three-year period following the date on which that person or its affiliate crosses the 15% stock ownership threshold. Section 203 could operate to delay or prevent a change of control of our company.
There were no unregistered shares of preferred stock issued by us during the period covered by this report.
There were no unregistered shares of common stock issued by us during the period covered by this report.
acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or to be acquired by another company.
Net Cash Flow from Operating Activities
Net cash used in operating activities was approximately $11,769,000$10,257,000 for the year ended December 31, 20092010 compared with $9,429,000$11,769,000 net cash used in operating activities for the year ended December 31, 2008.2009. The increasedecrease of approximately $2,340,000$1,512,000 resulted primarily from a net loss of $18,387,000,$11,993,000, less the add back of non-cash items of $6,333,000,$1,424,000, of which $4,202,000$4,368,000 related to stock-based compensation, $826,000$718,000 related to stock warrant expense in exchange for services, $218,000 issued as$785,000 related to a commitment fee in connection with the SEDA, $162,000reduction of potential redemption liability, $172,000 related to depreciation and $285,000$312,000 related to changes in current assets and liabilities and $858,000$3,049,000 that reflects the fair value of warrants and mandatorily redeemable stock obligations issued with the registered direct financings completed by the Company in 2009 Offering.and 2010.
41
Net Cash Flow from Investing Activities
Net cash used in investing activities was approximately $106,000 for the year ended December 31, 2010, compared with net cash used in investing activities of $83,000 for the year ended December 31, 2009, compared with net cash provided by investing activities of $9,600,000 for the year ended December 31, 2008.2009. The decreaseincrease of approximately $9,683,000$23,000 in cash provided byused in investing activities was primarily due to net redemptionpurchases of short-term investmentsequipment and furnishings in 2008.2010.
Net Cash Flow from Financing Activities
Net cash provided by financing activities was $11,570,000 for the year ended December 31, 2010, compared with $7,680,000 for the year ended December 31, 2009, compared with $7,922,000 for the year ended December 31, 2008.2009. This decreaseincrease was primarily due to net proceeds from the issuance of common stock in the amount of $7,918,000$15,235,000 to institutional investors in 2010 offset by $3,849,000 used for the second quarterpurchase of 2008treasury shares compared with net proceeds from the issuance of common stock in the amount of $7,714,000 to institutional investors in the third quarter of 2009.
Recently Issued Accounting Standards
In JuneEffective January 1, 2009, the FASB issued Accounting Standard Update (“ASU”)No. 2009-01,Topic 105 — “Generally Accepted Accounting Principles, amendments based on Statement ofCompany adopted guidance now codified as Financial Accounting Standards(“SFAS”)No. 168 — The FASB Board Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”). This topic requires an acquirer to recognize and measure the Hierarchyidentifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values as of Generally Accepted Accounting Principles”the acquisition date. The topic requires acquisition costs and establishes only two levels of U.S. GAAP, authoritative and non-authoritative. The amendments establishedany restructuring costs associated with the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASBbusiness combination to be applied by nongovernmental entitiesrecognized separately from the fair value of the business combination. ASC 805 establishes requirements for recognizing and measuring goodwill acquired in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releasesbusiness combination or a gain from a bargain purchase as well as disclosure requirements designed to enable users to better interpret the results of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. On the effective datebusiness combination. Early adoption of this statement, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. This statement is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We adopted this update during the three-month period ended September 30, 2009. As the Codificationtopic was not intendedpermitted. The adoption of ASC 805 will impact the Company’s financial position, results of operations and cash flows to change the extent it conducts acquisition-related activitiesand/or alter existing U.S. GAAP, consummates business combinations. In 2010 and 2009, the adoption of this updateASC 805 had no impact on the Company’s results.
Effective January 1, 2010, the Company adopted Accounting Standards Update (ASU)No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, or ASU2010-06. A reporting entity should provide additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 fair value measurements. The adoption of the additional disclosures for Level 1 and Level 2 fair value measurements did not have anyan impact on our financial position, results of operations or cash flows.
In June 2009, the FASB ASC Topic 810 “Amendments to FASB Interpretation No. 46(R)”, (“ASC 810”), which amends the consolidation guidance applicable to variable interest entities and is The disclosures regarding Level 3 fair value measurements do not become effective as ofuntil January 1, 2010. We are2011 and, given such, the Company is currently inevaluating the process of evaluating thepotential impact of this pronouncement.part of the update.
In June 2009,Effective January 1, 2010, the FASB issued ASC Topic 860, “Company adopted ASUNo. 2009-17,Accounting for Transfers ofConsolidations (Topic 810): Improvements to Financial AssetsReporting by Enterprises Involved with Variable Interest Entities” (“ASC 860”), which eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This statement is effective for fiscal years beginning after November 15, 2009. We are currently in the process of evaluating the impact of ASC-860.
In May 2009, FASB ASC Topic 855, “Subsequent Events” (“ASC 855”) was issued. This statement sets forth (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim and annual periods ending after June 15, 2009. We adopted ASC 855 in the quarter ending June 30, 2009. The adoption of ASC 855 did not have any impact on our financial position, results of operations or cash flows. We have evaluated all events or transactions that occurred after the period covered by this report, up through the time of filing our annualASU2009-17.
4247
reportThe amendments in this update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused onForm 10-K identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. The Company evaluated its business relationships to identify potential variable interest entities and have concluded that consolidation of such entities is not required for the periods presented. On a quarterly basis, the Company will continue to reassess our involvement with the SEC. During this period that we did not have any material recognizable subsequent events other than what is disclosed in footnote 17.variable interest entities.
In April 2009,February 2010, the FASB issued the following: (i) FASB ASC TopicUpdate820-10-65,No. 2010-09, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly”(“ASC820-10-65”), (ii) FASB ASC Topic320-10-65, “Subsequent Events (Topic 855) Amendments to Certain Recognition and Presentation ofDisclosure Requirements (UpdateOther-Than-TemporaryNo. 2010-09). Impairment”(“ASC320-10-65”), This update requires SEC registrants to evaluate subsequent events through the date that the financial statements are issued and (iii) FASB ASC Topic825-10-65, “Interim Disclosures about Fair Value of Financial Instruments”(“ASC825-10-65”),removes the requirement to disclose the date through which management evaluated subsequent events. This guidance was effective for interim and annual periods ending after June 15, 2009. ASC820-10-65 provides guidance on how to determine the fair value of assets and liabilities under ASC820-10 in the current economic environment and reemphasizes that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and we may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. ASC820-10-65 modifies the requirements for recognizingother-than-temporarily impaired debt securities and revise the existing impairment model for such securities, by modifying the current intent and ability indicator in determining whether a debt security isother-than-temporarily impaired. ASC825-10-65 enhances the disclosure of instruments under the scope of ASC 820 for both interim and annual periods. We are currently evaluating these staff positions and the impact, if any, that adoption will have on our financial position and results of operation.
Effective January 1, 2009, we adopted FASB ASC Topic815-40-15, “Derivatives and Hedging Evaluating Whether an Instrument is Indexed to an Entity’s Own Stock”(“ASC815-40-15”), which addresses the accounting for certain instruments as derivatives. Under ASC815-40-15 specific guidance is provided regarding requirements for an entity to consider embedded features as indexed to the entity’s own stock. See footnote 6 for the impact the adoption of ASC815-40-15 had on our financial position, results of operations and cash flows.immediately upon issuance.
In December 2007,2010, the FASB ratifiedissued ASC Update2010-29,Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations (UpdateNo. 2010-29). This Update requires a public entity to disclose pro forma information for business combinations that occurred in the consensus reached bycurrent reporting period. The disclosures include pro forma revenue and earnings of the EITF on ASC Topic 808, “Accountingcombined entity for Collaborative Agreements” (“ASC 808-10-2”), which provides the definitioncurrent reporting period as though the acquisition date for all business combinations that occurred during the year had been as of a collaborative agreementthe beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and ASC 808-10-15 provides guidelines to assist anearnings of the combined entity in determining whether or not it is a party in a collaborative agreement. ASC 808-10-45 states that costs incurred and revenues generated from transactions with third parties shallfor the comparable prior reporting period should be reported in accordance with ASC Topic 605-45, “Reporting Revenue Gross as a Principal versus Netthough the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. This Update affects any public entity that enters into business combinations that are material on an Agent,” (“ASC 808-10-50”) also provides minimum disclosure requirementsindividual or aggregate basis and is effective prospectively for an entity’s collaboration agreements and transition guidance. The adoptionbusiness combinations for which the acquisition date is on or after the beginning of ASC Topic 808 did not have a material impactthe first annual reporting period beginning on our financial position, results of operations and cash flows.
