EXHIBIT 13.1
Published on April 16, 2012
Exhibit 13.1
Commonwealth Biotechnologies, Inc.
2011
ANNUAL REPORT
Commonwealth Biotechnologies, Inc.
Table of Contents
Page Number |
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Stockholder Matters |
1 | |||
Selected Financial Data |
2 | |||
Management Discussion and Analysis of Financial Condition and Results of Operations |
3 | |||
Report of Independent Registered Public Accounting Firm |
12 | |||
Consolidated Financial Statements |
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Balance Sheets |
13 | |||
Statements of Operations |
14 | |||
Statements of Stockholders Equity (Deficit) |
15 | |||
Statements of Cash Flows |
16 | |||
Summary of Significant Accounting Policies |
17 | |||
Notes to Financial Statements |
22 | |||
Corporate Information |
39 |
Stockholder
Matters
1
Selected
Financial Data
Set forth below is selected financial data with respect to the years ended December 31, 2011 and 2010. The selected financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Conditions and Results of Operation.
As of and for the year ended December 31, | ||||||||
2011 | 2010 | |||||||
Operational Data |
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Total revenues |
$ | | $ | | ||||
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Loss from continuing operations |
(264,802 | ) | (644,617 | ) | ||||
Income (loss) from discontinued operations |
36,914 | (359,653 | ) | |||||
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Net loss |
$ | (227,888 | ) | $ | (1,004,270 | ) | ||
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Basic and diluted loss per common share from continued operations |
$ | (0.02 | ) | $ | (0.06 | ) | ||
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Basic and diluted loss per common share from discontinued operations |
| (0.04 | ) | |||||
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Basic and diluted loss per common share |
$ | (0.02 | ) | $ | (0.10 | ) | ||
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Weighted average shares outstanding |
12,108,141 | 9,864,040 | ||||||
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Balance Sheet Data |
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Total Current Assets |
$ | 1,376,230 | $ | 2,372,245 | ||||
Total Assets |
1,376,230 | 6,147,389 | ||||||
Total Current Liabilities |
540,149 | 1,021,696 | ||||||
Total Liabilities |
1,745,380 | 5,746,348 | ||||||
Total Stockholders Equity (Deficit) |
$ | (369,150 | ) | $ | 401,041 |
2
Managements Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with Selected Financial Data and the Companys Audited Financial Statements and Notes thereto included within.
Overview
Commonwealth Biotechnologies, Inc. (the Company or CBI) was a specialized life sciences outsourcing business that offered cutting-edge expertise and a complete array of Peptide-based discovery chemistry and biology products and services through Mimotopes Pty Limited (Mimotopes), a wholly-owned subsidiary of CBI. Through November 2, 2009, CBI also provided services through CBI Services and Fairfax Identity Laboratories (FIL), two divisions that were sold to Bostwick Laboratories, Inc. (Bostwick) effective November 2, 2009.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Currently, the Company has no operating units or subsidiaries.
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space located at 601 Biotech Drive in Chesterfield County, Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
In addition, the Company is actively seeking to execute a merger and acquisition (M&A) transaction with a private Company seeking access to the public financial markets.
Mimotopes is shown in the Consolidated Financial Statements as discontinued operations.
Intellectual Property
Prior to the asset sale to Bostwick, CBI was primarily focused on fee-for-service offerings. In addition, CBI developed various intellectual properties that had resulted in U.S. and international patents. Most of these were assigned to Bostwick as part of the asset sale. However, the Company retained one dormant patent application in the vaccine development area. More specifically, this dormant patent application relates to formulations, methods and kits for minimizing or preventing the reversion of attenuated microorganisms, such as viruses, to their respective wild types or other infectious forms, and for the design and evaluation of vaccines and vaccine formulations that minimize or eliminate such disadvantageous reversions. Management believes this technology could be attractive to potential M&A partners.
3
CBI takes appropriate steps to protect its intellectual property rights and those of its customers. The Companys practice is to require its employees and consultants to execute non-disclosure and proprietary rights agreements upon commencement of employment or consulting arrangements with the Company. These agreements require that all proprietary information disclosed to the individual by CBI or its customers remain confidential.
Going Concern
The accompanying financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in the normal course of business. If the Company is unable to improve operating results and meet its debt obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Net losses were $227,888 and $1,004,270 for the years ended December 31, 2011 and 2010, respectively. As of result of the Building Sale and the Sale of Mimotopes during 2011, the Company has no sources of revenue. Consequently, there can be no assurance by management that the Companys financial outlook will improve or that an M&A partner will be obtained in a timely manner.
The Company generated positive cash flows of $1,222,056 in 2011, compared to a decrease in cash of $454,748 in 2010. Net working capital as of December 31, 2011 and December 31, 2010 was $836,081 and $1,350,549, respectively.
The Company had $1,321,968 and $99,912 in cash and cash equivalents at December 31, 2011 and 2010, respectively. This increase was primarily the result of the net proceeds received on the sale of Mimotopes and the Building Sale during 2011.
Cash provided by (used in) operating activities was $67,533 and $(173,807) in 2011 and 2010, respectively. This change was primarily the result of the sale of Mimotopes in the second quarter of 2011 and the Building Sale on December 29, 2011. As a result of these sales, the Company has no operating subsidiaries or an ongoing source of revenue. These decreases in operating cash flows were partially offset by the increase in accrued expenses relating primarily to accrued legal fees resulting from the Companys bankruptcy filing in January 2011.
Cash provided by investing activities was $1,474,837 and $0 in 2011 and 2010, respectively. The primary investing activities in 2011 were proceeds from the Building Sale and the sale of Mimotopes.
Cash used by financing activities for 2011 and 2010 was $320,314 and $280,941, respectively. This change is primarily payments on the mortgage prior to the Building Sale.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County , Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
4
In addition, the Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets.
Mimotopes is shown in the Consolidated Statement of Operations as discontinued operations.
A continued lack of adequate cash resulting from the Companys inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations.
There can be no assurance that any funds required during the next twelve months or thereafter can be generated. Nor can there be any assurance that funds will be available from external sources, such as debt or equity financing or other potential sources, if they cannot be generated internally. Lastly, there can be no assurance that the Company will be able to secure a suitable M&A partner.
During the last year, the Companys business has undergone substantial changes in relation to size, scale and scope of activities. The Company currently has no operating units or subsidiaries.
As of result of the Building Sale and Sale of Mimotopes during 2011, the Company has no sources of revenue and must fund administrative expenses from cash on hand.
As a result of the foregoing circumstances, there is substantial doubt about the Companys ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
The Companys independent auditors have included a paragraph emphasizing going concern in their report on the 2011 financial statements. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Change in Operating Structure
Melbourne-based Mimotopes was acquired by CBI in 2007. It provides world class research grade peptide synthesis and analysis. Mimotopes also has several proprietary technologies for the preparation of peptide and small molecule libraries for drug discovery and for epitope analysis in support of its clients vaccine development programs. Mimotopes also has a formal peptide alliance with Genzyme Pharmaceuticals, a world class provider of GMP pharmaceutical grade peptides and also enjoys a strong relationship with GL Biochem, a Shanghai-based peptide synthesis and reagent company.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space located at 601 Biotech Drive, Chesterfield County , Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
5
In addition, the Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets.
Strategy Going Forward
The Company currently has no operating units or subsidiaries. The Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets. The Company plans to complete this process while under the protection of the Bankruptcy Court. Until an M&A transaction is completed, administrative expenses will be funded from cash on hand.
Results of Operations
Year Ended December 31, 2011 (2011) Compared with Year Ended December 31, 2010 (2010).
All financial comparisons are for continuing operations unless otherwise noted for discontinued operations.
Revenues
As a result of the sale of Mimotopes in the second quarter of 2011 and the Building Sale on December 29, 2011, the Company has no ongoing sources of revenue until a suitable M&A transaction partner can be obtained.
