NEWS :)
Form 10QSB for DUSKA THERAPEUTICS, INC.
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15-Aug-2007
Quarterly Report
Item 2. - Management's Discussion and Analysis of Financial Condition And Results of Operations
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This document contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "targets" and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under "Risk Factors" beginning on page 16.
The identification in this document of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Overview
On August 30, 2004, we completed a merger in which Duska Scientific Co. ("Duska Scientific"), through which we currently carry out all of our business operations, became our wholly-owned subsidiary. At the time of the merger, we had virtually no assets or liabilities (prior to the merger we had engaged in very limited landscaping and irrigation operations). In connection with the merger, we changed our name to "Duska Therapeutics, Inc.", replaced our officers and directors with those of Duska Scientific, ceased our landscaping business and moved our offices to Bala Cynwyd, Pennsylvania. We currently do not plan to conduct any business other than the business that Duska Scientific has conducted since its organization. Duska Scientific is a development stage company that has at this time a portfolio of two current product candidates and two proposed product candidates that are in various early stages of development. We have not generated any revenues to date. We expect to continue to incur significant research, development and administrative expenses before any of our current or proposed product candidates are approved for marketing, if ever, and generate any revenues.
Although we acquired Duska Scientific in the merger, for accounting purposes, the merger was accounted for as a reverse merger since the stockholders of Duska Scientific acquired a majority of the issued and outstanding shares of our common stock, and the directors and executive officers of Duska Scientific became our directors and executive officers. No goodwill was recorded as a result of the merger.
Recent Developments
On April 6, 2007, we authorized issuance of up to 6,000,000 units at a purchase price of $0.50 per unit, each unit consisting of 1 share of common stock and one five-year warrants exercisable at $0.60 per share during the first year and increasing by $0.10 per share each year thereafter. The warrant may be called when the trading price of the common stock equals or exceed $1.50 per share for twenty (20) consecutive trading days. The subscriptions for this private offering to qualified investors have not yet been completed.
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By unanimous written consent in lieu of a special meeting, on May 22, 2007, the Board of Directors filled a Board vacancy by the appointment of James S. Kuo, M.D., M.B.A to the Board to serve the unexpired term of his predecessor and/or until his successor is elected and qualified.
On June 8, 2007, the Company issued 807,217 shares of its restricted common stock at a price of $0.30 per share for total proceeds of $242,165. The Company collected $242,165 in total. The issuance of these shares represents a private placement of units sold to accredited investors. Each unit consists of one share of common stock and two (2) five-year warrants. The A warrants are exercisable at a price of $0.30 per share and the B Warrants are exercisable at a price of $0.60 per share during the first year, increasing by $0.10 per share each year thereafter.
On July 6, 2007, the Board of Directors filled Board vacancies with the nomination and acceptance of Philip Sobol, M.D. and Manuel Graiwer, Esq. These new board members will hold office for the unexpired term of their predecessor(s) and/or until their successor(s) are elected and qualified. At the same meeting, James S. Kuo was elected Chairman of the Board.
On July 27, 2007, the shareholders of the Company agreed to undertake a forward split of the stock purchase warrants issued for cash pursuant to the private placement in 2004 on a basis of 1 for 10. This only related to warrants issued in 2004.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates.
We believe our critical accounting policies affect our more significant estimates and judgments used in the preparation of our consolidated financial statements. Our Annual Report on Form 10-KSB for the year ended December 31, 2006 contains a discussion of these critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2006. See our Note 1 in our unaudited consolidated financial statements for the three and six month periods ended June 30, 2007, as set forth herein.
New Accounting Pronouncements
In February 2007, the FASB issued Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 permits companies to measure many financial instruments and certain other items at fair value at specified election dates. SFAS 159 is effective beginning January 1, 2008. The Company is currently assessing the impact of SFAS 159 on its financial statements.
Results of Operations
We recorded net losses of $268,302 and $798,687 for the three and six month periods ended June 30, 2007 as compared to losses of 368,385 and $1,196,137 for the same periods in 2006.
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General and administrative expenses were $260,705 and $507,795 during the three and six month periods ended June 30, 2007, as compared to $378,143 and $947,336 for the same periods in 2006. General and administrative expenses consist principally of officers' salaries, legal and accounting fees, insurance premiums, and facilities costs. The higher cost in 2006 is primarily attributable to recognizing stock-based compensation expense of $368,468 to directors and consultants as required under SFAS No. 123(R), which was only $97,901 in 2007.