In June 2007, the Emerging Issues Task Force issued ASC Topic730-20“Research and Development Arrangements” (“ASC730-20”). ASC730-20 addresses the diversity which exists with respect to the accounting for the non-refundable portion of a payment made by a research and development entity for future research and development activities. Under ASC730-20, an entity would defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the related services are performed subject to an assessment of recoverability. ASC730-20 was effective for fiscal years beginning after December 15, 2007 and interim periods within those years.2010. The adoption of ASC730-20Company did not have a materialelect to adopt this update early as permitted, thus it has no impact on ourthe current financial statements.
Off-Balance Sheet Arrangements
In connection with certain license agreement,agreements, we are required to indemnify the licensor for certain damages arising in connection with the intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet arrangements in accordance with ASC Topic 460 (“ASC 460”),“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”Others”. To date, we have not encountered material costs as
43
a result of such obligations and have not accrued any liabilities related to such obligations and have not accrued any liabilities related to such obligations in our financial statements. See Note 9 to our financial statements included in this annual report onForm 10-K for further discussion of these indemnification agreements.
On January 30, 2009, we entered into the SEDA with YA Global pursuant to which we may, at our sole and exclusive option, periodically sell to YA Global shares of our common stock at a price based on it then current market price for a total purchase price of up to $25.0 million. Advance notices may be given to YA Global once every five trading days, and advances shall not be more than $500,000. The purchase price for shares of common stock shall be 95% of the lowest volume weighted average price of the common stock during the five consecutive trading days after the advance notice date. YA Global is not obligated to fund any advance from us until such time as a registration statement which registers the resale of the shares of our common stock to be issued to YA Global is declared effective by the SEC, which has not yet occurred. The term of the SEDA is two years.
We issued YA Global an aggregate of 58,398 shares of our common stock as a commitment fee in connection with the transaction. RXi has also paid to Yorkville Advisors, LLC, YA Global’s general partner, a due diligence and structuring fee of $25,000.
| |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Because we are a smaller reporting company, we are not required to provide the information required by this Item.
4448
| |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
RXi’s financial information as of December 31, 20082010 and 2009 and for the years then ended and for the cumulative financial information for the period from January 1, 2003 (date of inception) to December 31, 20092010 have been audited by our independent registered public accounting firm, BDO Seidman,USA, LLP.
| | | | |
| | Page No. |
|
Index to Financial Statements | | | | |
| | | 4650 | |
| | | 4751 | |
| | | 4852 | |
| | | 4953 | |
| | | 5156 | |
| | | 5358 | |
4549
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
RXi Pharmaceuticals Corporation
Worcester, Massachusetts
We have audited the accompanying balance sheets of RXi Pharmaceuticals Corporation (a development stage Company) as of December 31, 20092010 and 20082009 and the related statements of expenses, stockholders’ equity, and cash flows for the years then ended and for the period from January 1, 2003 (date of inception) to December 31, 2009.2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RXi Pharmaceuticals Corporation as of December 31, 20092010 and 20082009 and the results of its operations and its cash flows for the years then ended and for the period from January 1, 2003 (date of inception) to December 31, 2009,2010, in conformity with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
March 31, 2010April 15, 2011
4650
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
| | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
| | (Amounts in thousands, except share data) | | | (Amounts in thousands, except share data) | |
|
ASSETS | ASSETS | ASSETS |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,684 | | | $ | 9,856 | | | $ | 6,891 | | | $ | 5,684 | |
Prepaid expenses | | | 120 | | | | 73 | | | | 150 | | | | 120 | |
| | | | | | | | | | |
Total current assets | | | 5,804 | | | | 9,929 | | | | 7,041 | | | | 5,804 | |
| | | | | | | | | | |
Equipment and furnishings, net of accumulated depreciation and amortization of $320 and $158 in 2009 and 2008, respectively | | | 432 | | | | 414 | | |
Equipment and furnishings, net of accumulated depreciation and amortization of $491 and $320 in 2010 and 2009, respectively | | | | 419 | | | | 432 | |
Deposits | | | 16 | | | | 16 | | | | 16 | | | | 16 | |
| | | | | | | | | | |
Total assets | | $ | 6,252 | | | $ | 10,359 | | | $ | 7,476 | | | $ | 6,252 | |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 625 | | | $ | 394 | | | $ | 724 | | | $ | 625 | |
Accrued expense and other current liabilities | | | 1,077 | | | | 976 | | | | 1,113 | | | | 1,077 | |
Current maturities of capital lease obligations | | | 52 | | | | 17 | | | | 51 | | | | 52 | |
Warrants potentially settleable in cash | | | 3,721 | | | | — | | | | 3,138 | | | | 3,721 | |
| | | | | | | | | | |
Total current liabilities | | | 5,475 | | | | 1,387 | | | | 5,026 | | | | 5,475 | |
Capital lease obligations, net of current maturities | | | 36 | | | | 4 | | | | 20 | | | | 36 | |
| | | | | | | | | | |
Total liabilities | | | 5,511 | | | | 1,391 | | | | 5,046 | | | | 5,511 | |
| | | | | | | | | | |
Commitments and contingencies (Notes 6, 8 & 14) | | | | | | | | | |
Commitments and contingencies (Notes 6, 8, 14 & 15) | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding | | | — | | | | — | | | | — | | | | — | |
Common stock, $0.0001 par value; 50,000,000 shares authorized; 16,207,625 and 13,763,231 shares issued and outstanding in 2009 and 2008, respectively | | | 2 | | | | 1 | | |
Common stock, $0.0001 par value; 50,000,000 shares authorized; 19,047,759 shares issued and 18,372,759 shares outstanding and 16,207,625 shares issued and outstanding at December 31, 2010 and 2009, respectively | | | | 2 | | | | 2 | |
Additional paid-in capital | | | 44,489 | | | | 34,330 | | | | 62,020 | | | | 44,489 | |
Deficit accumulated during the developmental stage | | | (43,750 | ) | | | (25,363 | ) | | | (55,743 | ) | | | (43,750 | ) |
Less treasury shares at cost, 675,000 and 0 shares at December 31, 2010 and December 31, 2009, respectively | | | | (3,849 | ) | | | — | |
| | | | | | | | | | |
Total stockholders’ equity | | | 741 | | | | 8,968 | | | | 2,430 | | | | 741 | |
| | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 6,252 | | | $ | 10,359 | | | $ | 7,476 | | | $ | 6,252 | |
| | | | | | | | | | |
See accompanying notes to financial statements.