General and Administrative
General and administrative expenses (GA) consist primarily of compensation and related costs for corporate administrative staff, professional fees, consulting, taxes, and other administrative expenses. Total GA costs decreased $44,341, or 4.3%, from $1,026,437 in 2010 to $982,096 in 2011. This decrease is primarily a result of decreased operations and the elimination of corporate overhead costs subsequent to the sale of CBI Services and FIL in November 2009. Currently, the corporate administrative staff consists of the CEO, Staff Accountant and a consultant who serves, on a part-time basis, as the acting principal financial officer. These decreases were partially offset by increased legal costs associated with the Companys bankruptcy filing. Legal expenses increased $225,875, or 371.5%, from $60,806 in 2010 to $286,681 in 2011.
Since the Company has no current sources of revenue, future administrative costs must be funded from cash on hand.
Other Income (Expenses)
Rental income consists solely of rents received from Bostwick for the lease of office and laboratory space located at 601 Biotech Drive in Chesterfield County, Virginia. This lease commenced in November 2009 and was terminated as a result of the Building Sale on December 29, 2011. Consequently, the Company has no sources of future revenue until a suitable M&A transaction partner can be obtained.
6
During 2011, the following gains and losses were recognized relating to the Building Sale and the sale of Mimotopes:
| Gain of $148,773 on the Building Sale; |
| Gain of $764,239 relating to the recognition of other comprehensive income on the deconsolidation of Mimotopes; |
| Loss of $575,026 on the deconsolidation of Mimotopes. |
No such gains and losses were incurred in 2010.
Interest expense was $217,580 and 233,148 for 2011 and 2010, respectively. As a result of the payoffs of the PIPE Investor Notes during the second quarter of 2011 and the payoff of the mortgage from the proceeds of the Building Sale on December 29, 2011, the only remaining debt is the Fornova Note. Consequently, beginning in January 2012, interest expense will relate solely to the Fornova Note and will accrue at a rate of approximately $4,000 per month. During 2010 and 2011, monthly interest expense was approximately $19,000 and was comprised of interest expense on the Companys Mortgage, PIPE Investor Notes and the Fornova Note.
Discontinued Operations
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. Results of operating Mimotopes are shown as discontinued operations in the Consolidated Statement of Operations for 2011 and 2010. In addition, the related assets and liabilities of Mimotopes are shown as Assets of discontinued operations and Liabilities of discontinued operations in the Consolidated Balance Sheet as of December 31, 2010.
Income (loss) from discontinued operations was $36,914 in 2011 and ($359,653) in 2010. These amounts consist solely of the operations of Mimotopes.
Liquidity and Capital Resources
Net losses were $227,888 and $1,004,270 for the years ended December 31, 2011 and 2010, respectively. As of result of the Building Sale and the Sale of Mimotopes during 2011, the Company has no sources of revenue. Consequently, there can be no assurance by management that the Companys financial outlook will improve or that an M&A partner will be obtained in a timely manner.
The Company generated positive cash flows of $1,222,056 in 2011, compared to a decrease in cash of $454,748 in 2010. Net working capital as of December 31, 2011 and December 31, 2010 was $836,081 and $1,350,549, respectively.
The Company had $1,321,968 and $99,912 in cash and cash equivalents at December 31, 2011 and 2010, respectively. This increase was primarily the result of the net proceeds received on the sale of Mimotopes and the Building Sale during 2011.
7
Cash provided by (used in) operating activities was $67,533 and $(173,807) in 2011 and 2010, respectively. This change was primarily the result of the sale of Mimotopes in the second quarter of 2011 and the Building Sale on December 29, 2011. As a result of these sales, the Company has no operating subsidiaries or an ongoing source of revenue. These decreases in operating cash flows were partially offset by the increase in accrued expenses relating primarily to accrued-legal fees resulting from the Companys bankruptcy filing in January 2011.
Cash provided by investing activities was $1,474,837 and $0 in 2011 and 2010, respectively. The primary investing activities in 2011 were proceeds from the Building Sale and the sale of Mimotopes.
Cash used by financing activities for 2011 and 2010 was $320,314 and $280,941, respectively. This change is primarily payments on the mortgage prior to the Building Sale.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County , Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
In addition, the Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets.
Mimotopes is shown in the Consolidated Statement of Operations as discontinued operations.
Other assets include a receivable in the amount of $50,000 relating to funds held in escrow by the Companys bankruptcy attorneys.
A continued lack of adequate cash resulting from the Companys inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations.
There can be no assurance that any funds required during the next twelve months or thereafter can be generated. Nor can there be any assurance that funds will be available from external sources, such as debt or equity financing or other potential sources, if they cannot be generated internally. Lastly, there can be no assurance that the Company will be able to secure a suitable M&A partner.
During the last year, the Companys business has undergone substantial changes in relation to size, scale and scope of activities. The Company currently has no operating units or subsidiaries.
As of result of the Building Sale and Sale of Mimotopes during 2011, the Company has no sources of revenue and must fund administrative expenses from cash on hand.
As a result of the foregoing circumstances, there is substantial doubt about the Companys ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
8
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) published Accounting Standards Update (ASU) 2011-08, Intangibles Goodwill and Other (Topic 350), Testing Goodwill for Impairment (ASU 2011-08), which simplifies how entities test goodwill for impairment. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of ASU 2011-08 did not have an impact on our financial statements.
In June 2011, the FASB published ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (ASU 2011-05), which has the objective of improving the comparability, consistency, and transparency of financial reporting and increasing the prominence of items reported in other comprehensive income. As part of ASU 2011-05, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders equity, among other amendments in this ASU. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this ASU are to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and the amendments are to be applied retrospectively. In December 2011, with the issuance of ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standard Update No. 2011-05, the FASB announced that it has deferred certain aspects of ASU 2011-05. The adoption of the accounting and disclosure requirements of this ASU is not expected to have a significant impact on our financial statements
In May 2011, the FASB published ASU 2011-04, Fair Value Measurement (Topic 820) Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, whereby the FASB and the International Accounting Standards Board (IASB) aligned their definitions of fair value such that their fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011, and are to be applied prospectively. The adoption of the accounting and disclosure requirements of this ASU will not have a significant impact on our financial statements.
Corporate Guidance
As a consequence of the Sarbanes-Oxley Act, the NASDAQ imposed certain changes in the rules of corporate governance which are aimed at strengthening its listing standards. The Securities and Exchange Commission (SEC) approved the rules imposed by NASDAQ. Thus:
| CBIs Board is composed of four independent and three Insider directors. |
9
| Only independent directors serve on the three principal committees: Audit, Compensation and Nominating. |
| All the independent directors, Mr. Samuel P. Sears, Mr. James Causey, and Mr. Eric V. Tao who serve on the Audit Committee, meet all of the requirements as defined by the SEC for being a financial expert. |
| The Audit Committee reviews and approves all related-party transactions. CBI has adopted a formal Corporate Code of Conduct. Copies are available on request from the Company or on the Companys website at www.cbi-biotech.com. |
Critical Accounting Policies
A summary of the Companys critical accounting policies follows:
Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognized revenue upon the completion of laboratory service projects, or upon the delivery of biologically relevant materials that had been synthesized in accordance with project terms. Laboratory service projects were generally administered under fee-for-service contracts or purchase orders. Any revenues from research and development arrangements, including corporate contracts and research grants, were recognized pursuant to the terms of the related agreements as work was performed, or as scientific milestones, if any, were achieved. Product sales were recognized when shipped. Amounts received in advance of the performance of services or acceptance of a milestone, were recorded as deferred revenue and recognized when completed.
Rental income was recognized when earned in accordance with the terms of the lease agreement.
Forward Looking Statements
Management has included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used, statements that are not historical in nature, including the words anticipated, estimate, should, expect, believe, intend, and similar expressions are intended to identify forward-looking statements. Such statements are, by their nature, subject to certain risks and uncertainties.