Research and development expenses were $7,831 and 97,473 during the three and six month periods ended June 30, 2007, as compared to $(878) and $262,085 for the same periods in 2006. Research and development expenses consist principally of costs directly associated with our activities related to the development of ATPace™ and ATPotent™. The decrease from 2006 to 2007 is attributable to the completion of preclinical development of ATPotent and the suspension of Phase II clinical trials for ATPace™, offset by the development work on a 503(b)(4) application for ATPace™. During the three and six month periods ended June 30, 2007, we recorded $0 and $12,684 of expense associated with the Cato Agreement, which was included in research and development expense, of which $5,073 will be satisfied through the release of Cato Units from escrow.
Interest income was $762 and $1,820 during the three and six month periods ended June 30, 2007, as compared to $8,880 and $13,284 for the same periods in 2006. The variance generally corresponds to fluctuating cash balances. We did not incur any interest expense during the three and six months period ended June 30, 2006; for the three and six month periods ended June 30, 2007, we incurred $528 and $58,842 of interest expense, the majority of which was related to the amortization of debt discount on the convertible notes issued in the third and fourth quarters of 2006. We also incurred $136,397 of expense related to the sweetened terms to the convertible debt holders to induce conversion of that debt to common stock.
Liquidity and Capital Resources
At June 30, 2007, we had cash and cash equivalents of $60,350, compared to $8,236 at December 31, 2006. Negative working capital totaled $426,674 at June 30, 2007, compared to negative working capital of $898,263 at December 31, 2006. To date, we have funded our operations, including our research and development activities, through funds derived from several private placements of an aggregate of approximately $6.1 million of equity securities and convertible debt issues.
We do not currently anticipate that we will derive any revenues from either product sales or from governmental research grants during the next twelve months. Based on our current plan of operations and the closing of a bridge loan, we believe that our current and anticipated cash balances will be sufficient to fund our planned expenditures through approximately the end of November, 2007. However, the estimated cost of completing the development of our current and proposed product candidates and of obtaining all required regulatory approvals to market our current and proposed product candidates is substantially greater than the amount of funds we currently have available. As a result, we believe that we will need to obtain at least $3 million of additional funds to fund our planned operations through to August 2008. We do not have any bank credit lines and have financed all of our prior operations through the sale of securities. We will seek to obtain these additional funds through additional financing sources and strategic alliances with larger pharmaceutical or biomedical companies, but there can be no assurance that we will be able to obtain any additional funding from any potential financing sources or create any such alliances, or that the terms under which we obtain any funding will allow us to fund our operations. If we are unsuccessful or only partly successful in our efforts to secure additional funding, some or all of our research and development activities related to current and proposed product candidates could be delayed and we could be forced to reduce the scope of these activities or otherwise limit or terminate our operations altogether. We may also seek to sell certain of our assets or sell our company.
In their report dated April 13, 2007, and included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, our independent auditors stated that our financial statements for the year ended
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December 31, 2006 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of our recurring negative cash flows from operations and accumulated deficit of approximately $8.4 million that existed as of December 31, 2006. As of June 30, 2007, we had an accumulated deficit of approximately $9.2 million. Our ability to continue as a going concern is subject to our ability to obtain significant additional capital to fund our operations, and there can be no assurance that we will be able to do so. The going concern qualification in the auditor's report could materially limit our ability to raise additional capital.
As of June 30, 2007, we had no long-term debt obligations, no capital lease obligations, no operating lease obligations, no purchase obligations, or other similar long-term liabilities, except for those related to the Cato Agreement. We have the right to terminate the Cato Agreement at any time, subject to a 90 day notice requirement and the payment to Cato of 20% of the estimated remaining unbilled amounts for the work orders covered by the agreement. At June 30, 2007, such obligations would have amounted to approximately $0.
We do not believe that inflation has had a material impact on our business or operations.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, and we do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.
Risk Factors
In addition to the other information set forth in this Form 10-QSB, you should carefully consider the factors discussed in Part II, Item 6, subsection "Risk Factors" of our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and future results of operations. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in Item 6, subsection "Risk Factors" to Part II of our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006.