4751
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Period from
| | | | | | | Period from
| |
| | | | | | January 1,
| | | | | | | January 1,
| |
| | | | | | 2003 (Date of
| | | | | | | 2003 (Date of
| |
| | Year Ended
| | Year Ended
| | Inception) to
| | | Year Ended
| | Year Ended
| | Inception) to
| |
| | December 31,
| | December 31,
| | December 31,
| | | December 31,
| | December 31,
| | December 31,
| |
| | 2009 | | 2008 | | 2009 | | | 2010 | | 2009 | | 2010 | |
| | (Amounts in thousands, except share and per share data) | | | (Amounts in thousands, except share and per share data) | |
|
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expense | | $ | 6,728 | | | $ | 5,105 | | | $ | 20,637 | | | $ | 6,046 | | | $ | 6,728 | | | $ | 26,683 | |
Research and development employee stock-based compensation expense | | | 867 | | | | 336 | | | | 1,323 | | | | 1,084 | | | | 867 | | | | 2,407 | |
Research and development non-employee stock-based compensation expense | | | 1,297 | | | | 1,613 | | | | 5,320 | | | | 743 | | | | 1,297 | | | | 6,063 | |
Fair value of common stock issued in exchange for licensing rights | | | — | | | | — | | | | 3,954 | | | | — | | | | — | | | | 3,954 | |
| | | | | | | | | | | | | | |
Total research and development expense | | | 8,892 | | | | 7,054 | | | | 31,234 | | | | 7,873 | | | | 8,892 | | | | 39,107 | |
| | | | | | | | | | | | | | |
General and administrative | | | 5,483 | | | | 4,874 | | | | 15,617 | | |
Fair value of common stock warrants issued for general and administrative expenses | | | 826 | | | | 750 | | | | 1,576 | | |
General and administrative expense | | | | 5,493 | | | | 5,483 | | | | 21,110 | |
Fair value of common stock warrants issued for general and administrative expense | | | | 718 | | | | 826 | | | | 2,294 | |
Fair value of common stock issued in exchange for general and administrative expenses | | | 281 | | | | — | | | | 281 | | | | — | | | | 281 | | | | 281 | |
General and administrative employee stock-based compensation | | | 2,038 | | | | 1,875 | | | | 4,844 | | |
General and administrative employee stock-based compensation expense | | | | 2,541 | | | | 2,038 | | | | 7,385 | |
| | | | | | | | | | | | | | |
Total general and administrative expense | | | 8,628 | | | | 7,499 | | | | 22,318 | | | | 8,752 | | | | 8,628 | | | | 31,070 | |
| | | | | | | | | | | | | | |
Total operating expenses | | | (17,520 | ) | | | (14,553 | ) | | | (53,552 | ) | | | (16,625 | ) | | | (17,520 | ) | | | (70,177 | ) |
| | | | | | | | | | | | | | |
Interest income (expense) | | | (5 | ) | | | 180 | | | | 623 | | | | 5 | | | | (5 | ) | | | 628 | |
Other income (expense) | | | (862 | ) | | | — | | | | (862 | ) | | | 4,627 | | | | (862 | ) | | | 3,765 | |
| | | | | | | | | | | | | | |
Loss before provision for income taxes | | | (18,387 | ) | | | (14,373 | ) | | | (53,791 | ) | | | (11,993 | ) | | | (18,387 | ) | | | (65,784 | ) |
Provision for income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | |
Net loss | | $ | (18,387 | ) | | $ | (14,373 | ) | | $ | (53,791 | ) | | $ | (11,993 | ) | | $ | (18,387 | ) | | $ | (65,784 | ) |
| | | | | | | | | | | | | | |
Net loss per common share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted loss per share | | $ | (1.24 | ) | | $ | (1.09 | ) | | | | | | $ | (0.67 | ) | | $ | (1.24 | ) | | | | |
| | | | | | | | | | |
Weighted average common shares outstanding: basic and diluted | | | 14,796,541 | | | | 13,239,942 | | | | | | | | 17,883,381 | | | | 14,796,541 | | | | | |
| | | | | | | | | | |
See accompanying notes to financial statements.
4852
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Deficit
| | | | | | | | | | | | | Deficit
| | | | | | | |
| | | | | | | | Accumulated
| | | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | Additional
| | During
| | Parent
| | | | | | | | | Additional
| | During
| | | | Parent
| | | |
| | Common Stock | | Paid-In
| | Development
| | Company’s
| | | | | Common Stock | | Paid-In
| | Development
| | Treasury
| | Company’s
| | | |
| | Shares Issued | | Amount | | Capital | | Stage | | Net Deficit | | Total | | | Shares Issued | | Amount | | Capital | | Stage | | Stock | | Net Deficit | | Total | |
| | (Amounts in thousands, except share data) | | | (Amounts in thousands, except share and per share data) | |
|
Predecessor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2003 | | | — | | | $ | — | | | $ | — | | | | | | | $ | (89 | ) | | $ | (89 | ) | | | — | | | $ | — | | | $ | — | | | | | | | | | | | $ | (89 | ) | | $ | (89 | ) |
Net loss | | | — | | | | — | | | | — | | | | | | | | (3,272 | ) | | | (3,272 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | (3,272 | ) | | | (3,272 | ) |
Net transactions with Parent | | | — | | | | — | | | | — | | | | | | | | 2,393 | | | | 2,393 | | | | — | | | | — | | | | — | | | | | | | | | | | | 2,393 | | | | 2,393 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2004 | | | — | | | | — | | | | — | | | | | | | | (968 | ) | | | (968 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | (968 | ) | | | (968 | ) |
Net loss | | | — | | | | — | | | | — | | | | | | | | (2,209 | ) | | | (2,209 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | (2,209 | ) | | | (2,209 | ) |
Net transactions with Parent | | | — | | | | — | | | | — | | | | | | | | 2,727 | | | | 2,727 | | | | — | | | | — | | | | — | | | | | | | | | | | | 2,727 | | | | 2,727 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2005 | | | — | | | | — | | | | — | | | | | | | | (450 | ) | | | (450 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | (450 | ) | | | (450 | ) |
Net Loss | | | — | | | | — | | | | — | | | | | | | | (2,405 | ) | | | (2,405 | ) | |
Net loss | | | | — | | | | — | | | | — | | | | | | | | | | | | (2,405 | ) | | | (2,405 | ) |
Net transactions with Parent | | | — | | | | — | | | | — | | | | | | | | 2,587 | | | | 2,587 | | | | — | | | | — | | | | — | | | | | | | | | | | | 2,587 | | | | 2,587 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | — | | | $ | — | | | $ | — | | | | | | | $ | (268 | ) | | $ | (268 | ) | | | — | | | $ | — | | | $ | — | | | | | | | | | | | $ | (268 | ) | | $ | (268 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Successor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at April 3, 2006 | | | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | — | |
Issuance of common stock | | | 1,624,278 | | | | — | | | | 2 | | | | — | | | | | | | | 2 | | | | 1,624,278 | | | | — | | | | 2 | | | | — | | | | — | | | | | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | 1,624,278 | | | | — | | | | 2 | | | | — | | | | | | | | 2 | | | | 1,624,278 | | | | — | | | | 2 | | | | — | | | | — | | | | | | | | 2 | |
Common stock issued to CytRx for contribution of RXi and other assets | | | 7,040,318 | | | | 1 | | | | 47 | | | | — | | | | | | | | 48 | | | | 7,040,318 | | | | 1 | | | | 47 | | | | — | | | | — | | | | | | | | 48 | |
Common stock issued for cash | | | 3,273,292 | | | | — | | | | 15,348 | | | | — | | | | | | | | 15,348 | | | | 3,273,292 | | | | — | | | | 15,348 | | | | — | | | | — | | | | | | | | 15,348 | |
Common stock issued to CytRx for reimbursement of expenses | | | 188,387 | | | | — | | | | 978 | | | | — | | | | | | | | 978 | | | | 188,387 | | | | — | | | | 978 | | | | — | | | | — | | | | | | | | 978 | |
Expenses incurred by CytRx for RXi | | | — | | | | — | | | | 831 | | | | — | | | | | | | | 831 | | | | — | | | | — | | | | 831 | | | | — | | | | — | | | | | | | | 831 | |
Common stock issued to UMMS for additional intellectual properties | | | 462,112 | | | | — | | | | 2,311 | | | | — | | | | | | | | 2,311 | | | | 462,112 | | | | — | | | | 2,311 | | | | — | | | | — | | | | | | | | 2,311 | |
Common stock issued to directors | | | 30,000 | | | | — | | | | 150 | | | | — | | | | | | | | 150 | | | | 30,000 | | | | — | | | | 150 | | | | — | | | | — | | | | | | | | 150 | |