Among the factors that could cause the actual results to differ materially from those projected are the following:
| business conditions and the general economy, |
10
| the development and implementation of the Companys long-term business goals, |
| federal, state, and local regulatory environment, |
| lack of demand for the Companys services, |
| the ability of the Companys customers to perform services similar to those offered by the Company in-house, |
| potential cost containment by the Companys customers resulting in fewer research and development projects, |
| the Companys ability to receive accreditation to provide various services, including, but not limited to paternity testing |
| the Companys ability to hire and retain highly skilled employees, |
| the Companys ability to raise additional equity financing, |
| the Companys inability to pay debt obligations, |
| the Companys inability to find a suitable M&A transaction partner. |
Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by the company with the Securities and Exchange Commission, including Forms 8-K, 10-QSB, and 10-KSB.
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Commonwealth Biotechnologies, Inc.
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Commonwealth Biotechnologies, Inc. and Subsidiary as of December 31, 2011 and 2010 and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. The Companys management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Biotechnologies, Inc. and Subsidiary as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Companys recurring losses from operations and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Richmond, Virginia
April 11, 2012
12
Commonwealth Biotechnologies, Inc.
Consolidated Balance Sheets
December 31, 2011 |
December 31, 2010 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 1,321,968 | $ | 99,912 | ||||
Investments |
527 | 527 | ||||||
Accounts receivable, net |
| | ||||||
Other current assets |
53,735 | 3,735 | ||||||
Assets of discontinued operations |
| 2,268,071 | ||||||
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|
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Total current assets |
1,376,230 | 2,372,245 | ||||||
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Property and Equipment, net |
| 5,432 | ||||||
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Other Assets |
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Assets held for sale |
| 3,769,712 | ||||||
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Total other assets |
| 3,769,712 | ||||||
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Total Assets |
$ | 1,376,230 | $ | 6,147,389 | ||||
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|
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
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Liabilities Not Subject to Compromise |
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Current Liabilities |
||||||||
Accounts payable |
$ | 374,245 | $ | 12,853 | ||||
Accrued payroll liabilities |
165,904 | 12,969 | ||||||
Liabilities of discontinued operations |
| 995,874 | ||||||
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|
|
|
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Total current liabilties |
540,149 | 1,021,696 | ||||||
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|
|
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Total Liabilities Not Subject to Compromise |
540,149 | 1,021,696 | ||||||
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|
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Liabilities Subject to Compromise |
||||||||
Debt plus accrued interest |
666,667 | 3,726,052 | ||||||
Priority claims |
35,175 | 35,175 | ||||||
Accounts payable and other unsecured creditors |
448,453 | 512,196 | ||||||
Deferred revenue |
| 128,434 | ||||||
Rent deposit |
| 144,873 | ||||||
Other liabilities |
54,936 | 177,922 | ||||||
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|
|
|
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Total Liabilities Subject to Compromise |
1,205,231 | 4,724,652 | ||||||
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|
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Total Liabilities |
1,745,380 | 5,746,348 | ||||||
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Commitments, and contingencies |
| | ||||||
Stockholders equity (deficit) |
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Preferred stock, no par value, 1,000,000 shares authorized - none outstanding |
| | ||||||
Common stock, no par value, 100,000,000 shares authorized; 2011- 12,660,504 2010 - 9,906,338 issued and outstanding |
| | ||||||
Additional paid-in-capital |
26,229,815 | 26,119,191 | ||||||
Restricted stock |
| | ||||||
Other comprehensive income |
| 652,927 | ||||||
Accumulated deficit |
(26,598,965 | ) | (26,371,077 | ) | ||||
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|
|
|
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Total stockholders equity (deficit) |
(369,150 | ) | 401,041 | |||||
|
|
|
|
|||||
Total Liabilities and Stockholders Equity (Deficit) |
$ | 1,376,230 | $ | 6,147,389 | ||||
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See accompanying summary of accounting policy and notes to financial statements
13
Commonwealth Biotechnologies, Inc.
Consolidated Statement of Operations
Years Ended December 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | | $ | | ||||
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Total revenues |
| | ||||||
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Operating costs and expenses |
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General and administrative |
982,096 | 1,026,437 | ||||||
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Total Operating Costs and Expenses |
982,096 | 1,026,437 | ||||||
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|||||
Operating loss |
(982,096 | ) | (1,026,437 | ) | ||||
|
|
|
|
|||||
Other income (expense) |
||||||||
Gain on sale of land and building |
148,773 | | ||||||
Recognition of other comprehensive income on deconsolidation of subsidiary |
764,239 | | ||||||
Rental income |
596,454 | 610,281 | ||||||
Loss on deconsolidation of subsidiary |
(575,026 | ) | | |||||
Interest expense |
(217,580 | ) | (233,148 | ) | ||||
Other income |
434 | 4,687 | ||||||
|
|
|
|
|||||
Total other income (expense) |
717,294 | 381,820 | ||||||
|
|
|
|
|||||
Loss from continuing operations |
(264,802 | ) | (644,617 | ) | ||||
|
|
|
|
|||||
Income (loss) from operating discontinued operations |
36,914 | (359,653 | ) | |||||
|
|
|
|
|||||
Total income (loss) from disconintued operations |
36,914 | (359,653 | ) | |||||
|
|
|
|
|||||
Net loss |
$ | (227,888 | ) | $ | (1,004,270 | ) | ||
|
|
|
|
|||||
Basic and diluted loss per common share from continued operations |
$ | (0.02 | ) | $ | (0.06 | ) | ||
|
|
|
|
|||||
Basic and diluted loss per common share from discontinued operations |
$ | | $ | (0.04 | ) | |||
|
|
|
|
|||||
Basic and diluted loss per common share after discontinued operations |
$ | (0.02 | ) | $ | (0.10 | ) | ||
|
|
|
|
See accompanying summary of significant accounting policies and notes to financial statements.
14
Commonwealth Biotechnologies, Inc.
Consolidated Statements of Stockholders Equity (Deficit)
Number of Common Shares Outstanding |
Additional Paid -in Capital |
Restricted Stock |
Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total | |||||||||||||||||||
Balance January 1, 2010 |
8,791,712 | $ | 25,555,878 | $ | | $ | 520,191 | $ | (25,366,807 | ) | $ | 709,262 | ||||||||||||
Isuance of common stock |
1,114,626 | 557,313 | | | | 557,313 | ||||||||||||||||||
Stock option expense |
| 6,000 | | | | 6,000 | ||||||||||||||||||
Net loss |
| | | | (1,004,270 | ) | (1,004,270 | ) | ||||||||||||||||
Foreign currency gain |
| | | 132,736 | | 132,736 | ||||||||||||||||||
Total comprehensive loss |
| | | | | (871,534 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance December 31, 2010 |
9,906,338 | $ | 26,119,191 | $ | | $ | 652,927 | $ | (26,371,077 | ) | $ | 401,041 | ||||||||||||
Isuance of common stock |
2,754,166 | 102,624 | | | | 102,624 | ||||||||||||||||||
Stock option expense |
| 8,000 | | | | 8,000 | ||||||||||||||||||
Net loss |
| | | | (227,888 | ) | (227,888 | ) | ||||||||||||||||
Foreign currency gain |
| | | 111,312 | | 111,312 | ||||||||||||||||||
Recognition of other comprehensive income on deconsolidation of subsidiary |
| | | (764,239 | ) | | (764,239 | ) | ||||||||||||||||
Total comprehensive loss |
| | | | | (880,815 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance December 31, 2011 |
12,660,504 | $ | 26,229,815 | $ | | $ | | $ | (26,598,965 | ) | $ | (369,150 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to financial statements.
15
Commonwealth Biotechnologies, Inc.
