Attached files
file | filename |
---|---|
EX-32 - BIOMODA INC/NM | ex32.htm |
EX-31 - BIOMODA INC/NM | ex31.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file No. 333-90738
BIOMODA, INC.
(Exact name of registrant as specified in its charter)
New Mexico
|
85-0392345
|
(State of incorporation)
|
(IRS Employer Identification No.)
|
609 Broadway NE #215, Albuquerque, New Mexico 87102
(Address of principal executive offices including zip code)
Registrant's telephone number: (505) 821-0875
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
The number of issuer’s shares of Common Stock outstanding as of August 16, 2010 was 92,006,886
PART I. Financial Information |
Page
|
Item 1. Financial Statements (Unaudited)
|
3
|
22
|
|
27
|
|
Item 4. Controls and Procedures
|
27
|
PART II. Other Information
|
|
Item 1. Legal Proceedings
|
29
|
Item 2. Changes In Securities
|
29
|
Item 3. Defaults Upon Senior Securities
|
29
|
29
|
|
Item 5. Other Information
|
29
|
Item 6. Exhibits
|
29
|
30
|
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Forward - Looking Statements
This Form 10-Q contains forward-looking statements about the business, financial condition and prospects of the Company that reflect assumptions made by management and management's beliefs based on information currently available to it. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, the acceptance by customers of our products, our ability to develop new products cost-effectively, our ability to raise capital in the future, the development by competitors of products using improved or alternative technology, the retention of key employees and general economic conditions.
There may be other risks and circumstances that management is unable to predict. When used in this Form 10-Q, words such as "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. All forward-looking statements are intended to be covered by the safe harbor created by Section 21E of the Securities Exchange Act of 1934.
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30,
|
December 31,
|
|||||||
|
2010
|
2009 | ||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 124,058 | $ | 20,041 | ||||
Accounts receivable
|
351 | - | ||||||
Prepaid expenses
|
11,343 | - | ||||||
Deferred charges
|
9,573 | 9,573 | ||||||
Total current assets
|
145,325 | 29,614 | ||||||
Deferred charges
|
21,539 | 26,325 | ||||||
Patents and trademarks, net of accumulated amortization
|
||||||||
of $324,428 and $315,495
|
119,324 | 113,645 | ||||||
Total assets
|
$ | 286,188 | $ | 169,584 | ||||
LIABILITIES & STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable and accrued liabilities
|
$ | 291,218 | $ | 506,068 | ||||
Advances from stockholders
|
221,891 | 215,142 | ||||||
Short-term debt
|
112,597 | 114,978 | ||||||
Derivative liabilities - warrant instruments
|
1,834,834 | - | ||||||
Deferred liability
|
- | 25,415 | ||||||
Total current liabilities
|
2,460,540 | 861,603 | ||||||
LONG-TERM DEBT
|
||||||||
Note payable
|
96,970 | 120,477 | ||||||
Total liabilities
|
2,557,510 | 982,080 | ||||||
STOCKHOLDERS' DEFICIT
|
||||||||
Class A redeemable preferred stock; no par value; 2,000,000
|
||||||||
shares authorized; cumulative and convertible;
|
||||||||
liquidation and redemption values of $1.50 and $1.80
|
||||||||
per share, respectively; no shares issued or outstanding
|
- | - | ||||||
Undesignated preferred stock; 2,000,000 shares authorized; no
|
||||||||
shares issued and outstanding
|
- | - | ||||||
Common stock, no par value, 150,000,000 share authorized;
|
||||||||
88,604,590 and 79,514,589 issued and 88,213,015 and
|
||||||||
78,923,014 outstanding, respectively
|
6,580,489 | 7,626,166 | ||||||
Treasury stock, at cost 391,575 and 591,575 shares, respectively
|
(1,233 | ) | (2,502 | ) | ||||
Deficit accumulated during development stage
|
(8,850,578 | ) | (8,436,160 | ) | ||||
Total stockholders' deficit
|
(2,271,322 | ) | (812,496 | ) | ||||
Total liabilities and stockholders' deficit
|
286,188 | 169,584 |
The accompanying notes are an integral part of these consolidated financial statements.
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
3 Months Ended June 30,
|
6 Months Ended June 30,
|
January 3, 1990 (Inception) to
|
|||||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
June 30, 2010
|
|||||||||||||||
Revenue
|
$ | - | $ | - | $ | - | $ | - | $ | 23 | ||||||||||
Operating Expenses
|
||||||||||||||||||||
Professional fees
|
258,752 | 27,452 | 175,945 | 68,380 | 1,407,895 | |||||||||||||||
General and administrative
|
64,597 | 52,394 | 523,119 | 95,006 | 5,493,629 | |||||||||||||||
Research and development, net of grants received
|
111,622 | 16,389 | 159,572 | 11,330 | 2,880,575 | |||||||||||||||
Depreciation and amortization
|
2,703 | 7,168 | 8,933 | 23,282 | 344,479 | |||||||||||||||
Total operating expenses
|
437,674 | 103,403 | 867,569 | 197,998 | 10,126,578 | |||||||||||||||
Loss from operations
|
(437,674 | ) | (103,403 | ) | (867,569 | ) | (197,998 | ) | (10,126,555 | ) | ||||||||||
Other Income (Expense)
|
||||||||||||||||||||
Gain on extinguishment of debt
|
- | - | - | - | 1,326,028 | |||||||||||||||
Gain of sale of assets
|
- | - | 2,068 | - | 1,710 | |||||||||||||||
Unrealized gain on derivative liabilities-warrant instruments
|
1,777,070 | - | 453,521 | - | 453,521 | |||||||||||||||
Unrealized gain on derivative liabilities-options
|
12,336 | - | 5,253 | - | 5,253 | |||||||||||||||
Other income
|
- | - | - | - | 34,037 | |||||||||||||||
Interest income
|
201 | - | 201 | - | 4,071 | |||||||||||||||
Interest expense
|
(3,934 | ) | (3,967 | ) | (7,892 | ) | (7,366 | ) | (548,643 | ) | ||||||||||
Total other income (expense)
|
1,785,673 | (3,967 | ) | 453,151 | (7,366 | ) | 1,275,977 | |||||||||||||
Loss before provision for income taxes
|
1,347,999 | (107,370 | ) | (414,418 | ) | (205,364 | ) | (8,850,578 | ) | |||||||||||
Provision for income taxes
|
- | - | - | - | - | |||||||||||||||
Net income (loss)
|
1,347,999 | (107,370 | ) | (414,418 | ) | (205,364 | ) | (8,850,578 | ) | |||||||||||
Basic income (loss) per common share
|
0.02 | (0.00 | ) | $ | (0.00 | ) | (0.00 | ) | ||||||||||||
Diluted income (loss) per common share
|
0.02 | (0.00 | ) | $ | (0.00 | ) | (0.00 | ) | ||||||||||||
Basic weighted average number of common shares outstanding
|
87,600,579 | 77,023,153 | 84,664,507 | 77,037,226 | ||||||||||||||||
Basic weighted average number of common shares outstanding
|
89,161,486 | 77,023,153 | 84,664,507 | 77,037,226 |
The accompanying notes are an integral part of these consolidated financial statements.