Common stock issued upon exercise of stock options | | | 66,045 | | | | — | | | | 331 | | | | — | | | | | | | | 331 | | | | 66,045 | | | | — | | | | 331 | | | | | | | | | | | | | | | | 331 | |
Stock based compensation for directors and employees | | | — | | | | — | | | | 1,048 | | | | — | | | | | | | | 1,048 | | | | — | | | | — | | | | 1,048 | | | | — | | | | — | | | | | | | | 1,048 | |
Stock based compensation expense for services | | | — | | | | — | | | | 766 | | | | — | | | | | | | | 766 | | | | — | | | | — | | | | 766 | | | | — | | | | — | | | | | | | | 766 | |
Net loss | | | — | | | | — | | | | — | | | | (10,990 | ) | | | | | | | (10,990 | ) | | | — | | | | — | | | | — | | | | (10,990 | ) | | | — | | | | | | | | (10,990 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | | 12,684,432 | | | | 1 | | | | 21,812 | | | | (10,990 | ) | | | | | | | 10,823 | | | | 12,684,432 | | | | 1 | | | | 21,812 | | | | (10,990 | ) | | | — | | | | | | | | 10,823 | |
4953
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Deficit
| | | | | | | |
| | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | | | Additional
| | | During
| | | Parent
| | | | |
| | Common Stock | | | Paid-In
| | | Development
| | | Company’s
| | | | |
| | Shares Issued | | | Amount | | | Capital | | | Stage | | | Net Deficit | | | Total | |
| | (Amounts in thousands, except share data) | |
|
Issuance of common stock, net of offering costs of $796 | | | 1,073,299 | | | | — | | | | 7,918 | | | | — | | | | | | | | 7,918 | |
Common stock issued upon exercise of stock options | | | 5,500 | | | | — | | | | 26 | | | | — | | | | | | | | 26 | |
Stock based compensation for directors and employees | | | — | | | | — | | | | 2,211 | | | | — | | | | | | | | 2,211 | |
Stock based compensation expense for services | | | — | | | | — | | | | 1,613 | | | | — | | | | | | | | 1,613 | |
Common stock warrant expense in exchange for services | | | | | | | | | | | | | | | 750 | | | | | | | | 750 | |
Net loss | | | — | | | | — | | | | — | | | | (14,373 | ) | | | | | | | (14,373 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 13,763,231 | | | | 1 | | | | 34,330 | | | | (25,363 | ) | | | | | | | 8,968 | |
Issuance of common stock, net of offering costs of $636 | | | 2,385,715 | | | | 1 | | | | 7,713 | | | | — | | | | | | | | 7,714 | |
Common stock warrants issued in connection with the 2009 Offering | | | — | | | | — | | | | (2,863 | ) | | | — | | | | | | | | (2,863 | ) |
Common stock issued upon exercise of stock options | | | 281 | | | | — | | | | — | | | | — | | | | | | | | — | |
Common stock issued as commitment fee in connection with SEDA | | | 58,398 | | | | — | | | | 281 | | | | — | | | | | | | | 281 | |
Stock based compensation for directors and employees | | | — | | | | — | | | | 2,906 | | | | — | | | | | | | | 2,906 | |
Stock based compensation expense for services | | | — | | | | — | | | | 1,296 | | | | — | | | | | | | | 1,296 | |
Common stock warrant expense in exchange for services | | | | | | | — | | | | 826 | | | | — | | | | | | | | 826 | |
Net loss | | | — | | | | — | | | | — | | | | (18,387 | ) | | | | | | | (18,387 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | 16,207,625 | | | | 2 | | | $ | 44,489 | | | $ | (43,750 | ) | | | | | | $ | 741 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Deficit
| | | | | | | | | | |
| | | | | | | | | | | Accumulated
| | | | | | | | | | |
| | | | | | | | Additional
| | | During
| | | | | | Parent
| | | | |
| | Common Stock | | | Paid-In
| | | Development
| | | Treasury
| | | Company’s
| | | | |
| | Shares Issued | | | Amount | | | Capital | | | Stage | | | Stock | | | Net Deficit | | | Total | |
| | (Amounts in thousands, except share and per share data) | |
|
Issuance of common stock, net of offering costs of $796 | | | 1,073,299 | | | | — | | | | 7,918 | | | | — | | | | — | | | | | | | | 7,918 | |
Common stock issued upon exercise of stock options | | | 5,500 | | | | — | | | | 26 | | | | — | | | | — | | | | | | | | 26 | |
Stock based compensation for directors and employees | | | — | | | | — | | | | 2,211 | | | | — | | | | — | | | | | | | | 2,211 | |
Stock based compensation expense for services | | | — | | | | — | | | | 1,613 | | | | — | | | | — | | | | | | | | 1,613 | |
Common stock warrant expense in exchange for services | | | | | | | | | | | 750 | | | | | | | | — | | | | | | | | 750 | |
Net loss | | | — | | | | — | | | | — | | | | (14,373 | ) | | | | | | | | | | | (14,373 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 13,763,231 | | | | 1 | | | | 34,330 | | | | (25,363 | ) | | | — | | | | | | | | 8,968 | |
Issuance of common stock, net of offering costs of $636 | | | 2,385,715 | | | | 1 | | | | 7,713 | | | | — | | | | — | | | | | | | | 7,714 | |
Common stock warrants issued in connection with the 2009 Offering | | | — | | | | — | | | | (2,863 | ) | | | — | | | | — | | | | | | | | (2,863 | ) |
Common stock issued upon exercise of stock options | | | 281 | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | |
Common stock issued as commitment fee in connection with SEDA | | | 58,398 | | | | — | | | | 281 | | | | — | | | | — | | | | | | | | 281 | |
Stock based compensation expense for directors and employees | | | — | | | | — | | | | 2,906 | | | | — | | | | — | | | | | | | | 2,906 | |
Stock based compensation expense for services | | | — | | | | — | | | | 1,296 | | | | — | | | | — | | | | | | | | 1,296 | |
Common stock warrant expense in exchange for services | | | — | | | | — | | | | 826 | | | | | | | | — | | | | | | | | 826 | |
Net loss | | | — | | | | — | | | | — | | | | (18,387 | ) | | | | | | | | | | | (18,387 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | 16,207,625 | | | | 2 | | | | 44,489 | | | | (43,750 | ) | | | — | | | | | | | | 741 | |
Issuance of common stock, net of offering costs of $965 | | | 2,700,000 | | | | — | | | | 15,235 | | | | — | | | | — | | | | | | | | 15,235 | |
Purchase of 675,000 shares of treasury stock | | | — | | | | — | | | | — | | | | — | | | | (3,849 | ) | | | | | | | (3,849 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock warrants issued in connection with 2010 offering | | | — | | | | — | | | | (2,466 | ) | | | — | | | | — | | | | | | | | (2,466 | ) |
Fair value of shares mandatorily redeemable for cash upon exercise of warrants | | | — | | | | — | | | | (785 | ) | | | — | | | | — | | | | | | | | (785 | ) |
Common stock issued upon exercise of stock options | | | 53,500 | | | | — | | | | 254 | | | | — | | | | — | | | | | | | | 254 | |
54
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Deficit
| | | | | | | | | | |
| | | | | | | | | | | Accumulated
| | | | | | | | | | |
| | | | | | | | Additional
| | | During
| | | | | | Parent
| | | | |
| | Common Stock | | | Paid-In
| | | Development
| | | Treasury
| | | Company’s
| | | | |
| | Shares Issued | | | Amount | | | Capital | | | Stage | | | Stock | | | Net Deficit | | | Total | |
| | (Amounts in thousands, except share and per share data) | |
|
Issuance of restricted stock units | | | 86,634 | | | | — | | | | 207 | | | | — | | | | — | | | | | | | | 207 | |
Stock based compensation expense for directors and employees | | | — | | | | — | | | | 3,625 | | | | — | | | | — | | | | | | | | 3,625 | |
Stock based compensation expense for services | | | — | | | | — | | | | 743 | | | | — | | | | — | | | | | | | | 743 | |
Value of common stock warrants issued in exchange for services | | | — | | | | — | | | | 718 | | | | | | | | — | | | | | | | | 718 | |
Net loss | | | — | | | | — | | | | — | | | | (11,993 | ) | | | — | | | | | | | | (11,993 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | 19,047,759 | | | $ | 2 | | | $ | 62,020 | | | $ | (55,743 | ) | | $ | (3,849 | ) | | | | | | $ | 2,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to financial statements.