Consolidated Statements of Cash Flows
Year Ended | ||||||||
December 31, 2011 |
December 31, 2010 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (227,888 | ) | $ | (1,004,270 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Intercompany loans |
19,398 | 70,546 | ||||||
Net gain on the sale of subsidiary |
(189,214 | ) | | |||||
(Income) loss from discontinued operations |
(36,914 | ) | 359,653 | |||||
Gain on sale of property, plant and equipment |
(148,773 | ) | | |||||
Depreciation and amortization |
162,335 | 175,464 | ||||||
Stock-based compensation |
8000 | 6,000 | ||||||
Expenses satisfied with the issuance of stock |
35,000 | | ||||||
Changes in: |
||||||||
Accounts receivable |
| 169,753 | ||||||
Prepaid expenses and other assets |
(26,097 | ) | (1,200 | ) | ||||
Accounts payable and other current liabilities |
471,687 | 50,247 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
67,533 | (173,807 | ) | |||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Proceeds from the sale of subsidiary |
106,000 | | ||||||
Proceeds from the sale of propety, plant and equipment |
1,368,837 | | ||||||
|
|
|
|
|||||
Net cash provided by investing activities |
1,474,837 | | ||||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Issuance of common stock |
| 1,000 | ||||||
Principal payments on long term debt |
(296,410 | ) | (481,941 | ) | ||||
Principal payments on loan from corporate officer |
(23,904 | ) | | |||||
Change in restricted cash |
| 200,000 | ||||||
|
|
|
|
|||||
Net cash used in financing activities |
(320,314 | ) | (280,941 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
1,222,056 | (454,748 | ) | |||||
Cash and cash equivalents, beginning of year |
99,912 | 554,660 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of year |
$ | 1,321,968 | $ | 99,912 | ||||
|
|
|
|
|||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Cash payments for interest |
$ | 287,000 | $ | 139,000 | ||||
Non-cash investing and financing activities |
||||||||
Expenses satisfied with the issuance of stock |
$ | 43,000 | $ | | ||||
Prepaid expenses satisfied with note payable |
$ | 24,000 | $ | | ||||
Reduction of convertible debt through issuance of common stock |
$ | | $ | 462,000 | ||||
Non-cash proceeds from the sale of property, plant and equipment |
$ | 2,393,000 | $ | | ||||
Non-cash principal payments on long term debt |
$ | 2,693,000 | $ | | ||||
Accounts payable and other current liabilities satisfied with the issuance of stock |
$ | 68,000 | $ | 94,000 |
See accompanying summary of accounting policies and notes to financial statements
16
Summary of Significant
Accounting Policies
The Company was formed on September 30, 1992, for the purpose of providing specialized analytical laboratory services for the life scientist. During 2007, the Company acquired Mimotopes which has developed a number of proprietary and patented technologies and is an industry leader in the synthesis of research grade peptides.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County , Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
Consolidation Policy
The consolidated financial statements include the accounts of CBI and its wholly owned subsidiary, Mimotopes. All inter-company accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognized revenue upon the completion of laboratory service projects, or upon the delivery of biologically relevant materials that had been synthesized in accordance with project terms. Laboratory service projects were generally administered under fee-for-service contracts or purchase orders. Any revenues from research and development arrangements, including corporate contracts and research grants, were recognized pursuant to the terms of the related agreements as work was performed, or as scientific milestones, if any, were achieved. Product sales were recognized when shipped. Amounts received in advance of the performance of services or acceptance of a milestone, were recorded as deferred revenue and recognized when completed.
17
Rental income was recognized when earned in accordance with the terms of the lease agreement.
Foreign Currency Translation
The Companys consolidated financial statements are reported in U.S. dollars. Assets and liabilities of foreign subsidiaries are translated using rates of exchange as of the balance sheet dates, and related revenues and expenses are translated at average rates of exchange in effect during the periods. Cumulative translation adjustments have been recorded as a separate component within accumulated other comprehensive income (loss) of stockholders equity (deficit). Realized gains and losses from foreign currency translations are included in other income (expense).
Fair Value Measurements
On January 1, 2008, the Company adopted FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. The adoption of FASB ASC 820 did not have a material effect on the carrying values of the Companys assets.
FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entitys own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
18
Restricted Cash
Restricted cash in Mimotopes represents the amount that is held by a third party in escrow as required under the terms of the Companys land lease agreement. The total amount held in escrow as of December 31, 2010 was $111,178 and is included in assets of discontinued operations on the balance sheet. Interest income earned on restricted cash is recorded in other interest income.
Accounts Receivable
The majority of our accounts receivable are due from trade customers. Credit is extended based on evaluation of our customers financial condition and collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. Accounts that are outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, customers current ability to pay their obligations to us, the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed principally by the straight-line method over their estimated useful lives providing depreciation and amortization for financial reporting purposes. The cost of repairs and maintenance is expensed as incurred. The estimated useful lives of the assets are as follows:
Years | ||
Buildings |
39.5 | |
Laboratory and computer equipment |
3 10 | |
Furniture, fixtures and office equipment |
7 |
Assets under capital lease obligations are recorded at the lesser of the present value of the minimum lease payments or the fair market value of the leased asset, at inception of the lease.
Impairment of Long-Lived Assets
The Company reviews and accounts for the impairment of long-lived assets other than goodwill, including property and equipment and certain other noncurrent assets in accordance with ASC 360-35, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets besides goodwill are reviewed for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. For long-lived assets other than goodwill that are to be held and used in operations, an impairment is indicated when the estimated total undiscounted cash flow associated with the asset or group of assets is less than carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.
19
Income Taxes
Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
FASB Accounting Standards Codification 740, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. The Companys Management has evaluated the impact of this guidance to its consolidated financial statements. Management is not aware of any material uncertain tax positions, and has not accrued the effect of any uncertain tax positions as of December 31, 2011 and 2010. The Companys tax returns are subject to examination by the taxing authorities, generally for a period of three years from the date they are filed. With few exceptions, the Company is no longer subject to income tax examinations by federal, state or local tax authorities for years before 2008. The Companys policy is to classify income tax related interest and penalties in interest expense and other expenses, respectively.
Income (Loss) Per Common Share
Basic income (loss) per share has been computed on the basis of the weighted-average number of common shares outstanding. Common shares which can be issued upon exercise of stock options and warrants have not been included in the computation because their inclusion would have been anti-dilutive. Weighted average shares outstanding for basic and diluted loss per common share were 12,108,141 and 9,864,040 for the twelve months ended December 31, 2011 and 2010, respectively (see Note 13).
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Employee Stock Plans
The Company adopted a Stock Incentive Plan on June 24, 1997. The Plan provides for granting to employees, officers, directors, consultants and certain other non-employees of the Company options to purchase shares of common stock. This plan has expired and no additional shares may be issued.
A 2000 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 300,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company. This plan has expired and no additional shares may be issued.
A 2002 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 600,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company.
A 2007 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 1,000,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company.
20
A 2009 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 1,000,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company.
Incentive awards may be in the form of stock options, restricted stock, incentive stock or tax offset rights. In the case of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), the exercise price will not be less than 100% of the fair market value of shares covered at the time of the grant, or 110% for incentive stock options granted to persons who own more than 10% of the Companys voting stock. Options granted under the Plans generally vest over a five-year period from the date of grant and are exercisable for ten years, except that the term may not exceed five years for incentive stock options granted to persons who own more than 10% of the Companys outstanding common stock.
New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) published Accounting Standards Update (ASU) 2011-08, Intangibles Goodwill and Other (Topic 350), Testing Goodwill for Impairment (ASU 2011-08), which simplifies how entities test goodwill for impairment. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of ASU 2011-08 did not have an impact on the Companys financial statements.
In June 2011, the FASB published ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (ASU 2011-05), which has the objective of improving the comparability, consistency, and transparency of financial reporting and increasing the prominence of items reported in other comprehensive income. As part of ASU 2011-05, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders equity, among other amendments in this ASU. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this ASU are to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and the amendments are to be applied retrospectively. In December 2011, with the issuance of ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standard Update No. 2011-05, the FASB announced that it has deferred certain aspects of ASU 2011-05. The adoption of the accounting and disclosure requirements of this ASU is not expected to have a significant impact on the Companys financial statements
In May 2011, the FASB published ASU 2011-04, Fair Value Measurement (Topic 820) Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, whereby the FASB and the International Accounting Standards Board (IASB) aligned their definitions of fair value such that their fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011, and are to be applied prospectively. The adoption of the accounting and disclosure requirements of this ASU will not have a significant impact on the Companys financial statements.