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months |
January 3, 1990
|
|||||||||||
Ended June 30,
|
(inception) to
|
|||||||||||
2010
|
2009
|
June 30, 2010
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net loss
|
$ | (414,418 | ) | $ | (205,364 | ) | $ | (8,850,578 | ) | |||
Adjustments to reconcile net earnings to net
|
||||||||||||
cash used in operating activities
|
||||||||||||
Stock based compensation
|
277,099 | 2,400 | 3,517,875 | |||||||||
Depreciation and amortization
|
8,933 | 23,282 | 344,479 | |||||||||
Unrealized gain on derivative liabilities - warrant instruments
|
(453,521 | ) | - | (453,521 | ) | |||||||
Unrealized gain on derivative liabilities - options
|
(5,253 | ) | - | (5,253 | ) | |||||||
Write off of license fee
|
- | - | 1,250 | |||||||||
Gain/loss on sale of assets
|
(2,068 | ) | - | (1,710 | ) | |||||||
Foreign currency translation adjustments
|
- | - | 3,247 | |||||||||
Gain on extinguishment of debt
|
- | - | (1,283,964 | ) | ||||||||
Changes in operating assets and liabilities
|
||||||||||||
Accounts receivable
|
(351 | ) | 8,772 | 173,871 | ||||||||
Other assets
|
(6,557 | ) | 2,393 | 8,242 | ||||||||
Advances on research grants
|
(25,415 | ) | 213,234 | - | ||||||||
Accounts payable and accrued liabilities
|
(176,350 | ) | 81,941 | 873,658 | ||||||||
Net cash provided by (used in) operating activities
|
(797,901 | ) | 126,658 | (5,672,404 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Proceeds from sale of equipment
|
2,068 | - | 3,207 | |||||||||
Purchase of equipment
|
- | - | (25,571 | ) | ||||||||
Organizational costs
|
- | - | (560 | ) | ||||||||
Purchases of patents, trademarks and licenses
|
(14,612 | ) | (7,537 | ) | (460,750 | ) | ||||||
Net cash used in investing activities
|
(12,544 | ) | (7,537 | ) | (483,674 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Issuance of common stock for cash
|
933,601 | - | 3,936,484 | |||||||||
Proceeds from stockholders' advances
|
6,749 | 6,750 | 182,481 | |||||||||
Repayment of line of credit from affiliated entity
|
- | - | (341,107 | ) | ||||||||
Proceeds/(repayments) of short-term debt
|
1,184 | 592 | (106,139 | ) | ||||||||
Proceeds from line of credit from affiliated company
|
- | - | 2,680,882 | |||||||||
Repayments of long-term debt
|
(27,072 | ) | (16,276 | ) | (58,848 | ) | ||||||
Acquisition of treasury stock
|
- | - | (13,617 | ) | ||||||||
Net cash provided by (used in) financing activities
|
914,462 | (8,934 | ) | 6,280,136 | ||||||||
NET INCREASE IN CASH
|
104,017 | 110,187 | 124,058 | |||||||||
Cash at beginning of year
|
20,041 | 36,854 | - | |||||||||
Cash at end of year
|
$ | 124,058 | $ | 147,041 | $ | 124,058 | ||||||
Supplemental cash flow information:
|
||||||||||||
Interest expense paid in cash
|
$ | - | $ | - | $ | - | ||||||
Income taxes paid in cash
|
$ | - | $ | - | $ | - | ||||||
Non-cash investing and financing activities:
|
||||||||||||
Accrued salaries converted to notes payable
|
$ | - | $ | - | 479,484 | |||||||
Derivative liability incurred through issuance of warrants
|
$ | 3,351,307 | $ | - | $ | 3,351,307 | ||||||
Settlement of derivative liabilities
|
$ | 1,057,699 | $ | - | $ | 1,057,699 | ||||||
Interest converted to note payable
|
$ | - | $ | - | $ | 159,462 | ||||||
Common stock issued to extinguish related party debt
|
$ | - | $ | - | $ | 1,418,768 | ||||||
Common stock issued to extinguish stock payable
|
$ | 50,000 | $ | - | $ | 50,000 |
The accompanying notes are an integral part of these consolidated financial statements.
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO June 30, 2010
Accumulated | Total | |||||||||||||||||||
Deficit During
|
Stockholders'
|
|||||||||||||||||||
Common Stock
|
Treasury
|
Development
|
Equity
|
|||||||||||||||||
Shares
|
Amount
|
Stock
|
Stage
|
(Deficit)
|
||||||||||||||||
Inception
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Issuance of Common Stock, June 26, 1991
|
2,997,000 | 18,433 | 18,433 | |||||||||||||||||
Cumulative Net Loss for the period from January 3, 1990
(date of inception) to December 31,1996
|
|
(60,010 | ) | (60,010 | ) | |||||||||||||||
Balance, December 31, 1996
|
2,997,000 | 18,433 | - | (60,010 | ) | (41,577 | ) | |||||||||||||
Issuance of Common Stock Warrants on December 31, 1997
(100,952 warrants at exercise price of $.20)
|
- | - | - | |||||||||||||||||
Net loss
|
(32,914 | ) | (32,914 | ) | ||||||||||||||||
Balance, December 31, 1997
|
2,997,000 | 18,433 | - | (92,924 | ) | (74,491 | ) | |||||||||||||
Issuance of Common Stock, January 20, 1998
|
59,940 | 10,000 | 10,000 | |||||||||||||||||
Exercise of Common Stock Warrants on March 17, 1998
|
100,952 | 20,190 | 20,190 | |||||||||||||||||
Issuance of Common Stock, April 15, 1998, net of stock issuance costs
|
631,578 | 276,350 | 276,350 | |||||||||||||||||
Issuance of Common Stock Options, April 15, 1998
|
23,650 | 23,650 | ||||||||||||||||||
Exercise of Common Stock Options, November 2, 1998
|
62,237 | 23,670 | 23,670 | |||||||||||||||||
Net loss
|
(295,948 | ) | (295,948 | ) | ||||||||||||||||
Balance, December 31, 1998
|
3,851,707 | 372,293 | - | (388,872 | ) | (16,579 | ) | |||||||||||||
Issuance of Common Stock, January 30, 1999
|
180,000 | 87,300 | 87,300 | |||||||||||||||||
Issuance of Common Stock, for the month of March, 1999
|
310,000 | 150,300 | 150,300 | |||||||||||||||||
Issuance of Common Stock, May 29, 1999
|
51,546 | 25,000 | 25,000 | |||||||||||||||||
Issuance of Common Stock, June 2, 1999
|
95,092 | 50,000 | 50,000 | |||||||||||||||||
Issuance of Common Stock, September 30, 1999
|
51,546 | 25,000 | 25,000 | |||||||||||||||||
Issuance of Common Stock, December 29, 1999
|
92,005 | 50,143 | 50,143 | |||||||||||||||||
Net loss
|
(303,956 | ) | (303,956 | ) | ||||||||||||||||
Balance, December 31, 1999
|
4,631,896 | 760,036 | - | (692,828 | ) | 67,208 | ||||||||||||||
Exercise of Common Stock Options, February 24, 2000
|
166,535 | 80,770 | 80,770 | |||||||||||||||||
Issuance of Common Stock, May 12, 2000
|
253,609 | 56,000 | 56,000 | |||||||||||||||||
Exercise of Common Stock Options, June 8, 2000
|
62,497 | 30,312 | 30,312 | |||||||||||||||||
Issuance of Common Stock, for the month of September, 2000
|
96,745 | 21,086 | 21,086 | |||||||||||||||||
Exercise of Common Stock Options, November 3, 2000
|
66,000 | 7,491 | 7,491 | |||||||||||||||||
Issuance of Common Stock for Services, December 8, 2000
|
40,000 | 19,400 | 19,400 | |||||||||||||||||
Net loss
|
(257,139 | ) | (257,139 | ) | ||||||||||||||||
Balance, December 31, 2000
|
5,317,282 | 975,095 | - | (949,967 | ) | 25,128 |
Issuance of Common Stock for Services, January 25, 2001
|
5,000 | 2,425 | 2,425 | |||||||||||||||||
Issuance of Common Stock, January 31, 2001
|
160,000 | 24,000 | 24,000 | |||||||||||||||||
Issuance of Common Stock for Services, April 6, 2001
|
15,000 | 7,276 | 7,276 | |||||||||||||||||
Issuance of Common Stock, for the month of April, 2001
|
120,000 | 58,200 | 58,200 | |||||||||||||||||
Issuance of Common Stock, June 28, 2001
|
20,000 | 9,700 | 9,700 | |||||||||||||||||
Issuance of Common Stock, for the month of August, 2001
|
110,000 | 53,500 | 53,500 | |||||||||||||||||
Issuance of Common Stock, November 7, 2001
|
10,000 | 5,000 | 5,000 | |||||||||||||||||
Net loss
|
(372,655 | ) | (372,655 | ) | ||||||||||||||||
Balance, December 31, 2001
|
5,757,282 | 1,135,196 | - | (1,322,622 | ) | (187,426 | ) | |||||||||||||
Net loss
|
(83,689 | ) | (83,689 | ) | ||||||||||||||||
Balance, December 31, 2002
|
5,757,282 | 1,135,196 | - | (1,406,311 | ) | (271,115 | ) | |||||||||||||