5055
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Period from
| | | | | | | Period from
| |
| | | | | | January 1,
| | | | | | | January 1,
| |
| | | | | | 2003 (Date of
| | | | | | | 2003 (Date of
| |
| | | | | | Inception)
| | | | | | | Inception)
| |
| | Year Ended
| | Year Ended
| | through
| | | Year Ended
| | Year Ended
| | through
| |
| | December 31,
| | December 31,
| | December 31,
| | | December 31,
| | December 31,
| | December 31,
| |
| | 2009 | | 2008 | | 2009 | | | 2010 | | 2009 | | 2010 | |
| | (Amounts in thousands) | | | (Amounts in thousands) | |
|
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (18,387 | ) | | $ | (14,373 | ) | | $ | (53,791 | ) | | $ | (11,993 | ) | | $ | (18,387 | ) | | $ | (65,784 | ) |
| | | | | | | | |
Adjustment to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | | 162 | | | | 131 | | | | 329 | | | | 172 | | | | 162 | | | | 501 | |
Loss on disposal of equipment | | | 4 | | | | 8 | | | | 12 | | | | — | | | | 4 | | | | 12 | |
Non-cash rent expense | | | — | | | | 29 | | | | 29 | | | | — | | | | — | | | | 29 | |
Accretion and receipt of bond discount | | | — | | | | 207 | | | | 35 | | | | — | | | | — | | | | 35 | |
Non-cash share based compensation | | | 4,202 | | | | 3,824 | | | | 11,489 | | | | 4,368 | | | | 4,202 | | | | 15,857 | |
Fair value of shares mandatorily redeemable for cash upon exercise of warrants | | | | (785 | ) | | | — | | | | (785 | ) |
Fair value of common stock warrants issued in exchange for services | | | 826 | | | | 750 | | | | 1,576 | | | | 718 | | | | 826 | | | | 2,294 | |
Fair value of common stock issued as commitment fee in connection with SEDA | | | 281 | | | | — | | | | 281 | | |
Change in fair value of common stock warrants issued in connection with the 2009 offering | | | 858 | | | | — | | | | 858 | | |
Fair value of common stock issued in exchange for services | | | | — | | | | 281 | | | | 281 | |
Change in fair value of common stock warrants issued | | | | (3,049 | ) | | | 858 | | | | (2,191 | ) |
Fair value of common stock issued in exchange for licensing rights | | | — | | | | — | | | | 3,954 | | | | — | | | | — | | | | 3,954 | |
Changes in assets and liabilities: | | | | | | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | |
Prepaid expenses | | | (47 | ) | | | (51 | ) | | | (120 | ) | | | (30 | ) | | | (47 | ) | | | (150 | ) |
Accounts payable | | | 231 | | | | 339 | | | | 625 | | | | 99 | | | | 231 | | | | 724 | |
Due to former parent | | | — | | | | (207 | ) | | | (207 | ) | | | — | | | | — | | | | (207 | ) |
Accrued expenses and other current liabilities | | | 101 | | | | (86 | ) | | | 1,077 | | | | 243 | | | | 101 | | | | 1,320 | |
| | | | | | | | | | | | | | |
Net cash used in operating activities | | | (11,769 | ) | | | (9,429 | ) | | | (33,853 | ) | | | (10,257 | ) | | | (11,769 | ) | | | (44,110 | ) |
| | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Purchase of short-term investments | | | — | | | | (19,785 | ) | | | (31,542 | ) | | | (5,990 | ) | | | — | | | | (37,532 | ) |
Maturities of short-term investments | | | — | | | | 29,530 | | | | 31,507 | | | | 5,990 | | | | — | | | | 37,497 | |
Cash paid for purchase of equipment and furnishings | | | (82 | ) | | | (166 | ) | | | (580 | ) | | | (106 | ) | | | (82 | ) | | | (686 | ) |
Disposal of equipment and furnishings | | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | (1 | ) | | | (1 | ) |
Cash refunded (paid) for lease deposit | | | — | | | | 21 | | | | (45 | ) | | | — | | | | — | | | | (45 | ) |
| | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (83 | ) | | | 9,600 | | | | (661 | ) | |
Net cash used in investing activities | | | | (106 | ) | | | (83 | ) | | | (767 | ) |
| | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | | 7,714 | | | | 7,918 | | | | 31,132 | | |
Net proceeds from 2010 registered direct offering | | | | 15,235 | | | | 7,714 | | | | 46,367 | |
Repurchase of treasury stock | | | | (3,849 | ) | | | | | | | (3,849 | ) |
Net proceeds from exercise of common stock options | | | — | | | | 26 | | | | 356 | | | | 254 | | | | — | | | | 610 | |
Repayments of capital lease obligations | | | (34 | ) | | | (22 | ) | | | (56 | ) | | | (70 | ) | | | (34 | ) | | | (126 | ) |
Cash advances from Parent, net | | | | | | | | | | | 8,766 | | | | — | | | | | | | | 8,766 | |
| | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 7,680 | | | | 7,922 | | | | 40,198 | | | | 11,570 | | | | 7,680 | | | | 51,768 | |
| | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | (4,172 | ) | | | 8,093 | | | | 5,684 | | | | 1,207 | | | | (4,172 | ) | | | 6,891 | |
Cash and cash equivalents at the beginning of period | | | 9,856 | | | | 1,763 | | | | — | | | | 5,684 | | | | 9,856 | | | | — | |
| | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 5,684 | | | $ | 9,856 | | | $ | 5,684 | | | $ | 6,891 | | | $ | 5,684 | | | $ | 6,891 | |
| | | | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash received during the periods for interest | | | 1 | | | $ | 449 | | | $ | 724 | | | $ | — | | | $ | 1 | | | $ | 724 | |
| | | | | | | | | | | | | | |
Cash paid during the periods for interest | | $ | — | | | $ | 7 | | | $ | 7 | | | $ | — | | | $ | — | | | $ | 7 | |
| | | | | | | | | | | | | | |
5156
| | | | | | | | | | | | |
| | | | | | | | Period from
| |
| | | | | | | | January 1,
| |
| | | | | | | | 2003 (Date of
| |
| | | | | | | | Inception)
| |
| | Year Ended
| | | Year Ended
| | | through
| |
| | December 31,
| | | December 31,
| | | December 31,
| |
| | 2009 | | | 2008 | | | 2009 | |
| | (Amounts in thousands) | |
|
Supplemental disclosure of non-cash investing and financing activities: | | | | | | | | | | | | |
Settlement of corporate formation expenses in exchange for common stock | | $ | — | | | $ | — | | | $ | 978 | |
| | | | | | | | | | | | |
Fair value of warrants issued in connection with common stock recorded as cost of equity | | $ | 2,863 | | | $ | — | | | $ | 2,863 | |
| | | | | | | | | | | | |
Allocation of management expenses | | $ | — | | | $ | — | | | $ | 551 | |
| | | | | | | | | | | | |
Equipment and furnishings exchanged for common stock | | $ | — | | | $ | — | | | $ | 48 | |
| | | | | | | | | | | | |
Acquisition of equipment and furnishings through accrued liabilities | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
Equipment and furnishings acquired through capital lease | | $ | 101 | | | $ | 43 | | | $ | 144 | |
| | | | | | | | | | | | |
Non-cash lease deposit | | $ | — | | | $ | — | | | $ | 50 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | Period from
| |
| | | | | | | | January 1,
| |
| | | | | | | | 2003 (Date of
| |
| | | | | | | | Inception)
| |
| | Year Ended
| | | Year Ended
| | | through
| |
| | December 31,
| | | December 31,
| | | December 31,
| |
| | 2010 | | | 2009 | | | 2010 | |
| | (Amounts in thousands) | |
|
Supplemental disclosure of non-cash investing and financing activities: | | | | | | | | | | | | |
Settlement of corporate formation expenses in exchange for common stock | | $ | — | | | $ | — | | | $ | 978 | |
| | | | | | | | | | | | |
Fair value of warrants issued in connection with common stock recorded as cost of equity | | $ | 2,466 | | | $ | 2,863 | | | $ | 5,329 | |
| | | | | | | | | | | | |
Fair value of shares mandatorily redeemable for cash upon exercise of warrants | | $ | 785 | | | $ | — | | | $ | 785 | |
| | | | | | | | | | | | |
Allocation of management expenses | | $ | — | | | $ | — | | | $ | 551 | |
| | | | | | | | | | | | |
Equipment and furnishings exchanged for common stock | | $ | — | | | $ | — | | | $ | 48 | |
| | | | | | | | | | | | |
Equipment and furnishings acquired through capital lease | | $ | 53 | | | $ | 101 | | | $ | 197 | |
| | | | | | | | | | | | |
Non-cash lease deposit | | $ | — | | | $ | — | | | $ | 50 | |
| | | | | | | | | | | | |
Value of restricted stock units issued in lieu of cash bonuses | | $ | 207 | | | $ | — | | | $ | 207 | |
| | | | | | | | | | | | |
See accompanying notes to financial statements.