21
Notes to Consolidated Financial Statements
1. | Going Concern |
The accompanying financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in the normal course of business. If the Company is unable to improve operating results and meet its debt obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Net losses were $227,888 and $1,004,270 for the years ended December 31, 2011 and 2010, respectively. As of result of the Building Sale and the Sale of Mimotopes during 2011, the Company has no sources of revenue. Consequently, there can be no assurance by management that the Companys financial outlook will improve or that an M&A partner will be obtained in a timely manner.
The Company generated positive cash flows of $1,222,056 in 2011, compared to a decrease in cash of $454,748 in 2010. Net working capital as of December 31, 2011 and December 31, 2010 was $864,682 and $1,350,549, respectively.
The Company had $1,321,968 and $99,912 in cash and cash equivalents at December 31, 2011 and 2010, respectively. This increase was primarily the result of the net proceeds received on the sale of Mimotopes and the Building Sale during 2011.
Cash provided by (used in) operating activities was $67,533 and $(173,807) in 2011 and 2010, respectively. This change was primarily the result of the sale of Mimotopes in the second quarter of 2011 and the Building Sale on December 29, 2011. As a result of these sales, the Company has no operating subsidiaries or an ongoing source of revenue. These decreases in operating cash flows were partially offset by the increase in accrued expenses relating primarily to accrued legal fees resulting from the Companys bankruptcy filing in January 2011.
Cash provided by investing activities was $1,474,837 and $0 in 2011 and 2010, respectively. The primary investing activities in 2011 were proceeds from the Building Sale and the sale of Mimotopes.
Cash used by financing activities for 2011 and 2010 was $320,314 and $280,941, respectively. This change is primarily payments on the mortgage prior to the Building Sale.
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Now that the sale of Mimotopes is complete, the Company has no operating units or subsidiaries.
22
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County, Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
In addition, the Company is actively seeking to execute an M&A transaction with a private Company seeking access to the public financial markets.
Mimotopes is shown in the Consolidated Statement of Operations as discontinued operations.
A continued lack of adequate cash resulting from the Companys inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations.
There can be no assurance that any funds required during the next twelve months or thereafter can be generated. Nor can there be any assurance that funds will be available from external sources, such as debt or equity financing or other potential sources, if they cannot be generated internally. Lastly, there can be no assurance that the Company will be able to secure a suitable M&A partner.
During the last year, the Companys business has undergone substantial changes in relation to size, scale and scope of activities. The Company currently has no operating units or subsidiaries.
As of result of the Building Sale and Sale of Mimotopes during 2011, the Company has no sources of revenue and must fund administrative expenses from cash on hand.
As a result of the foregoing circumstances, there is substantial doubt about the Companys ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
The Companys independent auditors have included a paragraph emphasizing going concern in their report on the 2011 financial statements. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
23
2. | Chapter 11 Information |
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Net proceeds received by the Company were as follows:
Proceeds escrowed at closing |
$ | 850,000 | ||
Payoff PIPE Investor Notes |
(700,000 | ) | ||
Legal costs |
(20,000 | ) | ||
Break fee to losing bidder |
(24,000 | ) | ||
|
|
|||
Net proceeds |
$ | 106,000 | ||
|
|
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space located at 601 Biotech Drive in Chesterfield County, Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. The Company plans to use the net proceeds from this sale to payoff a significant portion of unsecured creditors and to fund operations.
The following Debtor-in-Possession Balance Sheet excludes the accounts of Mimotopes which were included in the Consolidated Financial Statements as discontinued operations at December 31, 2010. Mimotopes was sold during the second quarter of 2011. The assets and liabilities of Mimotopes were not included in the Bankruptcy filing.
24
Commonwealth Biotechnologies, Inc.
Debtor-n-Possession Balance Sheet
As of December 31, 2011
ASSETS |
||||
Current Assets |
||||
Cash and cash equivalents |
$ | 1,321,968 | ||
Investments |
527 | |||
Accounts receivable, net |
| |||
Other current assets |
53,735 | |||
|
|
|||
Total current assets |
1,376,230 | |||
Property and Equipment, net |
| |||
|
|
|||
Total Assets |
$ | 1,376,230 | ||
|
|
|||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||
Liabilities Not Subject to Compromise |
||||
Current Liabilities |
||||
Accounts payable |
$ | 374,245 | ||
Accrued payroll liabilities |
165,904 | |||
|
|
|||
Total current liabilities |
540,149 | |||
|
|
|||
Total Liabilities Not Subject to Compromise |
540,149 | |||
|
|
|||
Liabilities Subject to Compromise |
||||
Debt plus accrued interest |
666,667 | |||
Priority claims |
35,175 | |||
Accounts payable and other unsecured creditors |
448,453 | |||
Other liabilities |
54,936 | |||
Total Liabilities Subject to Compromise |
1,205,231 | |||
|
|
|||
Total Liabilities |
1,745,380 | |||
|
|
|||
Commitments, and contingencies |
| |||
Stockholders equity (deficit) |
||||
Prepetition stockholders equity |
4,682,078 | |||
Postpetition issuance of restricted stock and options |
75,625 | |||
Postpetition accumulated deficit |
(5,126,853 | ) | ||
|
|
|||
Total stockholders equity (deficit) |
(369,150 | ) | ||
|
|
|||
Total Liabilities and Stockholders Equity (Deficit) |
$ | 1,376,230 | ||
|
|
25
The following Debtor-in-Possession Statement of Operations excludes the accounts of Mimotopes which are included in the Consolidated Statement of Operations as a discontinued operation:
Commonwealth Biotechnologies, Inc.
Debtor-in-Possession Statement of Operations
January 20, 2011 through December 31, 2011 |
||||
Revenues |
||||
Rental income |
$ | | ||
|
|
|||
Total revenues |
| |||
|
|
|||
Operating costs and expenses |
||||
Chapter 11 expenses |
176,021 | |||
General and administrative |
670,471 | |||
|
|
|||
Total Operating Costs and Expenses |
846,492 | |||
|
|
|||
Operating loss |
(846,492 | ) | ||
|
|
|||
Other expense |
||||
Interest expense |
(197,970 | ) | ||
Loss on deconsolidation of subsidiary |
(575,026 | ) | ||
Rental income |
546,956 | |||
Gain on sale of land and building |
148,773 | |||
Realized gains |
764,239 | |||
Other income |
434 | |||
|
|
|||
Total other expense |
687,406 | |||
|
|
|||
Postpetition net loss |
$ | (159,086 | ) | |
|
|
26
3. | Property and Equipment |
Property and Equipment relating to CBI consisted of the following:
December 31, | ||||||||
2011 | 2010 | |||||||
Furniture, fixtures and office and computer equipment |
$ | 53,575 | $ | 53,575 | ||||
Other |
9,077 | 9,077 | ||||||
|
|
|
|
|||||
62,652 | 62,652 | |||||||
Less Accumulated Depreciation |
62,652 | 57,220 | ||||||
|
|
|
|
|||||
$ | | $ | 5,432 | |||||
|
|
|
|
Depreciation expense was approximately $162,000 for the years ended December 31, 2011 and 2010, and includes depreciation on office and laboratory space that is classified as held for sale and discontinued operations at December 31, 2010 (Notes 4 and 11).
At December 31, 2010, Mimotopes had Property and Equipment, net of accumulated depreciation, of $1,649,464, which are included in assets of discontinued operations in the Consolidated Balance Sheet.