Exercise of stock options, July 11, 2003
|
980,000 | 147,000 | 147,000 | |||||||||||||||||
Net loss
|
(311,233 | ) | (311,233 | ) | ||||||||||||||||
Balance, December 31, 2003
|
6,737,282 | 1,282,196 | - | (1,717,544 | ) | (435,348 | ) | |||||||||||||
Issuance of Common Stock for Services, February 9, 2004
|
35,000 | 5,250 | 5,250 | |||||||||||||||||
Exercise of Common stock Options, February 9, 2004
|
60,000 | 30,000 | 30,000 | |||||||||||||||||
Issuance of Common Stock for Services, August 5, 2004
|
85,000 | 12,750 | 12,750 | |||||||||||||||||
Exercise of Common stock Options, September 27, 2004
|
200,000 | 30,000 | 30,000 | |||||||||||||||||
Net loss, December 31, 2004
|
(758,945 | ) | (758,945 | ) | ||||||||||||||||
Balance, December 31, 2004
|
7,117,282 | 1,360,196 | - | (2,476,489 | ) | (1,116,293 | ) | |||||||||||||
Issuance of Common Stock for Services, May 27, 2005
|
30,000 | 4,500 | 4,500 | |||||||||||||||||
Issuance of Common Stock for Services, October 12, 2005
|
40,000 | 6,000 | 6,000 | |||||||||||||||||
Net loss, December 31, 2005
|
(624,756 | ) | (624,756 | ) | ||||||||||||||||
Balance, December 31, 2005
|
7,187,282 | 1,370,696 | - | (3,101,245 | ) | (1,730,549 | ) | |||||||||||||
Issuance of Common Stock for Services, October 23, 2006
|
690,000 | 544,500 | 544,500 | |||||||||||||||||
Issuance of Common Stock in exchange for Debt, October 23, 2006
|
1,176,471 | 1,000,000 | 1,000,000 | |||||||||||||||||
Issuance of Common Stock for Services, November 30, 2006
|
7,500 | 28,125 | 28,125 | |||||||||||||||||
Issuance of Common Stock for Services, December 15, 2006
|
10,000 | 29,000 | 29,000 | |||||||||||||||||
Issuance of Common Stock for Services, December 26, 2006
|
15,000 | 44,850 | 44,850 | |||||||||||||||||
Acquisition of Treasury Stock, June 30, 2006
|
(9,000 | ) | (9,000 | ) | ||||||||||||||||
Stock-Based Compensation
|
35,042 | 35,042 | ||||||||||||||||||
Net loss, December 31, 2006
|
(1,807,312 | ) | (1,807,312 | ) | ||||||||||||||||
Balance, December 31, 2006
|
9,086,253 | 3,052,213 | (9,000 | ) | (4,908,557 | ) | (1,865,344 | ) |
Issuance of Common Stock for Services, January 2007
|
131,000.0 | 259,500 | 259,500 | |||||||||||||||||
Issuance of Common Stock, January 2007
|
30,000.0 | 30,000 | 30,000 | |||||||||||||||||
Issuance of Common Stock for Services, February 2007
|
150,000.0 | 157,500 | 157,500 | |||||||||||||||||
Issuance of Common Stock for Services, March 2007
|
445,000.0 | 375,500 | 375,500 | |||||||||||||||||
Issuance of Common Stock in exchange for Debt, March 2007
|
86,786.0 | 73,768 | 73,768 | |||||||||||||||||
Exercise of Options, March 2007
|
2,000.0 | 1,000 | 1,000 | |||||||||||||||||
Issuance of Common Stock for Services, April 2007
|
724,062.0 | 455,559 | 455,559 | |||||||||||||||||
Issuance of Common Stock in exchange for Debt, April 2007
|
500,000.0 | 315,000 | 315,000 | |||||||||||||||||
Issuance of Common Stock for Services, June 2007
|
920,000.0 | 154,600 | 154,600 | |||||||||||||||||
Issuance of Common Stock, June 2007
|
343,000.0 | 41,667 | 41,667 | |||||||||||||||||
Issuance of Common Stock for Services, July 2007
|
141,000.0 | 15,700 | 15,700 | |||||||||||||||||
Issuance of Common Stock, July 2007
|
1,466,635.0 | 84,985 | 84,985 | |||||||||||||||||
Issuance of Common Stock, August 2007
|
1,636,166.0 | 53,943 | 53,943 | |||||||||||||||||
Issuance of Common Stock for Services, September 2007
|
160,000.0 | 12,800 | 12,800 | |||||||||||||||||
Issuance of Common Stock, September 2007
|
2,416,248.0 | 54,819 | 54,819 | |||||||||||||||||
Issuance of Common Stock, October 2007
|
1,557,730.0 | 36,457 | 36,457 | |||||||||||||||||
Issuance of Common Stock in exchange for Debt, October 2007
|
165,000.0 | 16,500 | 16,500 | |||||||||||||||||
Issuance of Common Stock for Services, November 2007
|
770,000.0 | 100,100 | 100,100 | |||||||||||||||||
Issuance of Common Stock, November 2007
|
16,190,967.0 | 445,674 | 445,674 | |||||||||||||||||
Issuance of Common Stock for Services, December 2007
|
90,140.0 | 21,634 | 21,634 | |||||||||||||||||
Issuance of Common Stock, December 2007
|
11,303,996.0 | 385,250 | 385,250 | |||||||||||||||||
Stock-Based Compensation
|
55,416 | 55,416 | ||||||||||||||||||
Net loss, December 31, 2007
|
(2,307,051 | ) | (2,307,051 | ) | ||||||||||||||||
Balance, December 31, 2007
|
48,315,983 | 6,199,585 | (9,000 | ) | (7,215,608 | ) | (1,025,023 | ) |
Issuance of Common Stock, January 2008
|
3,887,100 | 155,077 | 155,077 | |||||||||||||||||
Issuance of Common Stock for Services, February 2008
|
11,128,967 | 312,244 | 312,244 | |||||||||||||||||
Issuance of Common Stock for Services, February 2008
|
1,500,000 | 180,000 | 180,000 | |||||||||||||||||
Issuance of Common Stock for Services, March 2008
|
1,725,860 | 86,293 | 86,293 | |||||||||||||||||
Issuance of Common Stock, March 2008
|
8,410,112 | 209,897 | 209,897 | |||||||||||||||||
Issuance of Common Stock, April 2008
|
1,328,142 | 33,268 | 33,268 | |||||||||||||||||
Issuance of Common Stock for Services, April 2008
|
25,000 | 1,250 | 1,250 | |||||||||||||||||
Issuance of Common Stock for Services, June 2008
|
237,237 | 17,779 | 17,779 | |||||||||||||||||
Issuance of Common Stock for Services, July 2008
|
244,000 | 12,200 | 12,200 | |||||||||||||||||
Issuance of Common Stock for Services, September 2008
|
125,000 | 5,000 | 5,000 | |||||||||||||||||
Issuance of Common Stock for Services, October 2008
|
47,188 | 1,888 | 1,888 | |||||||||||||||||
Issuance of Common Stock for Services, December 2008
|
30,000 | 900 | 900 | |||||||||||||||||
Net loss, December 31, 2008
|
(315,263 | ) | (315,263 | ) | ||||||||||||||||
Balance, December 31, 2008
|
77,004,589 | 7,215,381 | (9,000 | ) | (7,530,871 | ) | (324,490 | ) |
Issuance of Common Stock for Services, January 2009
|
30,000 | 1,200 | 1,200 | |||||||||||||||||
Issuance of Common Stock for Services, June 2009
|
30,000 | 1,200 | 1,200 | |||||||||||||||||
Adjustment to Treasury Shares on June 30, 2009
|
(9,000 | ) | 9,000 | - | ||||||||||||||||
Addition to Treasury Shares September 30, 2009
|
(4,617 | ) | (4,617 | ) | ||||||||||||||||
Issuance of Common Stock for Services, July 2009
|
250,000 | 12,500 | 12,500 | |||||||||||||||||
Issuance of Common Stock for Cash, August 2009
|
100,000 | 5,000 | 5,000 | |||||||||||||||||
Issuance of Common Stock for Services, August 2009
|
100,000 | 7,000 | 7,000 | |||||||||||||||||
Issuance of Treasury Shares for Services August 2009
|
220,000 | 220,000 | ||||||||||||||||||
Issuance of Common Stock for Cash, December 2009
|
2,000,000 | 100,000 | 100,000 | |||||||||||||||||
Issuance of Treasury Shares for Services October 2009
|
72,885 | 2,115 | 75,000 | |||||||||||||||||
Net loss, December 31, 2009
|
(905,289 | ) | (905,289 | ) | ||||||||||||||||
Balance, December 31, 2009
|
79,514,589 | 7,626,166 | (2,502 | ) | (8,436,160 | ) | (812,496 | ) | ||||||||||||
Issuance of Common Stock for cash January 2010
|
400,000 | 20,000 | 20,000 | |||||||||||||||||
Issuance of Common Stock for cash February 2010
|
800,000 | 40,000 | 40,000 | |||||||||||||||||
Issuance of Common Stock for services February 2010
|
480,000 | 105,600 | 105,600 | |||||||||||||||||
Issuance of Treasury Shares for Services February 2010
|
58,731 | 1,269 | 60,000 | |||||||||||||||||
Issuance of Common Stock and Warrants for Cash March 2010
|
6,250,001 | 820,000 | 820,000 | |||||||||||||||||
Derivative liabilities on Warrants and non-employee options
|
(3,351,307 | ) | (3,351,307 | ) | ||||||||||||||||
Issuance of Common Stock for cash June 2010
|