5257
RXi Pharmaceuticals Corporation (“RXi” or the “Company”) was formed by CytRx Corporation (“CytRx” or the “Former Parent”) and four prominent RNAi researchers, including Craig C. Mello, Ph.D., who was awarded the 2006 Nobel Prize in Medicine for his co-discovery of RNAi. The purpose of forming RXi was to pursue the development of proprietary therapeutics based on RNAi for the treatment of human diseases. By utilizing the Company’s expertise in RNAi and the comprehensive RNAi technology platform it has established, the Company believes it will be able to discover and develop lead compounds and progress them into and through clinical development for potential commercialization more efficiently than traditional drug development approaches, primarily in partnerships with pharmaceutical and biotechnology companies.
RXi was incorporated as Argonaut Pharmaceuticals, Inc., in Delaware, on April 3, 2006. The Company changed its name to RXi Pharmaceuticals Corporation on November 28, 2006. From April 3, 2006 (date of incorporation) until January 8, 2007, no business was conducted at the RXi level. On January 8, 2007, RXi entered into a contribution agreement with CytRx under which CytRx assigned and contributed to RXi substantially all of its RNAi-related technologies and assets and commenced operations; these contributed assets were recorded by RXi at the historical cost basis of $48,000.
Because the RNAi activities prior to 2007 were conducted by CytRx, the financial statements of RXi for the periods through December 31, 2006 have been disaggregated, or “carved-out,” of the financial statements of CytRx. These carved-out financial statements form what are referred to herein as the financial statements of the “Predecessor,” and include both direct and indirect expenses. The historical direct expenses consist primarily of the various costs for technology license agreements, sponsored research agreements and fees paid to scientific advisors. Indirect expenses during this period represent expenses incurred by CytRx on behalf of RXi, including salary, benefits, rent, accounting and other general and administrative expenses that have been allocated to RXi based upon estimates of the percentage of time spent by individual CytRx employees working on RXi matters. Management believes the assumptions underlying the allocations of indirect expenses in the carve-out financial information are reasonable; however, RXi’s financial position, results of operations and cash flows may have been materially different if it was operated as a stand-alone entity as of and for the periods ended December 31, 2007. RXi’s financial information from January 8, 2007 is referred to in these financial statements as the financial information of the “Successor” and includes expenses incurred by RXi in its RNAi therapeutic programs, as well as an allocation of indirect expenses relating to corporate services provided by CytRx through December 31, 2007. In addition, the net intercompany activities between Predecessor and CytRx have been accumulated into a single caption entitled “Parent Company’s Net Deficit.”
To date, RXi’s principal activities have consisted of conducting discovery research and pre-clinical development activities utilizing the Company’s RNAi therapeutic platform, acquiring RNAi technologies and patent rights through exclusive, co-exclusive and non-exclusive licenses, recruiting an RNAi-focused management and scientific/clinical advisory team, capital raising activities and conducting business development activities aimed at establishing research and development partnerships with pharmaceutical and larger biotechnology companies.
As the Company has not generated any revenues from inception through December 31, 2009,2010, the Company is considered a development-stage company for accounting purposes.
The Company had cash and cash equivalents of approximately $5.7$6.9 million as of December 31, 20092010.
During 2010 and approximately $14.4 million asto date in 2011, the Company entered into the following significant financing transactions:
On March 26, 2010, the Company closed a registered direct financing pursuant to which the Company sold to certain investors 2,700,000 shares of March 31, 2010.common stock at $6.00 per share and warrants to purchase
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NOTES TO FINANCIAL STATEMENTS — (Continued)
During 2009 and to date in 2010, the Company entered into the following significant financing transactions:
On January 30, 2009, the Company entered into the SEDA, pursuant to which the Company may, at its option over a two-year period, ending on January 30, 2011, periodically sell to YA Global shares of the Company’s common stock, for a total purchase price of up to $25.0 million. To date no shares have been sold under the SEDA.
On August 4, 2009, the Company closed the 2009 Offering in which it sold 2,385,715 shares of its common stock and warrants to purchase 954,286 shares of its common stock and a at an exercise price of $4.50 per share resulting in approximately $7.8 million in net proceeds after deducting the placement agent fee and offering expenses.
On March 26, 2010, the Company closed a registered direct financing (the “2010 Offering”) pursuant to which it sold to certain investors 2,700,000 shares of common stock at $6.00 per share and warrants to purchase 540,000 shares of common stock with an exercise price of $6.00 per share.share (subject to anti-dilution adjustment). The financing provided approximately $15.2 million$15,200,000 in net proceeds to the Company after deducting the placement agent fee and offering expenses. Pursuant to a stock redemption agreement between usthe Company and CytRx Corporation (“CytRx”) dated March 22, 2010, the Company iswas required to use 25% of the net proceeds from the offering to repurchase from CytRx a number of shares of itsthe Company’s common stock held by CytRx equal to 25% of the shares sold by th e Companyus in the offering. The Company iswas also required to use 25% of the proceeds from the exercise of warrants issued in the offering to repurchase from CytRx a number of shares of itsour common stock held by CytRx equal to 25% of the shares issued upon the exercise of such warrants. As required by the agreement with CytRx, on March 31,29, 2010 the Company repurchased 675,000 shares of itstheir common stock from CytRx for an aggregate price of approximately $3.8$3,800,000. The values of the shares at the date of repurchase were recorded at cost and have been included in treasury stock in the accompanying balance sheet at December 31, 2010. Prior to December 31, 2010, CytRx sold all of their ownership shares in the Company to a third party. Therefore, as of December 31, 2010, the Company no longer has an obligation to repurchase shares from CytRx.
On March 4, 2011, the Company closed an underwritten public offering of 6,000,000 units at a price to the public of $1.35 per unit for gross proceeds of $8.1 million. The financing provided approximately $7.3 million to the Company estimatesafter deducting the underwriting fee and offering expenses. Each unit consists of (i) one share of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common stock at an exercise of $1.70 per share (subject to anti-dilution adjustment) and (iii) a five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per share (subject to anti-dilution adjustment).
On April 15, 2011, the Company announced that it will repurchasehad priced an additional 135,000underwritten public offering of 11,950,000 units at a price to the public of $1.00 per unit for gross proceeds of approximately $12 million. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $1.00 per share. The shares of its common stock and warrants are immediately separable and will be issued separately such that no units will be issued. The warrants are exercisable beginning one year and one day from CytRx forthe date of issuance, but only if RXi’s stockholders approve an aggregate priceincrease in the number of $0.8 million if allits authorized shares of common stock, and expire on the sixth anniversary of the date of issuance. Net proceeds, after underwriting discounts and commissions and other estimated fees and expenses payable by RXi, and assuming the warrants issued inare not exercised, will be approximately $10.9 million. RXi intends to use the net proceeds of the offering for general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, clinical and pre-clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are exercised.complementary to its current technologies or business focus, and investments. The offering is expected to close on or about April 20, 2011, subject to satisfaction of customary closing conditions.