4. | Assets Held for Sale |
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space location at 601 Biotech Drive, Chesterfield County , Virginia 23235. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. The net book value of these assets was $3,769,712 at December 31, 2010. The components of net book value are as follows:
December 31, | ||||||||
2011 | 2010 | |||||||
Land |
$ | | $ | 403,919 | ||||
Building |
| 5,230,369 | ||||||
|
|
|
|
|||||
| 5,634,288 | |||||||
Accumulated Depreciation |
| (1,864,576 | ) | |||||
|
|
|
|
|||||
$ | | $ | 3,769,712 | |||||
|
|
|
|
27
5. | Debt |
December 31, | ||||||||
2011 | 2010 | |||||||
Debt consists of: |
||||||||
Mortgage payable to BB&T due in monthly installments of approximately $35,000 with a fixed interest rate of 5.25%. The loan matures in October 2012 and is collateralized by the corporate offices and laboratory facilities located in Richmond, Virginia, as well as substantially all assets of the Company. |
$ | | $ | 2,456,634 | ||||
Secured convertible promissory note with LH Financial (PIPE Investors) which matured June 30, 2010 . The note is collateralized by a security interest in substantially all the assets of the Company. Interest compounds monthly at an annual rate of 12% beginning July 1, 2010. Prior to July 1, 2010 interest compounded monthly at an annual rate of 10%. Interest is payable in cash, or at the discretion of note holder, with registered shares of common stock. |
| 533,038 | ||||||
Convertible promissory note with Fornova Pharmaworld Inc. which matured on December 31, 2009. Interest compounds monthly at a rate of 10%. |
500,000 | 500,000 | ||||||
|
|
|
|
|||||
Total debt |
500,000 | 3,489,672 | ||||||
|
|
|
|
|||||
Less current maturities and unamortized discounts |
500,000 | 1,325,538 | ||||||
|
|
|
|
|||||
Total debt less current maturities |
$ | | $ | 2,164,134 | ||||
|
|
|
|
28
6. | Retirement Plan |
CBI maintained a 401(k) Plan (the Plan) which covered substantially all employees. Due to the costs associated with maintaining the plan for two full-time employees, the Plan was terminated in April 2011. Under the Plan, employees could elect to defer a portion of their salary, up to the maximum allowed by law, and the Company could elect to match the contribution up to 3% of the employees contribution. Company contributions were $787 and $5,909 for the years ended December 31, 2011 and 2010, respectively.
7. | Other Assets |
Other assets include a receivable for $50,000 relating to cash held in escrow by the Companys bankruptcy attorneys.
8. | Comprehensive Loss |
The components of comprehensive loss, net of tax, for the years ended December 31, 2011 and 2010 were as follows:
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
Net Loss |
$ | (227,888 | ) | $ | (1,004,270 | ) | ||
Recognition of other comprehensive loss on deconsolidation |
(764,239 | ) | | |||||
FX Adjustments |
111,312 | 132,736 | ||||||
|
|
|
|
|||||
Total Comphrehensive Loss |
$ | (880,815 | ) | $ | (871,534 | ) | ||
|
|
|
|
9. | Income Taxes |
The difference between expected income tax benefits and income tax benefits recorded in the financial statements is explained below:
December 31, | ||||||||
2011 | 2010 | |||||||
Income taxes (benefit) computed at statutory rate |
$ | (69,954 | ) | $ | (350,681 | ) | ||
State income tax benefit, net |
(12,262 | ) | (35,902 | ) | ||||
Change in valuation allowance |
95,054 | 513,228 | ||||||
Other |
(12,838 | ) | (126,645 | ) | ||||
|
|
|
|
|||||
$ | | $ | | |||||
|
|
|
|
29
The significant components of deferred income tax assets and liabilities consist of the following:
December 31, | ||||||||
2011 | 2010 | |||||||
Deferred tax assets |
||||||||
Net operating loss carryforward |
$ | 8,047,470 | $ | 7,977,516 | ||||
Research and development credit carryforward |
52,600 | 52,600 | ||||||
Allowance for doubtful accounts |
3,900 | 17,700 | ||||||
Stock based compensation |
2,700 | | ||||||
Other |
2,200 | 34,100 | ||||||
|
|
|
|
|||||
8,108,870 | 8,081,916 | |||||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Other |
34,100 | 34,000 | ||||||
|
|
|
|
|||||
34,000 | ||||||||
|
|
|
|
|||||
Net deferred tax asset before valuation allowance |
8,142,970 | 8,047,916 | ||||||
Less valuation allowance |
8,142,970 | 8,047,916 | ||||||
|
|
|
|
|||||
Net deferred tax asset |
$ | | $ | | ||||
|
|
|
|
Operating loss carryforwards at December 31, 2011 relating to US operations of approximately $8,000,000 which may be used to offset future taxable income and expire through 2028. The Company also has research and development credit carryforwards at December 31, 2011 of approximately $52,600 that expire through 2022. A valuation allowance has been established for deferred tax assets at December 31, 2011 and 2010 as realization is dependent upon generating future taxable income.
10. | Stock Compensation |
Stock-Based Compensation Plans - Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized for the year ended December 31, 2011 and 2010 included compensation expense for stock-based awards granted prior to, but not yet vested as of December 31, 2011 and 2010, based on the fair value on the grant date.
Stock-based compensation expense related to employee stock options recognized under ASC 718 for the years ended December 31, 2011 and 2010 was approximately $8,000 and $6,000, respectfully, and is included in selling, general and administrative.
The total intrinsic value of stock awards (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the years ended December 31, 2011 and 2010 was $0. During the years ended December 31, 2011 and 2010, the Company did not receive cash from the exercise of stock awards.
30
The following table sets forth fair value per share information, including related weighted-average assumptions, used to determine compensation cost for stock options consistent with the requirements of ASC 718.
2011 | Weighted Average Exercise Price |
2010 | Weighted Average Exercise Price |
|||||||||||||
Options and warrants outstanding, beginning of year |
433,012 | $ | 4.48 | 757,089 | $ | 4.43 | ||||||||||
Granted |
400,000 | 0.02 | 10,000 | 0.50 | ||||||||||||
Exercised |
| | | | ||||||||||||
Expired |
(187,569 | ) | 6.38 | (334,077 | ) | 9.90 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options and warrants outstanding, end of year |
645,443 | $ | 1.16 | 433,012 | $ | 4.48 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options and warrants exercisable, end of year |
645,443 | $ | 1.16 | 433,012 | $ | 4.48 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted -average fair value per option and warrants granted during the year |
$ | 0.02 | $ | 0.48 |
The assumption used to determine the fair value per option are as follows:
2011 | 2008 | |||||||
Assumptions: |
||||||||
Expected volatility |
205.89 | % | 142.50 | % | ||||
Expected annual dividend yield |
0.00 | % | 0.00 | % | ||||
Risk free rate of return |
1.91 | % | 3.30 | % | ||||
Expected option term (years) |
10 | 10 |
31
The following table summarizes information about stock options and warrants outstanding at December 31, 2011:
As of December 31, 2011 |
||||||||||||||||||||
Exercise Price Per Share |
Number Outstanding |
Weighted Average Remaining Contractual Life (Years) |
Weighted Average Exercise Price Per Share |
Number Exercisable |
Weighted Average Exercise Price Per Share |
|||||||||||||||
$0.36 - 2.00 |
452,058 | 9 | 0.11 | 452,058 | 0.11 | |||||||||||||||
$2.01 - 5.49 |
155,885 | 5 | 3.06 | 155,885 | 3.06 | |||||||||||||||
$5.50 - 7.00 |
37,500 | 4 | 5.92 | 37,500 | 5.92 | |||||||||||||||
|
|
|
|
|||||||||||||||||
$0.90 - 12.50 |
645,443 | 1.16 | 645,443 | 1.16 | ||||||||||||||||
|
|
|
|
11. | Discontinued Operations |
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a gross sales price of $850,000. The sale closed on April 29, 2011. Mimotopes is shown as a discontinued operation in the Consolidated Financial Statements. During the second quarter of 2011, Mimotopes was deconsolidated resulting in a net gain of approximately $189,000 (see Note 16).