335,000 | 53,600 | 53,600 | |||||||||||||||||
Issuance of Common Stock for services June 2010
|
625,000 | 100,000 | 100,000 | |||||||||||||||||
Issuance of Common Stock for services to Directors June 2010
|
200,000 | 50,000 | 50,000 | |||||||||||||||||
Derivative liabilities on Warrants and non-employee options settled
|
1,057,699 | 1,057,699 | ||||||||||||||||||
Net loss, June 30, 2010
|
(414,418 | ) | (414,418 | ) | ||||||||||||||||
Balance, June 30, 2010
|
88,604,590 | $ | 6,580,489 | $ | (1,233 | ) | $ | (8,850,578 | ) | $ | (2,271,322 | ) |
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Biomoda, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with Management's Discussion and Analysis and the audited financial statements and notes thereto contained in our 2009 Annual Report filed with the Securities and Exchange Commission on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for 2009 as reported on Form 10-K have been omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.
2. DEVELOPMENT STAGE AND GOING CONCERN
We have been in the development stage since we began operations on January 3, 1990, and have not generated any significant revenues from operations, and there is no assurance of any future revenues. We had a continuing government research grant for the fiscal year ended June 30, 2009, of $1.3 million which was used to pay for research costs. As of June 30, 2010, we had an accumulated deficit of $8,850,578 and a working capital deficit of $2,315,215. These factors create a substantial doubt as to our ability to continue as a going concern.
We will require additional funding for continuing research and development, obtaining regulatory approval and commercialization of our products. Management expects to be able to raise enough funds to meet our working capital requirements through the sale of our common stock or other means of financing.
There is no assurance that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
3. CRITICAL ACCOUNTING POLICIES
Effective January 1, 2009, the Company adopted FASB ASC Topic No. 815-40, Derivatives and Hedging - Contracts in Entity’s Own Stock (formerly Emerging Issues Task Force Issue No. 07-5, Determining Whether an Instrument or Embedded Feature is Indexed to an Entity’s Own Stock). The adoption of ASC Topic No. 815-40’s requirements can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions). Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. The Company evaluates whether warrants or convertible instruments contain provisions that protect holders from declines in the Company’s stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective debt, warrant or preferred stock agreements based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. Instruments with such provisions are now treated as a liability and recorded at fair value at each reporting date.
Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material effect on our financial position or results from operations.
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. As of June 30, 2010, the Company’s potentially dilutive securities consist of outstanding warrants and options. These potentially dilutive securities have been excluded from the net loss per common share calculation for all periods presented, except for the three months ended June 30, 2010, as their effect would be anti-dilutive. For the three months ended June 30, 2010, outstanding options and warrants had the effect of increasing diluted weighted average shares outstanding by 1,560,907 shares.
5. COMMON AND TREASURY STOCK
Common Stock
During the three months ended June 30, 2010, we issued 335,000 common shares pursuant to the exercise of Series III Warrants for total cash consideration of $53,600 or $0.16 per share.
During the three months ended June 30, 2010, we issued 625,000 restricted common shares to a consultant for services pursuant to a contract. These shares were valued at $100,000 or $0.16 per share based upon the Company’s stock price on the date of grant.
During the three months ended June 30, 2010, we issued 200,000 restricted common shares to Directors. These shares were valued at $50,000 based upon the Company’s stock price on the date of grant.
During the three months ended March 31, 2010, we issued 480,000 restricted common shares to employees as additional compensation. These shares were valued at $105,600 based upon the Company’s stock price on the date of grant.
During the three months ended March 31, 2010, we issued 1,200,000 restricted common shares pursuant to an agreement with members of our board of directors for total cash consideration of $60,000.
On March 17, 2010, we entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) Series I warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as further described below (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as further described below, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).
We received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after the fees discussed below) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the Securities and Exchange Commission (the “Registration Statement”) on April 9, 2010. For information on the Warrants, see Note 6.
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
5. COMMON AND TREASURY STOCK (Continued)
Common Stock (Continued)
In connection with the private placement, we paid our placement agent, LifeTech Capital, a cash fee of $100,000 and issued it a five-year warrant to purchase 625,000 shares of our common stock with an exercise price of $0.16 per share. LifeTech will also receive 625,000 Series I Warrants, 375,000 Series II Warrants and 625,000 Series III Warrants. In addition, LifeTech will receive 10% of the exercise price of all Series III Warrants which are exercised. We also paid legal fees of approximately $80,000 related to the private placement.
During the three months ended June 30, 2009, we issued 30,000 common shares for services valued at $1,200.
During the three months ended March 31, 2009, we issued 30,000 common shares to a consultant for services valued at $1,200.
Treasury Stock
We account for treasury stock as a reduction in capital stock based upon the cost of the shares acquired. Our treasury stock consists of shares returned pursuant to the settlement of a lawsuit, shares returned to the Company and shares purchased by the Company in the market.
During the three months ended March 31, 2010, we issued 300,000 common shares from our treasury stock for services valued at $60,000 based upon the price of our common stock on the date of agreement.
During the three months ended March 31, 2010, we acquired 100,000 shares of common stock at zero cost as part of a settlement agreement with a vendor.
As of June 30, 2010, we had 391,575 treasury shares remaining, acquired at a cost of $1,233.
6. STOCK OPTIONS AND WARRANTS
Options
No options were granted during the three months ended June 30, 2010 and 2009, respectively. All options outstanding are fully vested and exercisable, and there was no unrecognized stock-based compensation expense as of June 30, 2010 and 2009, respectively.
Number of Shares
|
Weighted Average Exercise Price
|
||||
Outstanding at December 31, 2009
|
1,138,768
|
$
|
0.36
|
||
Issued
|
-
|
-
|
|||
Exercised
|
-
|
-
|
|||
Cancelled/Expired
|
1,030,000
|
$
|
0.15
|
||
Outstanding at June 30, 2010
|
108,768
|
$
|
2.34
|
Outstanding and exercisable options had a weighted average remaining life of 3.9 years and no intrinsic value as of June 30, 2010.