We have not hadThe Company has not generated any revenues since inception nor are any revenues expected for the foreseeable future. We expectThe Company expects to incur significant operating losses for the foreseeable future while we advance ourthe Company advances their future product candidates from discovery through pre-clinical studies and clinical trials and seek regulatory approval and potential commercialization, even if we arethe Company is collaborating with pharmaceutical and larger biotechnology companies. In addition to these increasing research and development expenses, we expectthe Company expects general and administrative costs to increase as we recruitthe Company recruits additional management and administrative personnel.
We believeThe Company believes that ourits existing cash and cash equivalents should be sufficient to fund ourits operations through at least the first halfquarter of 2011. In addition, we also have available to us the SEDA which expires on January 30, 2011. In the future, we will be dependent on obtaining funding from third parties such as proceeds from the sale of equity, funded research and development payments and payments under partnership and collaborative agreements, in order to maintain our operations and meet our obligations to licensors. There is no guarantee that debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or to be acquired by another company.
The Company believes that its existing cash, is sufficient to fund operations through at least the first half of 2011.2012. In the future, the Company will be dependent on obtaining funding from third parties such as proceeds from the sale of equity, funded research and development payments and payments under partnership and collaborative agreements, in order to maintain its operations.operations and meet its obligations to licensors. There is no guarantee that debt, additional equity or other funding will be available to the Company on acceptable terms, or at all. If the Company fails to obtain additional funding when needed, it would be forced to scale back, or terminate, its operations or to seek to merge with or to be acquired by another company.
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
when needed, we would be forced to scale back, or terminate, the Company’s operations or to seek to merge with or to be acquired by another company.
The Company expects to incur significant operating losses for the foreseeable future while it advances its future product candidates from discovery through pre-clinical studies and clinical trials and seek regulatory approval and potential commercialization, even if the Company is collaborating with pharmaceutical and larger biotechnology companies. In addition to these increasing research and development expenses, the Company expects general and administrative costs to increase as it recruits additional management and administrative personnel. The Company will need to generate significant revenues to achieve profitability and may never do so.
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2. | Summary of Significant Accounting Policies |
Uses of estimates in preparation of financial statements — The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from thesethose estimates.
Cash and Cash Equivalents — The Company considers all highly-liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.
Fair Value of Financial Instruments — The carrying amounts reported in the balance sheet for cash equivalents, accounts payable, and accrued liabilitiescapital leases approximate their fair values due to their short-term nature.nature and market rates of interest.
Equipment and Furnishings — Equipment and furnishings are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally three to five years for equipment and furniture) of the related assets.
Depreciation and amortization expense for the yearyears ended December 31, 20092010 and 20082009 was approximately $162,000$172,000 and $131,000,$162,000, respectively.
Impairment of Long-Lived Assets — The Company reviews long-lived assets, including finite lived intangible assets, for impairment on an annual basis, as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods. The Company believes no impairment existed as of December 31, 2009.2010.
Patents and Patent Application Costs — Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.
Share-based Compensation — The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, ““Compensation — Stock Compensation”Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-basedstock based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.
60
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
For stock options granted as consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic505-50(“505-50 (“ASC505-50”), ““Equity Based Payments to Non-Employees”Non- Employees.” Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options. At
55
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the Company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
The Company recognized $1.3 million$743,000 and $1.6 million$1,300,000 of stock based compensation expense related to non-employee stock options for the years ended December 31, 20092010 and 2008,2009, respectively.
Derivative Financial Instruments — During the normal course of business, from time to time, the Company issues warrants and options to vendors as consideration to perform services. It may also issue warrants as part of a debt or equity financing. The Company does not enter into any derivative contracts for speculative purposes.
The Company recognizes all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. During the year ended December 31, 2009, the Company issued warrants to purchase 978,142 shares of common stock in connection with an equity transaction. In accordance with FASB ASC Topic815-40, ““Derivatives and Hedging — Contracts in Entity’s Own Stock”Stock,(“ASC 815-40”),” the value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to the Company inupon the occurrence of certain events as defined.set forth in the warrant agreement.
AsObligations to Repurchase Shares of December 31, 2009, the Company’s Equity Securities — In accordance with FASB ASC Topic480-10,“Distinguishing Liabilities from Equity,”the Company recognizes all obligations to repurchase shares of its equity securities that require or may require the Company to settle the obligation by transferring assets, as liabilities or assets in some circumstances measured at fair value of these warrants is approximately $3.7 millionwith changes in fair value reflected as current period income or loss and is recordedare accounted for as a current liability on the accompanying balance sheet.such.
Research and Development Expenses — Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead directly related to the Company’s research and development departments as well as costs to acquire technology licenses.
Income Taxes — The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASBASC740-10, ““Accounting for Income Taxes” (“ASC740-10”).These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.ASC740-10requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. RXi evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit. The recognition and measurement of benefits related to the Company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and RXi’s assumptions or changes in the Company’s assumptions in future periods are recorded in the period they become known
61
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
Concentrations of Credit Risk — Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances in several accounts with one bank, which at times are in excess of federally insured limits. As of December 31, 2009,2010, the Company’s cash equivalents were invested in money market mutual funds. The Company’s investment policy disallows investment in any debt securities rated less than “investment grade” by national ratings services. The Company has not experienced any losses on its deposits of cash and cash equivalents or its short-term investments.
56
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)equivalents.
Comprehensive Loss — The Company’s comprehensive loss is equal to its net loss for all periods presented.
Parent Company’s Net Deficit — The Parent Company’s Net Deficit of the Predecessor consists of CytRx’s initial investment in RXi and subsequent changes in RXi’s net investment resulting from RXi being an integrated part of CytRx. All disbursements for the Predecessor were made by CytRx.
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3. | Recent Accounting Pronouncements |
In JuneEffective January 1, 2009, the FASB issued ASC Topic 105, “Generally Accepted Accounting Principles, amendments based on Statement ofCompany adopted guidance now codified as Financial Accounting Standards(“SFAS”)No. 168 — The FASB Board (FASB) Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”(ASC) Topic 805, “Business Combinations,” (“ASC 105”805”) which establishes only two levels. This topic requires an acquirer to recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values as of U.S. GAAP, authoritativethe acquisition date. The topic requires acquisition costs and non-authoritative. The amendments establishedany restructuring costs associated with the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASBbusiness combination to be applied by nongovernmental entitiesrecognized separately from the fair value of the business combination. ASC 805 establishes requirements for recognizing and measuring goodwill acquired in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releasesbusiness combination or a gain from a bargain purchase as well as disclosure requirements designed to enable users to better interpret the results of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. On the effective datebusiness combination. Early adoption of this statement, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. This statement is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company adopted this update during the three-month period ended September 30, 2009. As the Codificationtopic was not intended to change or alter existing U.S. GAAP, thepermitted. The adoption of ASC 105 did not have any805 will impact on the Company’s financial position, results of operations orand cash flows.flows to the extent it conducts acquisition-related activitiesand/or consummates business combinations. In 2010 and 2009, the adoption of ASC 805 had no impact on the Company’s results.
In June 2009, the FASB ASC Topic 810“Amendments to FASB Interpretation No. 46R”,(“ASC 810”), which amends the consolidation guidance applicable to variable interest entities and is effective as ofEffective January 1, 2010. The2010, the Company is currently in the process of evaluating the impact of this pronouncement.
In June 2009, the FASB issued ASC Topic 860,“adopted Accounting for Transfers of Financial Assets”Standards Update (ASU)No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements(“ASC 860”), which eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This statement is effective for fiscal years beginning after November 15, 2009. The Company is currently in the process of evaluating the impact of ASC-860.