32
The components of assets and liabilities of discontinued operations (Mimotopes) are as follows:
December 31, | ||||||||
2011 | 2010 | |||||||
Assets |
||||||||
Cash |
$ | | $ | 91,825 | ||||
Accounts receivable (1) |
| 414,211 | ||||||
Other assets |
| 1,163 | ||||||
Restricted cash |
| 111,178 | ||||||
|
|
|
|
|||||
| 618,377 | |||||||
|
|
|
|
|||||
Building |
| 1,932,699 | ||||||
Furniture and Fixtures |
| 266,614 | ||||||
Office equipment |
| 189,605 | ||||||
Lab equipment |
| 949,981 | ||||||
Other |
| 17,339 | ||||||
|
|
|
|
|||||
| 3,356,238 | |||||||
Accumulated depreciation |
| (1,706,544 | ) | |||||
|
|
|
|
|||||
| 1,649,694 | |||||||
|
|
|
|
|||||
Total assets of discontinued operations |
$ | | $ | 2,268,071 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Accounts payable |
$ | | $ | 443,283 | ||||
Accrued payroll liabilities |
| 281,534 | ||||||
Other liabilities |
| 271,057 | ||||||
|
|
|
|
|||||
Total liabilities of discontinued operations |
$ | | $ | 995,874 | ||||
|
|
|
|
(1) | Related Party Transaction: Accounts receivable includes a related party receivable of approximately $41,000 that is due from a Board Member of Mimotopes. |
33
The components of the income (loss) from the discontinued operations:
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 895,651 | $ | 2,785,483 | ||||
Cost of services |
593,009 | 2,029,390 | ||||||
|
|
|
|
|||||
Gross profit |
302,642 | 756,093 | ||||||
Sales, general and administrative |
393,303 | 1,481,213 | ||||||
|
|
|
|
|||||
Operating loss |
(90,661 | ) | (725,120 | ) | ||||
Other Income |
127,575 | 365,467 | ||||||
|
|
|
|
|||||
Income (loss) from operating discontinued operations |
$ | 36,914 | $ | (359,653 | ) | |||
|
|
|
|
12. | Short Term Notes with Conversion Features |
PIPE Investors Agreement
On December 31, 2007 the Company issued $1,950,000 of convertible debt in a subscription agreement between the Company and the PIPE Investors. The debt carries an interest rate of 10% annually and matured in July 31, 2009. Quarterly interest payments may be made in the form of either cash or common stock. The debt may be converted into shares of common stock at a conversion price of $2.00 per share. In conjunction with the debt, the Company also issued Class A warrants to purchase 975,000 shares of common stock at an exercise price of $2.85 per share that expire in May 2013.
The fair value of the Class A warrants is $1.79 per share. The fair value of the Class A warrants is calculated using the Black-Scholes method. Assumptions for Class A warrants include the stock asset price at $2.55 and a stock option price of $2.85 with a maturity date of 5 years and effective interest rate of 3.40%. The Company also issued Class B warrants to purchase 243,750 shares of common stock at an exercise price of $5.00 per share. The fair value of the Class B warrants is $0.36 per share. The fair value of the Class B warrants is calculated using the Black- Scholes method. The debt carries a beneficial conversion feature, which along with the relative fair value of the warrants, resulted in a debt discount of $1,950,000 which was recorded against the convertible debt and offset in additional paid in capital. This discount was amortized as interest expense over the life of the debt. The Company registered the required minimum number of shares based upon the agreement on April 30, 2008 and will register the remaining shares by as soon as possible as required under the agreement
Modification, Waiver and Acknowledgement Agreement
On September 18, 2008, the Company entered into a modification, waiver and acknowledgement agreement with LH Financial for the convertible debt listed above. Under the modified Agreement, the restructured terms of the Agreement is that the exercise price of the Class A Warrants was reduced from $2.85 to $0.71 per common share, and the exercise price of the Class B Warrants was reduced from $5.00 to $1.01 per common share, subject to further reduction as described in the Transaction Documents.
34
The Class A Warrants expire on May 31, 2013. The Class B Warrants expired on December 31, 2009.
On June 22, 2009, the registrant completed the issuance of an aggregate principal amount of $369,950 of subordinated notes (the Notes) convertible into shares of the registrants common stock, without par value per share (Common Stock), to 6 institutional investors (the PIPE Investors). The Notes matured on December 31, 2009, and carried an interest rate of 8% per annum. Prior to maturity, a holder of a Note may convert such Note into shares of the registrants Common Stock at a conversion price of $0.50 per share. The purchase price for the Notes was paid by the partial surrender of certain outstanding promissory notes and deemed payment of interest in connection therewith. According to the registrants transfer agent, on June 22, 2009, the registrant had issued and outstanding 7,416,896 shares of common stock. The amount of common stock underlying the Notes represents less than 9.99% of the registrants issued and outstanding common stock on June 22, 2009. All shares were exercised and no additional interest will be accrued for the rest of the year.
On July 22, 2009, the Company reached an agreement with its PIPE investors to extend for 6 months its convertible note facilities of approximately $1.3M that matured on June 30 and has also received consent to suspend the financial covenants under such note facilities through the 4th Quarter. During this period, obligations under the note will continue to accrue.
Second Modification, Waiver and Acknowledgement Agreement
On October 9, 2009, the second Modification Agreement relating to the above mentioned debt was approved at the 2009 Annual Meeting of Shareholders. The restructured agreement calls for the conversion price for the remaining balance of PIPE notes to be lowered from $2.00 per share to $0.50 per share.
Sale of CBI Services and FIL
On November 2, 2009, the Company entered into an Agreement with its PIPE investors in connection with the sale of CBI Services and FIL. As a condition of the Agreement, the Lenders received 250,000 shares of restricted common stock and CBI placed into escrow $200,000 to be released back to the Borrower upon satisfaction of the note. In October 2010 these funds were distributed to the PIPE Investors and accounted for as a reduction in principal outstanding.
This note matured on September 30, 2010 and was considered in default on July 1, 2010. Under the terms of the notes, the interest rate increased from 10% to 12% on July 1, 2010.
In October 2010, restricted cash of $200,000 was distributed to the PIPE Investors and accounted for as a reduction of principal outstanding.
Principal and Interest Conversions
During the year ended December 31, 2009, the Company received notices of conversion for $611,381 in principal and $165,593 in interest resulting in the issuance of 1,696,224 shares of common stock.
During January 2010, the Company received notices of conversion for $462,361 in principal and $34,452 in interest resulting in the issuance of 993,626 shares of common stock.
No notices of conversion were received during the year ended December 31, 2011.
35
Sale of Mimotoptes
On April 26, 2011, a portion of the proceeds from the sale of Mimotopes was used to pay off the PIPE investors. This pay off was comprised of the following:
Principal |
$ | 533,000 | ||
Accrued Interest |
163,000 | |||
Legal Costs |
20,000 | |||
|
|
|||
$ | 716,000 | |||
|
|
Fornova Agreement
On September 4, 2008, the Company completed the issuance of a $500,000 convertible promissory note (the Note) payable to Fornova Pharmaworld Inc. (the Holder). The Note has an interest rate of 10% per annum compounded monthly. At any time between October 27, 2008 and August 21, 2009, the Holder may convert the Notes into shares of the Companys common stock at a conversion price of $1.01 per share. Additionally, the Note features a call date beginning January 29, 2009, if exercised the holder can call the note in the amount of the outstanding principal balance plus accrued interest. If the holders call feature is exercised, the Company would most likely satisfy the debt and accrued interest with common stock.
As of December 31, 2011, this note has matured. (See Note 18)
13. | Earnings per Share |
The Company follows the guidance provided in ASC 260, Earnings Per Share, which establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. Basic earnings (loss) per common share are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments such as warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.