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
6. STOCK OPTIONS AND WARRANTS (Continued)
Warrants
A summary of the changes in warrants outstanding during the three months ended June 30, 2010, is as follows:
Number of Shares
|
Weighted Average Exercise Price
|
|||||||
Outstanding at December 31, 2009
|
-
|
$
|
-
|
|||||
Issued
|
18,500,003
|
0.16
|
||||||
Exercised
|
335,000
|
0.16
|
||||||
Cancelled/Expired
|
-
|
$
|
-
|
|||||
Outstanding at June 30, 2010
|
18,165,003
|
$
|
0.16
|
As of June 30, 2010, outstanding warrants had an intrinsic value of $2,405,000 and a weighted average remaining contractual term of 1.75 years.
Pursuant to the Purchase Agreement described in Note 5 above, we issued Series I, II, and III Warrants. The Series I Warrants are exercisable to purchase an aggregate of 6,875,001 shares of the Company’s common stock over a five-year term at an exercise price equal to 125% of the closing price on March 12, 2010 or $0.25 per share, subject to anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the Series I Warrant. The Series I Warrants are not exercisable until six months following the closing of the Purchase Agreement and expire on the fifth anniversary of the closing of the Purchase Agreement. If at any time after the Initial Exercise Date, as such term is defined in the warrant agreement, there is no effective Registration Statement registering the resale of the Warrant Shares by the Holders, then the Series I Warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” A Registration Statement to register the Warrant Shares was filed and declared effective on May 6, 2010.
The Series II Warrants allow the holders to purchase up to an additional 4,125,001 shares of common stock by means of a “cashless exercise.” The Series II Warrants were to be automatically exercised on the 45th trading day following the Effective Date, which is defined as the earlier of the date that (a) all of the Registerable Securities (as defined in the Registration Rights Agreement) have been registered for resale by the holders thereof pursuant to a Registration Statement(s) declared effective by the SEC or (b) the date Rule 144 under the Securities Act of 1933 becomes available for the unrestricted resale of the Shares. The Series II Warrants were intended to provide the investors pricing protection for the Purchase Agreement with a floor price of $0.10 per share. In the event the market price of the Company’s shares declined between the closing of the Purchase Agreement and Effective Date, the Series II warrants were to be automatically exercised on a cashless exercise basis and a number of additional shares would be issued to the investors who participated in the Financing in order to effectively reduce the per share purchase price paid in the Purchase Agreement to the greater of (i) 80% of the 45-day volume weighted average trading price per share of the Company’s common stock immediately following the Effective Date and (ii) $0.10 per share. As such, the greatest number of shares that could be issued pursuant to the Series II Warrants would be 4,125,001 shares. At the Effective Date, the Series II Warrants would either be automatically exercised on a cashless exercise basis if the Company’s stock price is lower at the Effective Date as described above, or they will expire unexercised.
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
6. STOCK OPTIONS AND WARRANTS (Continued)
Subsequent to the three months ended June 30, 2010, we issued 589,712 non-restricted common shares pursuant to the provisions of the Series II warrants. This exercise was automatic and cashless according to the warrant documents. The remaining Series II warrants are now expired.
At the Effective Date, the Series III Warrants provide the investors a 90-day right, subject to extension by a number of days equivalent to the number of days the Registration Statement is not effective during the Series III Warrant term, if applicable, to purchase an additional 6,875,001 shares of common stock from the Company at $0.16 per share. The Series III Warrants are not subject to any adjustments with respect to the exercise price or number of shares covered, except in limited circumstances. The Registration Statement was filed and became effective on May 6, 2010. Series III warrants expire August 6, 2010.
Subsequent to the three months ended June 30, 2010, we issued 1,137,584 non-restricted common shares pursuant to the provisions of the Series III warrants for total cash consideration of $182,013 or $0.16 per share.
In connection with the private placement, we paid our placement agent 625,000 warrants. These warrants provide the agent a five-year right to acquire shares of the company’s stock at $0.16 per share. These warrants are not subject to any adjustments with respect to the exercise price or number of shares covered, except in limited circumstances.
7. DERIVATIVE LIABILITIES – WARRANTS AND OPTIONS
Series I Warrants
The Company determined that Series I Warrants to purchase a total of 6,875,004 shares of common stock issued pursuant to the March 2010 Securities Purchase Agreement contained provisions that protect holders from declines in the Company’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of these warrants was recognized as derivative warrant instruments and will be measured at fair value at each reporting period. Accordingly, during the period ended March 31, 2010, the Company charged the amount of $1,780,583 to stockholders' equity.
The Company measured the fair value of these instruments as of June 30, 2010, and recorded $536,876 unrealized gain for the three months ended June 30, 2010, and $54,251 unrealized loss for the six months ended June 30, 2010. The Company determined the fair values of these securities using a lattice valuation model.
The fair value of the derivative warrant instruments is estimated using the lattice valuation model with the following assumptions as of June 30, 2010:
Common stock issuable upon exercise of warrants
|
6,875,000
|
|||
Estimated market value of common stock on measurement date
|
$
|
0.23
|
||
Exercise price
|
$
|
0.25
|
||
Risk-free interest rate (1)
|
3.00
|
%
|
||
Warrant lives in years
|
5.0
|
|||
Expected volatility (2)
|
202.88
|
%
|
||
Expected dividend yield (3)
|
None
|
|||
Probability of reset to conversion price (4)
|
12.5%
|
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
7. DERIVATIVE LIABILITIES – WARRANTS AND OPTIONS (Continued)
(1)
|
The risk-free interest rate was determined by reference to the yield of US Treasury securities with a term of five years.
|
(2)
|
The volatility factor is based upon the historical volatility of the Company’s common stock.
|
(3)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
|
(4)
|
This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.
|
Insufficient Authorized but Unissued Shares of Common Stock
The issuance of the Warrants on March 17, 2010, pursuant to the Purchase Agreement described in Note 5 above, resulted in a total potential obligation to issue up to 18,165,002 shares of common stock upon the exercise of outstanding warrants and options held by non-employees. The Company had 87,053,015 shares of common stock outstanding at March 31, 2010, and, prior to the May 29, 2010, stockholder approval for an increase in the Company’s authorized shares, had only 100,000,000 shares of common stock authorized. If the warrants and options were to be fully exercised, the Company would have exceeded its authorized shares by 6,053,361 shares.
As we did not have sufficient shares authorized to settle all of our outstanding contracts, this triggered a change in the manner in which the Company accounted for the warrants and stock options held by non-employees. The Company began to account for these warrants and stock options utilizing the liability method. Pursuant to ASC 815-40-05" If a contract is reclassified from permanent or temporary equity to an asset or a liability, the change in fair value of the contract during the period the contract was classified as equity should be accounted for as an adjustment to stockholders' equity." Accordingly, during the period ended March 31, 2010, the Company charged the amount of $1,570,724 to stockholders' equity.
The accounting guidance states that warrants and stock options which are accounted for as a derivative liability should be revalued each reporting period until the circumstances which triggered liability accounting are resolved. The recorded value of such warrants and stock options can fluctuate significantly based on fluctuations in the market value of the issuer’s common stock, as well as in the volatility of the stock price during the term used for observation and the term remaining for warrants.
On May 29, 2010, the Company received stockholder approval for an increase in its authorized shares to 150,000,000. Pursuant to the accounting guidance, the warrants and stock options which were a derivative liability were revalued as of May 29, 2010, and the Company recorded a gain for the three months ended June 30, 2010, of $1,240,194 for the change in the fair value of the liability associated with all warrants outstanding (other than the Series I Warrants described above) and $12,336 for stock options held by non-employees.
With the increase in the Company’s authorized shares to 150,000,000, the circumstances that triggered liability accounting for non-employee warrants and options were resolved. Accordingly, on May 29, 2010, the Company credited the remaining derivative liability associated with these warrants and options to stockholders’ equity and these instruments are no longer accounted for utilizing the liability method.
