
NIH grant amount is $1,300,000. Our portion of the total cost of $1,846,667
is
payable to the University in several installments no later than August 31,
2007.
The installments are due based upon the occurrence of certain events. In
accordance with this agreement, upon contract signing, we paid $660,000, and
upon the enrollment of the first subject, we paid $165,000. These amounts are
expensed as research and development costs as the costs are incurred. As of
December 31, 2005, we have expensed $1,033,731 of these amounts. As of December
31, 2005, expenses incurred have exceeded payments by $41,453 and a liability
has been accrued as a component of accrued expenses.
This
agreement expires on August 31, 2007.
[5]
Securities Purchase Agreement
In
July
of 2003, we entered into an agreement with an investor for the sale of our
Series B Convertible Preferred stock. In accordance with the Agreement, we
authorized the issuance and sale to the investor of 15,000 shares of the Series
B Convertible Preferred Stock and the reservation of an aggregate of 980,568
shares of Common Stock for issuance upon conversion of the Preferred Stock.
The
15,000 shares of Series B Convertible Preferred Stock were to be sold in three
equal installments of 5,000 shares at each scheduled closing date. The sales
price was $100 per share for an aggregate price of $500,000 for each individual
closing. As of December 31, 2004, we received $1,000,000 under this Agreement
for the sale of 10,000 shares to the Investor. In January 2005, the investor
chose not to participate in the third closing. Instead, the investor converted
the 10,000 Series B preferred shares into 654,112 common shares.
[6]
Income Taxes
For
2005
and 2004, we have current income tax expense of $-0- and $-0-, respectively.
Deferred taxes based upon differences between the financial statements and
tax
basis of assets and liabilities and available net operating loss carryforwards
are summarized as follows:
| |
|
As
of December 31,
|
|
| |
|
2
0
0 5
|
|
2
0
0 4
|
|
| |
|
|
|
|
|
|
Net
Operating Loss Carryforward
|
|
$
|
1,160,107
|
|
$
|
730,429
|
|
|
Valuation
Allowance
|
|
|
(1,160,107
|
)
|
|
(730,429
|
)
|
|
Totals.
|
|
$
|
—
|
|
$
|
—
|
|
For
the
years ended December 31, 2005 and 2004, the valuation allowance for net deferred
tax assets increased $429,678 and $319,000, respectively. Based upon the level
of historical tax losses, we have established the valuation allowance against
the entire net deferred tax asset.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS, Sheet #5
[6]
Income Taxes [Continued]
As
of
December 31, 2005, we have net operating loss carryforward of $2,588,452. Our
net operating loss carryforward at December 31, 2005 expire as set forth in
the
following table.
|
Year
Carryforwards Expire
|
|
Amount
|
|
| |
|
|
|
|
2012
|
|
$
|
153,452
|
|
|
2021
|
|
|
20,932
|
|
|
2022
|
|
|
112,578
|
|
|
2023
|
|
|
633,968
|
|
|
2024
|
|
|
712,681
|
|
|
2025
|
|
|
954,841
|
|
| |
|
$
|
2,588,452
|
|
The
utilization of the net operating loss could be limited based upon provisions
established in Section 382 of the Internal Revenue Code.
[7]
Stockholders' Equity
During
2004, as part of a Securities Purchase Agreement [Note 5], we completed the
sale
of 5,000 shares of Series B Convertible Preferred Stock, Par Value $1.00 per
share, at an issue price of $100 per share.
Series
A
and B shares could be converted, at any time by each holder into shares of
Common Stock equal to; the original issuance price of the shares divided by
the
conversion price. The original issuance price per share for both Series A and
B
shares is $100 per share. The Conversion Price is $1.2323 per Series A share
and
$1.52879 per Series B share. The original issuance price is subject to
adjustment for any stock splits, stock dividends, recapitalizations or the
like.
[8]
Related Party Transactions
During
2005 and 2004, we have recorded allocated salary and payroll taxes totaling
$8,640 and $8,978, respectively. These expenses are allocated from an affiliated
company. In November 2005, we borrowed $25,000 from an affiliated company.
The
affiliate is related through common ownership. During 2005 and 2004, we did
not
incur any rent expense. The use of office space is provided by an entity owned
by our majority shareholder and is considered to be immaterial. This arrangement
is expected to remain the same for 2006.
MARCO
HI-TECH JV, LTD.
[NEURO-HITECH
PHARMACEUTICALS, INC. AS OF JANUARY 24, 2006 [NOTE 9]]
NOTES
TO FINANCIAL STATEMENTS, Sheet #6
[9]
Subsequent Events
On
January 24, 2006, we entered into an Agreement and Plan of Reorganization with
Neuro-Hitech Pharmaceuticals, Inc. [formerly Northern Way Resources, Inc.].
Neuro-Hitech Pharmaceuticals, Inc. acquired 100% of our outstanding stock in
exchange for 6,164,006 shares of their common stock. This type of transaction
is
a capital transaction in substance, rather than a business combination. It
is
equivalent to the issuance of our stock for net monetary assets, accompanied
by
a recapitalization. The accounting is identical to that resulting from a reverse
acquisition, except that no goodwill or other intangible is recorded. For
accounting purposes, we are the acquiring entity.
The
following unaudited pro forma combined results of operations accounts for the
acquisition as if it had occurred at the beginning of the fiscal years
presented.
| |
|
2
0
0 5
|
|
2
0
0 4
|
|
| |
|
|
|
|
|
|
Total
Revenue
|
|
$
|
208,343
|
|
$
|
159,264
|
|
| |
|
|
|
|
|
|
|
|
Net
[Loss]
|
|
$
|
(974,923
|
)
|
$
|
(727,541
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and Diluted [Loss] Per Common Share
|
|
$
|
(.12
|
)
|
$
|
(.09
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares Outstanding for Basic and Diluted
[Loss]
Per Common Share
|
|
|
7,961,506
|
|
|
7,961,506
|
|
These
proforma amounts may not be indicative of results that actually would have
occurred if the combination had been in effect on the date indicated or which
may be obtained in the future.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly
caused this report to be signed on its behalf by the undersigned thereunto
duly
authorized.
| |
|
|
| |
NEURO-HITECH
PHARMACEUTICALS, INC. |
|
|
|
| Date: March
31, 2006 |
By: |
/s/ Reuben
Seltzer |
| |
|
| |
Name:
Reuben Seltzer
Title:
President, Chief Executive Officer and
Principal
Executive Officer
|
| |
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Reuben Seltzer
|
|
President,
Chief Executive Officer,
|
|
March
31, 2006
|
|
Reuben
Seltzer
|
|
Principal
Executive Officer and Director
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Nicholas LaRosa
|
|
Chief
Financial Officer and
|
|
March
31, 2006
|
|
Nicholas
LaRosa
|
|
Principal
Accounting Officer
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
John Abernathy
|
|
Director
|
|
March
31, 2006
|
|
John
Abernathy
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Mark Auerbach
|
|
Director
|
|
March
31, 2006
|
|
Mark
Auerbach
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Alan Kestenbaum
|
|
Director
|
|
March
31, 2006
|
|
Alan
Kestenbaum
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|