Risks Related To Our Business
We have never generated any revenues, have a history of losses, expect significant future losses and cannot assure you that we will ever become or remain profitable, and as a result, we may have to cease operations and liquidate our business.
We have not generated any revenues to date and have incurred operating losses since our inception. We do not expect to generate any revenues in the foreseeable future and therefore expect to continue to incur significant operating losses for the foreseeable future. To date, we have dedicated most of our financial resources to research and development and general and administrative expenses. We have funded all of our activities through sales of our securities. For the six month periods ended June 30, 2007 and 2006, we had net losses of approximately $798,687 and $1,196,137, respectively. We expect to incur losses for at least the next several years as we continue to spend substantial amounts on the research and development of our current and proposed product candidates, including pre-clinical research and clinical trials. There can be no assurance that we will ever generate any revenues or that any revenues that may be generated will be sufficient for us to become profitable or thereafter maintain profitability. If we cannot generate any revenues or become and remain profitable, we may have to cease our operations and liquidate our business.
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Our independent auditors have expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
In their report dated April 13, 2007, our independent auditors stated that our financial statements for the year ended December 31, 2006 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern was an issue raised as a result of our recurring negative cash flows from operations and accumulated deficit of approximately $8,425,000 as of December 31, 2006. As of June 30, 2007, we had an accumulated deficit of approximately $9.2 million. Our ability to continue as a going concern is subject to our ability to obtain significant additional capital to fund our operations, of which there is no assurance. The going concern qualification in the auditor's report could materially limit our ability to raise additional capital. If we fail to raise sufficient capital, we may have to liquidate our business.
We continue to need to obtain significant additional capital to fund our operations, and we may be unable to obtain such financing at all or on acceptable terms.
We have used substantial funds to develop our technologies and our products and will require substantial additional funds to conduct further research and development. We do not have any bank credit lines and have financed all of our prior operations through the sale of securities, which have generated approximately an aggregate of $6.1 million of net proceeds since 1996. The estimated cost of completing the development of our current and proposed product candidates and of obtaining all required regulatory approvals to market our current and proposed product candidates is substantially greater than the amount of funds we currently have available. We believe that our cash balances will only be sufficient to fund our planned level of operations through approximately August 2007. We will need substantial additional funding to carry out our planned development work for our current product candidates, ATPace™ and ATPotent™, and to expand the scope of our operations (including employing senior executives and additional support personnel on a full-time basis), to develop our technologies and three proposed product candidates, Vagonixen™, Ocuprene™, and Aspirex™ and to acquire and develop any new relevant technologies and product candidates that may become available to us. Our actual expenditures needed to complete the development of ATPace™ alone could substantially exceed our current expectations due to a variety of factors, many of which are difficult to predict or are outside of our control, including revisions to our current development plan required by the FDA and higher than anticipated clinical research costs. We will also incur substantial costs to develop ATPotent™, and our actual costs will be significantly higher than presently anticipated if CooperSurgical, Inc. does not elect under our agreement to assist with the funding of our Phase II and Phase III trials for ATPotent™ and acquire a marketing license for this product candidate (see "Business-Strategic Alliances-CooperSurgical, Inc."). Our costs to commence even limited drug candidate discovery and pre-clinical work on our proposed product candidates, Vagonixen™ and Ocuprene™, will be significant. Clinical development expenses for each of these proposed product candidates will be very substantial and will require a strategic alliance with a larger pharmaceutical company that has expertise and sufficient resources to fund the clinical development costs. If we are successful in our attempts to obtain a small molecule from a large pharmaceutical company that would be developed as a Vagonixen™ drug candidate, we would have to pay significant upfront fees and additional substantial milestone-dependent fees. We may seek to obtain these additional funds through additional financing sources, including the possible sale of our securities, and strategic alliances with other pharmaceutical or biomedical companies, but there can be no assurance that we will be able to obtain any additional funding from any potential financing sources or create any such alliances, or that the terms under which we obtain any funding will be sufficient to fund our operations. We may also seek to sell certain assets or our company. If we are unsuccessful or only partly successful in our efforts to secure additional funding, some or all of our current and proposed product candidates could be delayed and we could be forced to reduce the scope of our research and development projects or otherwise limit or terminate our operations altogether.