Activity for derivative warrant and options instruments during the six months ended June 30, 2010, was as follows:
Balance at December 31, 2009
|
Initial Valuation of Derivative Liabilities during the Period
|
Increase
(Decrease) in
Fair Value of
Derivative
Liability
|
Decrease Credited to Stockholders’ Equity Upon Increase in Authorized Shares |
|
Balance at June 30, 2010
|
|
||||||||||||||
Derivative warrant instruments – Series I
|
$ | — | $ | 1,780,583 | $ | 54,251 | $ | — | $ | 1,834,834 | ||||||||||
Derivative warrant instruments – All others
|
$ | — | $ | 1,549,690 | $ | (507,772 | ) | $ | (1,041,918 | ) | $ | - | ||||||||
Derivative option instruments
|
$ | — | $ | 21,034 | $ | (5,253 | ) | $ | (15,781 | ) | $ | - | ||||||||
Total
|
$ | — | $ | 3,351,307 | $ | (458,774 | ) | $ | (1,057,699 | ) | $ | 1,834,834 |
Activity for derivative warrant and options instruments during the three months ended June 30, 2010, was as follows:
Balance at March 31, 2009
|
Increase
(Decrease) in
Fair Value of
Derivative
Liability
|
Decrease Credited to Stockholders’ Equity Upon Increase in Authorized Shares
|
Balance at June 30, 2010
|
|||||||||||||
Derivative warrant instruments – Series I
|
$ | 2,371,710 | $ | (536,876 | ) | $ | — | $ | 1,834,834 | |||||||
Derivative warrant instruments – All others
|
$ | 2,282,112 | $ | (1,240,194 | ) | $ | (1,041,918 | ) | $ | - | ||||||
Derivative option instruments
|
$ | 28,117 | $ | (12,336 | ) | $ | (15,781 | ) | $ | - | ||||||
Total
|
$ | 4,681,939 | $ | (1,789,406 | ) | $ | (1,057,699 | ) | $ | 1,834,834 |
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
7. DERIVATIVE LIABILITIES – WARRANTS AND OPTIONS (Continued)
We valued the warrants using the Black-Scholes valuation model utilizing the following variables:
May 29, 2010
|
March 31, 2010
|
March 17, 2010
|
|||||||||
Market value of stock on grant date or measurement date
|
$ | 0.17 | $ | 0.29(1) | $ | 0.22 | |||||
Risk-free interest rate (1)
|
3.00 |
%
|
3.00 |
%
|
3.00 | % | |||||
Dividend yield
|
0.00 |
%
|
0.00 |
%
|
0.00 | % | |||||
Volatility factor
|
124.07-201.62 |
%
|
115.89-201.62 |
%
|
115.89-201.62 | % | |||||
Weighted average expected life (2)
|
4.0 years
|
4.22 yrs
|
4.22 yrs
|
||||||||
Expected forfeiture rate
|
0 |
%
|
0 |
%
|
0 | % |
(1)
|
The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the warrant on date of grant.
|
(2)
|
Due to a lack of stock option exercise history, the Company uses the simplified method under SAB 107 to estimate expected term.
|
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
8. FAIR VALUE MEASUREMENTS
As defined in FASB ASC Topic No. 820-10 (formerly SFAS 157), fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820-10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
Level 1:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
Level 2:
|
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
|
|
Level 3:
|
|
Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.
|
As required by FASB ASC Topic No. 820-10 (formerly SFAS 157), financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant instruments was calculated using the lattice valuation model (see Note 7 for the assumptions) for the Company’s Series I Warrants and the Black-Scholes valuation model for all other warrants and non-employee options.
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
8. FAIR VALUE MEASUREMENTS (Continued)
Fair Value on a Recurring Basis
The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010:
Fair Value Measurements at June 30, 2010
|
||||||||||||||||
Description
|
Quoted Prices In Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Total Carrying Value as of
June 30, 2010
|
||||||
Derivative warrant instruments
|
$
|
-
|
$
|
-
|
$
|
1,834,834
|
$
|
1,834,834
|
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
Significant Unobservable Inputs
(Level 3)
Three Months Ended
June 30,
|
||||||||
2010
|
2009
|
|||||||
Beginning balance
|
$ | (2,371,710 | ) | $ | - | |||
Total gains (losses)
|
536,876 | - | ||||||
Settlements
|
- | - | ||||||
Additions
|
- | - | ||||||
Transfers
|
- | - | ||||||
Ending balance
|
$ | (1,834,834 | ) | $ | - | |||
Change in unrealized gains (losses) included in earnings
relating to derivativesstill held as of June 30, 2010 and 2009
|
$ | 536,876 | $ | - |
_____________________________________________
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________________________________________
Significant Unobservable Inputs
(Level 3)
Six Months Ended
June 30,
|
||||||||
2010
|
2009
|
|||||||
Beginning balance
|
$ | - | $ | - | ||||
Total gains (losses)
|
(54,251 | ) | - | |||||
Settlements
|
- | - | ||||||
Additions
|
(1,780,583 | ) | - | |||||
Transfers
|
- | - | ||||||
Ending balance
|
$ | (1,834,834 | ) | $ | - | |||
Change in unrealized gains (losses) included in earnings
relating to derivatives still held as of June 30, 2010 and 2009
|
$ | (54,251 | ) | $ | - |
9. LEGAL UPDATE
As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda has won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda. Biomoda submitted a final statement of damages to the Court in November, 2009. At the hearing on Aug. 4, 2010, defendant Alvin Robins failed to appear. The Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda. Subsequently, in an opinion and memoranda issued on August 4, 2010, the Court allowed defendant Alvin Robins ten days to request further hearing on the matter before the Court and to answer the Biomoda argument for damages. Defendant John Kearns is deceased. Biomoda has waived the right to pursue damages against Mr. Kearns' estate.
10. SUBSEQUENT EVENTS
Subsequent to the three months ended June 30, 2010, we issued 589,712 common shares pursuant to the provisions of the Series II Warrants. This exercise was automatic and cashless according to the warrant documents. The remaining Series II Warrants are now expired.
Subsequent to the three months ended June 30, 2010, we issued 1,137,584 common shares pursuant to the exercise of Series III Warrants for total cash consideration of $182,013 or $0.16 per share. The remaining Series III Warrants are now expired.
Subsequent to June 30, 2010, we issued 225,000 common shares to employees as additional compensation. These shares were valued at $45,000 based upon the Company’s stock price on the date of grant.
Subsequent to June 30, 2010, we issued 150,000 common shares to consultants as additional compensation. These shares were valued at $30,000 based upon the Company’s stock price on the date of grant.
Subsequent to June 30, 2010, we issued 1,300,000 common shares to a consultant pursuant to a contract. These shares were valued at $247,000 based upon the Company’s stock price on the date of grant.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Company Overview
Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any significant revenues from operations. There is no assurance of any future revenues. As of June 30, 2010, Biomoda had an accumulated deficit of $8,850,578 and a working capital deficit of $2,315,215, of which $1,834.834 was attributable to the non-cash derivative liability associated with our outstanding warrants and non-employee options. In addition, Biomoda did not generate any cash from operations and had no cash reserve dedicated to fund expenditures. These factors create an uncertainty as to Biomoda’s ability to continue as a going concern.
PLAN OF OPERATION
Our plan of operation for the next 18 months is to complete the pilot and pivotal clinical trials for our lung cancer assay and submit clinical study results to the U.S. Food and Drug Administration ("FDA") for a PMA Class III approval of our CyPathâ diagnostic assay for the early detection of lung cancer. We are currently concluding our pilot clinical study. The pilot clinical trial includes a cohort of patients who had a diagnosis of cancer but who had not begun treatment for the disease and a cohort of high-risk participants, including military veterans in New Mexico. Biomoda has closed patient enrollment and sample collection for the pilot study. The study team is completing data analysis and preparing its report for release. The Company anticipates results sufficient to provide the foundation for a pivotal clinical study leading to submission to the FDA for approval of the commercial sale of Biomoda’s technology.
We are also developing strategies to enter the European market, including filing for approval of a CE mark. The initial work includes an analysis of access to various European markets and regulatory approvals needed for commercial sales in Europe.