36
Year Ended December 31, |
||||||||
2011 | 2010 | |||||||
Basic and diluted loss per share: |
||||||||
Loss from operations |
$ | (264,802 | ) | $ | (644,617 | ) | ||
Income (Loss) from discontinued operations |
36,914 | (359,653 | ) | |||||
|
|
|
|
|||||
Net loss |
$ | (227,888 | ) | $ | (1,004,270 | ) | ||
|
|
|
|
|||||
Basic and diluted loss per common share from continued operations |
$ | (0.02 | ) | $ | (0.06 | ) | ||
|
|
|
|
|||||
Basic and diluted loss per common share from discontinued operations |
$ | | $ | (0.04 | ) | |||
|
|
|
|
|||||
Basic and diluted loss per common share after discontinued operations |
$ | (0.02 | ) | $ | (0.10 | ) | ||
|
|
|
|
|||||
Weighted average share outstanding |
12,108,141 | 9,864,040 |
14. | Delisting and Reinstatement from NASDAQ |
On July 24, 2009, The NASDAQ Stock Market notified CBI that CBI was to be delisted from the NASDAQ Capital Market as a result of (i) a failure to comply with NASDAQ Listing Rule 5550(b) due to a failure to maintain minimum stockholders equity of $2.5 million and a failure to file a Form 8-K affirming compliance with Rule 5550(b), (ii) a failure to comply with NASDAQ Listing Rule 5635(a) due to a failure to obtain shareholder approval of an issuance of stock in excess of 20% of the pre-transaction shares outstanding in connection with the structure of a prior agreement with Biosignal, Ltd, an Australian company, and (iii) a failure to comply with NASDAQ Listing Rule 5250(e)(2)(D) due to a failure to timely file a Form LAS for that Biosignal issuance.
After receiving the July 24, 2009 notice, CBI and Biosignal agreed to terminate the earlier agreement and, subsequently, CBI filed a Form LAS in connection with a proposed amended and re-stated Biosignal Transaction thus bringing the company back into compliance with NASDAQ Rules 5635(a) and 5250(e)(2)(D). However, NASDAQ has determined that the Company has not met the requirements of Rule 5550(b). The Company appealed this decision under NASDAQ Rule 5800. The hearing was convened on September 3, 2009. On October 20, 2009, CBI was notified that the Hearing Panel granted the request of CBI to remain listed on The NASDAQ Stock Market through January 20, 2010, subject to the condition that, on or before January 20, 2010, CBI evidence shareholders equity of at least $2.5 million or demonstrate compliance with one of the alternative listing criteria of NASDAQ Listing Rule 5550(b). Failure to meet the Listing Rule 5550(b) may result in CBIs delisting after such date.
Effective January 25, 2010, the Companys stock was delisted from the NASDAQ Capital Market. The Companys common stock currently trades on the Pink Sheets under the symbol CBTEQ.PK.
15. | Issuance of Restricted Stock |
In January 2011, bonuses, in the form of restricted stock, were issued to three current employees and a consultant. Total shares issued were 500,000. The market value of these shares was approximately $35,000. These transactions were approved by the Companys Board of Directors.
37
In December 2010, the Board of Directors approved a resolution allowing directors and officers of the Company to receive restricted stock in lieu of cash compensation and board fees. In March 2011, 1,687,500 restricted shares were issued to the Companys CEO under this arrangement. The market value of these shares was $50,625. The issuance of these shares resulted in a $50,625 reduction in accrued payroll liabilities that were included in the consolidated balance sheet at December 31, 2010. In April 2011, 566,000 restricted shares were issued to two board members under this arrangement. The issuance of these shares resulted in a $17,000 reduction in accrued board fees that were included in the consolidated balance sheet at December 31, 2010 as a component of other liabilities.
16. | Sale of Mimotopes |
On January 20, 2011, the Registrant filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code. On April 7, 2011, the Bankruptcy Court approved the private sale of Mimotopes for a net sales price of $850,000. The sale closed on April 29, 2011. Net proceeds received by the Company were as follows:
Proceeds escrowed at closing |
$ | 850,000 | ||
Payoff PIPE Investor Notes |
(700,000 | ) | ||
Legal costs |
(20,000 | ) | ||
Break fee to losing bidder |
(24,000 | ) | ||
|
|
|||
Net proceeds |
$ | 106,000 | ||
|
|
This transaction resulted in a net gain of approximately $189,000. This gain is summarized as follows:
Loss on deconsolidation |
$ | (575,026 | ) | |
Recognition of other comprehensive income relating to Mimotopes foreign currency transactions |
764,239 | |||
|
|
|||
$ | 189,213 | |||
|
|
In addition, the Company recorded a reduction to retained earnings of approximately $5,005,000. This represents the retained deficit balance of Mimotopes at December 31, 2010.
A current director of the Company is also a current director of Mimotopes. For financial reporting purposes, Mimotopes is no longer considered a related party.
17. | Building Sale |
In December 2011, the Bankruptcy court approved the sale (the Building Sale) at auction of land, office and laboratory space located at 601 Biotech Drive in Chesterfield County, Virginia. The sale closed on December 29, 2011 for a gross sales price of $3,800,000. After the payoff of the related mortgage and payment of other selling related costs, net proceeds to the Company were approximately $1,369,000. In addition, the Company recorded a net gain on the sale of approximately $145,000.
38
18. | Commitments and Contingencies |
On February 10, 2012, the Company filed a claim against Fornova in Bankruptcy Court. The Company is disputing Fornovas claim that it is owed $500,000 plus accrued interest relating to a convertible note that was originated in 2007. The Company is seeking to have the claim disallowed in its entirety or, in the alternative, reclassified as an equity investment. As of the date of this filing, the outcome of this claim cannot be estimated. Principal and accrued interest on this note are shown in the consolidated balance sheet at December 31, 2011 as debt plus accrued interest.
19. | Related Party Transactions |
On March 9, 2011, one of the Companys founders and current Chief Executive Officer (the CEO) loaned the Company $23,904 to purchase D&O insurance. This transaction was approved by the Bankruptcy Court. The loan had an interest rate of 5%. Monthly payments of principal and interest began on April 9, 2011. This loan was paid off in the fourth quarter of 2011.
Due to the financial condition of the Company, a portion of the CEOs salary has been accrued and not paid at the election of the CEO. These accruals began in December 2010 and have been approved by the Bankruptcy Court. Salary earned but not paid was approximately $230,000 at December 31, 2011.
20. | Subsequent Events |
The Company has evaluated subsequent events for potential recognition and/or disclosure and determined that there were none, other than those described in Note 18, which required accrual or disclosure.
39
Corporate Information
Commonwealth Biotechnologies, Inc.
718 Grove Road
Midolothian, VA 23114
Phone: (804) 464-1601
Fax: (804)464-1604
Web site: www.cbi-biotech.com
General Counsel
Kaufman and Canoles, PC
1051 E. Cary St
3 James Center
Richmond, VA 23219
Bankruptcy Counsel
Tavenner & Beran, PLC
20 North 8th Street
Second Floor
Richmond, VA 23219
Transfer Agent and Registrar
Computershare Trust Co.
350 Indiana St.
Golden, CO 80401
Independent Auditors
Witt Mares, PLC
3951 Westerre Parkway
Suite 200
Richmond, VA 23233
40
Executive Officers
Richard J. Freer, Ph.D.
CEO
Directors of the Company
Richard J. Freer, Ph.D.
CEO
Paul DSylva, Ph.D.
Director
William Guo
VenturePharm Lab
Samuel P. Sears, Jr., Esq.
Attorney at Law
James Causey.
VP, Dominion Media
Dominion Enterprises
Eric V. Tao
Chief Investment Officer and Director
AGI Capital Group, Inc.
Maria Song, MD, Ph.D.
VP, Venturepharm
41
Commonwealth Biotechnologies, Inc.
PO Box 35042
Richmond, VA 23235
phone: 804-464-1601
fax: 804-464-1604
www.cbi-biotech.com