Our initial product is an in-vitro diagnostic test for lung cancer that will be used to evaluate sputum samples obtained non-invasively from patients. The samples will be sent to a clinical lab where they will be analyzed with the CyPath® assay labeling solution to determine the presence, or absence, of lung cancer or precancerous cells. Our diagnostic test can be used for other tissue and body fluid samples, and we intend to create and market products to diagnose and screen for other prevalent cancers, including breast, cervical, bladder, oral and colorectal. We have determined that our initial markets will build upon established relationships with prominent hospitals, laboratories and the U.S. Veterans Administration ("VA") hospitals. Such relationships will ensure timely initial commercial sales. This initial commercial acceptance within the VA system can be efficiently leveraged through the VA infrastructure. The VA also is the product approval channel for the U.S. Agency for International Development ("AID"), conditional on FDA approval. Ongoing published results of test data and clinical studies and presentations at appropriate medical symposia will help accelerate sales growth.
In addition to augmenting laboratory research and development, management plans to further strengthen our corporate infrastructure to adequately manage the future growth and success of our operations. Management expects to hire additional personnel and enter into consulting and collaborative arrangements over the next 12 months as needed to continue to strengthen and enhance the growth of the Company.
CLINICAL STUDY UPDATE
On March 5, 2009, we received approval from an independent Institutional Review Board ("IRB") to begin pilot clinical trials of our cytology-based screening technology for early detection of cancer. Biomoda’s proprietary technology had previously shown 100 percent sensitivity and 100 percent specificity during internal testing on a small sample of patients.
Funded by the New Mexico State Legislature and administered by the New Mexico Department of Veterans Services and the New Mexico Institute of Mining and Technology, the screening program is the first large-scale study of Biomoda’s CyPath® investigational-use-only (not yet FDA-approved) diagnostic, which is based on a patented molecular marker that binds to cancer cells and fluoresces under specific frequencies of light.
We have received full payment of a continuing government contract of $1.3 million for fiscal year ended June 30, 2009, related to this study.
Study volunteers provide deep-lung sputum samples to be screened for the presence or absence of cancer cells with Pap stain analysis performed by cytopathologists at the VA Medical Center in Denver and CT scans read by independent radiologists under the International Early Lung Cancer Action Program (I-ELCAP) Enrollment and Screening Protocol. Results determined on the sputum samples with the investigational CyPath® assay in the Biomoda lab are then compared to these diagnostic results. Results from this study will be used by Biomoda as the foundation for its large pivotal clinical study that will lead to FDA approval for commercialization of the CyPath® assay.
Dr. Thomas L. Bauer, Chief Thoracic Surgeon and cancer researcher with the Christiana Care Health System in Delaware, is the national Principal Investigator (PI) overseeing the pilot clinical study currently underway. Dr. Bauer has led several lung and esophageal cancer studies. Dr. Bauer is working with Dr. Lara Patriquin, a diagnostic radiologist in Albuquerque, who serves as the local PI for the pilot clinical study.
The pilot clinical study is focused on testing military veterans because they may be at least 25 percent more likely to develop lung cancer and die from the disease than the general population, according to a U.S. Department of Defense report. The pilot clinical trial also includes analysis of a cohort of patients who had been diagnosed with cancer but had not yet begun treatment for the disease. Biomoda has closed patient enrollment and sample collection for the pilot study. The study team is completing data analysis and preparing its report for release. Results will be published at the end of the study period after data has been analyzed. The Company anticipates results sufficient to provide the foundation for a pivotal clinical study leading to submission to the FDA for approval of the commercial sale of Biomoda’s technology.
Our pilot clinical trial to screen military veterans for early-stage lung cancer has been enhanced to include a longitudinal component, which will provide additional data on the efficacy of the Biomoda diagnostic. Study participants whose initial results indicated areas of concern – the presence of nodules on the lungs, a positive read by CyPathâ or a positive read for cancer cells with Pap analysis – have been asked to return for follow-up screening. We believe the ability to monitor study participants over the longer term will result in a better medical outcome for the patient as well as provide additional data for Biomoda in preparation for the pivotal trials and FDA approval.
It is expected that continued contact with study participants that allows for monitoring of their lung health will expand the use of the CyPath® assay beyond early diagnosis to measuring the success of treatment.
Biomoda has taken preliminary steps necessary to conduct the multi-site pivotal clinical study of our diagnostic for early-stage lung cancer, trademarked under the name CyPath®.
Biomoda is seeking FDA approval of its cytology-based screening technology as a Class III medical device under the Pre-Market Approval ("PMA") process. When pilot clinical trial results are complete, the Company intends to file a report with the FDA informing the agency of study findings and submit a pre-IDE (Investigational Device Exemption) filing.
Increase in Authorized Common Stock
On May 20, 2010, we held a Special Meeting of Shareholders to increase the authorized shares of Common Stock to 150,000,000. The meeting was adjourned until May 29, 2010, at 10 a.m. Mountain Time. As of May 24, a majority of shareholders had approved the increase in authorized shares to 150,000,000. This vote was ratified at the May 29, 2010, meeting.
Equity Transactions
On April 9, 2010, we filed a Form S-1 Registration Statement to cover 16,250,003 of the shares pursuant to a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser identified on the signature pages thereto (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as further described below, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iii) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share. The Form S-1 Registration Statement became effective May 6, 2010.
On June 22, 2010, we filed an Amended Form S-1 Registration Statement to cover 7,500,001 of the shares pursuant to a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser identified on the signature pages thereto (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 625,000 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), and (ii) Series I warrants to purchase an additional 6,875,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as further described below (the “Series I Warrants”). The Amended Form S-1 Registration Statement became effective June 30, 2010.
BOARD ELECTION AND APPOINTMENT OF CORPORATE SECRETARY
On July 27, 2010, the Board of Directors unanimously elected Maria Zannes as its Chairman. Ms. Zannes stepped down as Corporate Secretary. The Board of Directors also elected Timothy Zannes as Corporate Secretary. Mr. Zannes remains in his capacity as Corporate Legal Counsel.
OTHER INITIATIVES
Government Contracts
In July 2009, Biomoda President John Cousins testified before the Nebraska State Legislature about legislation to fund a clinical study for the early detection of lung cancer in Nebraska veterans. Management is continuing discussions to obtain funding for clinical study of CyPath by Nebraska institutions.
Online Networking
Biomoda provides public updates through both Twitter, Facebook and email updates. Interested parties may also register on the Biomoda website at www.biomoda.com to receive email updates about the Company.
PATENTS AND TRADEMARKS
In January 2005, the U.S. Patent Office awarded a Patent to Biomoda entitled "Compositions and Methods for Detecting Precancerous Conditions in Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine." This Patent represented a significant addition to our patent portfolio and expanded our intellectual property to include cancer screening as a compliment to the existing technology. We filed for a continuation of this Patent based on research currently underway by researchers at Biomoda.
In April 2008, the U.S. Patent Office awarded a Divisional Patent to Biomoda entitled “Method of Prognosing Response to Cancer Therapy with 5, 10, 15, 20 - Tetrakis (Carboxyphenyl) Porphine,” patent number 7,382,764.
On October 22, 2009, Biomoda received a Notice of Allowance from the U.S. Patent and Trademark Office for the patent “Method for Making 5, 10, 15, 20- Tetrakis (Carboxyphenyl) Porphine (TCPP) Solution and Composition Comprising TCPP.” The new patent is number 7,670,799.
Subsequent to June 30, 2010, Biomoda filed an additional patent application, “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” which provides a quantitative method for reading tissue samples for signs of malignant cells based on flow cytometry and dark-field microscopy.
On July 27, 2010, Biomoda received a Notice of Allowance from the Canadian Intellectual Property Office for "Compositions and Methods for Detecting Precancerous Conditions in Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine." The new Canadian patent number is 2,429,526.
The U.S. Patent and Trademark Office has registered the marks CyPath® and CyDx®.
RESULTS OF CONTINUING OPERATIONS
We have recorded no significant revenue from inception through June 30, 2010.
Due to our limited operating history, we believe that period-to-period comparisons of our results of operations are not fully meaningful and should not be relied upon as an indication of future performance.
Comparison of the three months ended June 30, 2010 and 2009
REVENUE. As of June 30, 2010, there have been no significant revenues since inception.
RESEARCH AND DEVELOPMENT. Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, increased to $111,622 for the three months ended June 30, 2010, from $16,389 for the three months ended June 30, 2009. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, we expect expenses such as clinical studies and collaborations to increase significantly in the next year. We expense product development costs as they are incurred. During the quarter ended June 30, 2009, we accrued a reimbursement of allowable research and development expenses through a clinical study funded through the New Mexico Department of Veterans Services and administered by the New Mexico Institute of Mining and Technology to screen New Mexican veterans for lung cancer. For the three months ended June 30, 2009, we recorded $248,193 as a reduction of research and development expenses related to this clinical study program. For the three months ended June 30, 2010, we recorded $0 as a reduction of operating expenses related to this clinical study program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities. General and administrative costs, taken together with professional fees, increased to $323,349 for the three months ended June 30, 2010, from $79,846 for the three months ended June 30, 2009. The increase was primarily related to increased wages due to additional employees added in 2009 and 2010. We expect general and administrative costs to increase in the future as our business prospects develop and we require more staff. The costs associated with being a publicly traded company and future strategic acquisitions will also be a contributing factor to increases in this expense.
OTHER INCOME (EXPENSE). Other income (expense) in these periods is composed of interest expense, gain on sale of assets and unrealized losses related to the increase in the fair value of the derivative liabilities associated with our outstanding warrants and options. Interest expense decreased for the three months ended June 30, 2010, to $3,934 from $3,967 for the three months ended June 30, 2009. Also, during the three months ended June 30, 2010, we recognized an unrealized non-cash gain from the decrease in the fair value of the derivative liability related to our outstanding warrants and non-employee options of $1,777,070 and $12,336, respectively.
Comparison of the six months ended June 30, 2010 and 2009
REVENUE. As of June 30, 2010, there have been no significant revenues since inception.
RESEARCH AND DEVELOPMENT. Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, increased to $159,572 for the six months ended June 30, 2010, from $11,330 for the six months ended June 30, 2009. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, we expect expenses such as clinical studies and collaborations to increase significantly in the next year. We expense product development costs as they are incurred. During the six months ended June 30, 2010 and 2009, we accrued a reimbursement of allowable research and development expenses through a clinical study funded through the New Mexico Department of Veterans Services and administered by the New Mexico Institute of Mining and Technology to screen New Mexican veterans for lung cancer. For the six months ended June 30, 2009, we recorded $456,046 as a reduction of research and development expenses related to this clinical study program. For the six months ended June 30, 2010, we recorded $44,892 as a reduction of operating expenses related to this clinical study program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities. General and administrative costs, taken together with professional fees, increased to $699,064 for the six months ended June 30, 2010, from $163,386 for the six months ended June 30, 2009. The increase was primarily related to increased wages due to additional employees added in 2009 and 2010. We expect general and administrative costs to increase in the future as our business prospects develop and we require more staff. The costs associated with being a publicly traded company and future strategic acquisitions will also be a contributing factor to increases in this expense.
OTHER INCOME (EXPENSE). Other income (expense) in these periods is composed of interest expense, gain on sale of assets and unrealized losses related to the increase in the fair value of the derivative liabilities associated with our outstanding warrants and options. Interest expense increased for the six months ended June 30, 2010, to $7,892 from $7,366 for the six months ended June 30, 2009. We recognized a gain of $2,068 associated with the sale of equipment for the six months ended June 30, 2010. Also, during the six months ended June 30, 2010, we recognized an unrealized non-cash gain from the decrease in the fair value of the derivative liability related to our outstanding warrants and non-employee options of $453,521 and 5,253, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations with sales of equity for cash, issuance of equity for services in lieu of cash and government funding. In the next 18 months, it is our intent to generate revenues from product sales and to begin partially funding operations from revenues, which will be subject to the outcome of clinical studies and FDA approval.
On March 17, 2010, we entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser identified on the signature pages thereto (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) Series I warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as described in the warrant agreement (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as described in the warrant agreement, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).
We received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after placement agent and legal fees) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the Securities and Exchange Commission (the “Registration Statement”) on April 9, 2010, that became effective May 6, 2010.
In addition to funding normal operating expenses, the proceeds from the securities purchase transaction are targeted for four main objectives
1.
|
Completion of the pilot study.
|
2.
|
Design of the pivotal study.
|
3.
|
Investigation of CyPath’s suitability as a diagnostic for additional cancers.
|
4.
|
Develop strategies to enter the European market, including filing for approval of a CE mark.
|
Product development expenditures, including personnel expense and general and administrative expense, was $111,622 for the three months ended June 30, 2010. Funds for operations, product development and capital expenditures were provided from the sale of restricted company stock and the reimbursement grant we received. We will require substantial additional funding for continuing research and development, obtaining regulatory approval and the commercialization of our products.
Management believes that sales of securities and government contracts will provide adequate liquidity and capital resources to meet the anticipated development-stage requirements through the end of 2011. In addition, it is anticipated that sales of our initial screening product will begin in 2012, pending FDA approval, and generate operating revenues. It is anticipated that these sales will provide the additional capital resources to fund the proportionately higher working capital requirements of production and sales initiatives and continued product development for second-generation diagnostic and therapeutic products.
Subsequent to June 30, 2010, Biomoda submitted an application for a grant under the Qualifying Therapeutic Discovery Project provided under new section 48D of the Internal Revenue Code ("IRC"), enacted as part of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148). We will be notified of the status of our application by October 29, 2010.
There is no assurance that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
INFLATION
Management believes that inflation has not had a material effect on our results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in our market risks since the end of fiscal year 2009.
Item 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report, June 30, 2010. Based upon that evaluation, we concluded that our disclosure controls and procedures were not effective.
Management noted that there were no material weaknesses related to the policies and procedures that:
•
|
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
|
•
|
Provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
•
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
|
The Company's material weaknesses exist in its period-end closing procedures and specifically relate to the procedures designed to ensure that:
1.
|
All expenses are properly accrued and reported in the proper period;
|
2.
|
Deferred charges are properly amortized to expense in the proper accounting period; and
|
3.
|
All required GAAP and SEC disclosures are made in its annual filings.
|
To remedy these material weaknesses, the Company intends to modify its monthly closing procedures to allow for additional levels of management review to ensure all expenses are recorded or amortized in the correct accounting period. The Company will also implement additional procedures, including the use of disclosure checklists and possibly outside consultants, if cost effective, to ensure required GAAP and SEC disclosures are made in its annual and quarterly reports.
We are in the development stages of our business operations and have limited resources available to plan, develop, and implement disclosure and procedure controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.
We are re-evaluating and revising our existing control policies and procedures. As part of such plan and implementation, we are re-evaluating, re-designing and documenting policies and procedures, putting such procedures into operation and monitoring the effectiveness of the procedures.
CHANGES IN CONTROLS AND PROCEDURES
Significant changes have been made to improve our internal controls over financial reporting during the three months ended June 30, 2010. We have implemented checklists for beginning-of-month, mid-month and end-of-month activities which are reviewed by Management. Management continues to address the deficiencies in our control and procedures. We have hired a CPA firm, Meyners and Company, to help oversee accounting, create financial statements and liaison with auditors. We have completed an accounting manual and are implementing a review process over significant business transactions.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL
Management, including the CEO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management's override of the controls. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, financial reporting misstatements due to error or fraud may occur and not be detected on a timely basis.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda has won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda. Biomoda submitted a final statement of damages to the Court in November 2009. At the hearing on Aug. 4, 2010 defendant Alvin Robins failed to appear. The Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda. Subsequently in an opinion and memoranda issued on August 4, 2010, the Court has allowed defendant Alvin Robins ten days to request further hearing on the matter before the Court and to answer the Biomoda argument for damages. Defendant John Kearns is deceased. Biomoda has waived the right to pursue damages against Mr. Kearns' estate.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders was held on May 20, 2010, to increase the authorized shares of Common Stock from 100,000,000 to 150,000,000. The meeting was adjourned until May 29, 2010, 10 a.m. Mountain Time. As of May 24, a majority of shareholders had approved the increase in authorized shares to 150,000,000. This vote was ratified at the May 29, 2010, meeting.
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BIOMODA, INC. | |||
Date: August 16, 2010
|
By:
|
/s/ John J. Cousins | |
John J. Cousins | |||
President | |||
(Principal Executive and Accounting Officer) |