In May 2009, FASB ASC Topic 855,“Subsequent Events” (“ASC 855”) which sets forth (i) the period after the balance sheet date during which management of aor ASU2010-06. A reporting entity should evaluate events or transactions that may occur for potential recognition or disclosureprovide additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statementstransfers between Levels 1, 2, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The Company adopted ASC 855 in the quarter ending June 30, 2009.3 fair value measurements. The adoption of ASC 855the additional disclosures for Level 1 and Level 2 fair value measurements did not have anyan impact on the Company’sour financial position, results of operations or cash flows. The Company evaluated all events or transactions that occurred after the period covered by this report, up through the time of filing this annual report onForm 10-K with the SEC. During this perioddisclosures regarding Level 3 fair value measurements do not become effective until January 1, 2011 and, given such, the Company did not have any material recognizable subsequent events other than what is disclosed in footnote 17.currently evaluating the potential impact of this part of the update.
In April 2009,Effective January 1, 2010, the FASB issuedCompany adopted ASUNo. 2009-17,Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, or ASU2009-17. The amendments in this update replace the following: (i) FASB ASC Topic820-10-65,“Determining Fair Value Whenquantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the Volumepower to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and Level(1) the obligation to absorb losses of Activitythe entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly”(“ASC820-10-65”), (ii) FASB ASC Topic320-10-65,“Recognition and Presentationinformation provided to users ofOther-Than-Temporary Impairment”(“ASC320-10-65”), and (iii) FASB ASCTopic 825-10-65, financial statements. The Company evaluated their business relationships to identify potential variable
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NOTES TO FINANCIAL STATEMENTS — (Continued)
“Interim Disclosures about Fair Valueinterest entities and have concluded that consolidation of Financial Instruments”such entities is not required for the periods presented. On a quarterly basis, the Company will continue to reassess our involvement with variable interest entities.
In February 2010, the FASB issued ASC UpdateNo. 2010-09,Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (UpdateNo. 2010-09).(“ASC825-10-65”), This update requires SEC registrants to evaluate subsequent events through the date that the financial statements are issued and removes the requirement to disclose the date through which management evaluated subsequent events. This guidance was effective for interim and annual periods ending after June 15, 2009. ASC820-10-65 provides guidance on how to determine the fair value of assets and liabilities under ASC820-10 in the current economic environment and reemphasizes that the objective of a fair value measurement remains an exit price. If RXI were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and the Company may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. ASC820-10-65 modifies the requirements for recognizingother-than-temporarily impaired debt securities and revises the existing impairment model for such securities, by modifying the current intent and ability indicator in determining whether a debt security isother-than-temporarily impaired.ASC 825-10-65 enhances the disclosure of instruments under the scope of ASC 820 for both interim and annual periods. The Company is currently evaluating these staff positions and the impact, if any, that adoption will have on its financial position and results of operation.
Effective January 1, 2009, the Company adopted FASB ASC Topic815-40-15,“Derivatives and Hedging Evaluating Whether an Instrument is Indexed to an Entity’s Own Stock”(“ASC815-40-15”), which addresses the accounting for certain instruments as derivatives. Under ASC815-40-15 specific guidance is provided regarding requirements for an entity to consider embedded features as indexed to the entity’s own stock. See footnote 6 for the impact the adoption of ASC815-40-15 had on the Company’s financial position, results of operations and cash flows.immediately upon issuance.
In December 2007,2010, the FASB ratifiedissued ASC Update2010-29,Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations (UpdateNo. 2010-29). This Update requires a public entity to disclose pro forma information for business combinations that occurred in the consensus reached bycurrent reporting period. The disclosures include pro forma revenue and earnings of the EITF on ASC Topic 808,“Accountingcombined entity for Collaborative Agreements” (“ASC 808-10-2”), which provides the definitioncurrent reporting period as though the acquisition date for all business combinations that occurred during the year had been as of a collaborative agreementthe beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and ASC 808-10-15 provides guidelines to assist anearnings of the combined entity in determining whether or not it is a party in a collaborative agreement. ASC 808-10-45 states that costs incurred and revenues generated from transactions with third parties shallfor the comparable prior reporting period should be reported in accordance with ASC Topic 605-45,“Reporting Revenue Gross as a Principal versus Netthough the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. This Update affects any public entity that enters into business combinations that are material on an Agent,” (“ASC 808-10-50”) also provides minimum disclosure requirementsindividual or aggregate basis and is effective prospectively for an entity’s collaboration agreements and transition guidance.business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of ASC Topic 808Company did not have a materialelect to adopt this update early as permitted, thus it has no impact on the Company’scurrent financial position, results of operations and cash flows.
In June 2007, the Emerging Issues Task Force issued ASC Topic730-20“Research and Development Arrangements” (“ASC730-20”). ASC730-20 addresses the diversity which exists with respect to the accounting for the non-refundable portion of a payment made by a research and development entity for future research and development activities. Under ASC730-20, an entity would defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the related services are performed subject to an assessment of recoverability. ASC730-20 was effective for fiscal years beginning after December 15, 2007 and interim periods within those years. The adoption of ASC730-20 did not have a material impact on the Company’s financial statementsstatements.
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4. | Fair Value Measurements |
In January 2010, the FASB issued ASU2010-06, “Improving Disclosures about Fair Value Measurements”, (“ASU2010-06”). The standard amends FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, (“ASC 820”) to require additional disclosures related to transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies other existing disclosure requirements. The Company adopted ASU2010-06 beginning January 1, 2010. This update had no impact on the Company’s financial statements.
Effective January 1, 2008, the Company implemented FASB ASC Topic 820“Fair Value Measurements and Disclosures” (“ASC 820”) for the Company’s financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are as defined as follows:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
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NOTES TO FINANCIAL STATEMENTS — (Continued)
Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
The Company categorized its cash equivalents as a Level 1 hierarchy. The valuation for Level 1 was determined based on a “market approach” using quoted prices in active markets for identical assets. Valuations of these assets do not require a significant degree of judgment. The Company categorized its warrants potentially settledsettleable in cash as a Level 2 hierarchy. The warrants are measured at market value on a recurring basis using the fixed monetary amount of each warrant that would be received by the Company under the conditions specified in the stock redemption agreement and are being marked to market each quarter-end until they are completely settled. The warrants are valued using the Black-Scholes method, using assumptions consistent with our application of ASC 718. See footnote 9.
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NOTES TO FINANCIAL STATEMENTS — (Continued)
In accordance with the provisions of ASC 820, the Company has elected to defer implementation of ASC 820, as it relates to its financialnon-financial assets and liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1,the first quarter of 2010. The Company is evaluating the impact, if any, this standard will have on its financial assets and liabilities. The adoption of ASC 820, as it relates to the Company’s financialnon-financial assets and liabilities that are re-measured and reported at fair value at least annually, did not have an impact on the Company’s financial results.
| | | | | | | | | | | | | | | | |
| | | | | Quoted Prices in
| | | Significant Other
| | | | |
| | December 31,
| | | Active Markets
| | | Observable Inputs
| | | Unobservable Inputs
| |
Description | | 2010 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
|
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 6,891 | | | $ | 6,891 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 6,891 | | | $ | 6,891 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Warrants potentially settleable in cash | | $ | 3,138 | | | $ | — | | | $ | 3,138 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total liabilities | | $ | 3,138 | | | $ | — | | | $ | 3,138 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Quoted Prices in
| | | Significant Other
| | | | |
| | December 31,
| | | Active Markets
| | | Observable Inputs
| | | Unobservable Inputs
| |
Description | | 2019 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
|
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 5,684 | | | $ | 5,684 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 5,684 | | | $ | 5,684 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Warrants potentially settleable in cash | | | 3,721 | | | | — | | | | 3,721 | | | | — | |
| | | | | | | | | | | | | | | | |
Total liabilities | | $ | 3,721 | | | $ | — | | | $ | 3,721 | | | $ | — | |
| | | | | | | | | | | | | | | | |
At December 31, 20092010 and 2008,2009, the Company had $16,000 on deposit with its landlords related to leased facilities, all of which are classified as deposits.
| |
6. | Capital Lease Obligations |
The Company acquires equipment under capital lease obligations. Accordingly, the Company capitalized approximately $100,000 and $43,000 of equipment during the accompanying years ended December 31, 2009 and 2008, respectively, and thisleases that is included in equipment and furnishings onin the balance sheet. AmortizationThe cost and accumulated amortization of capitalized leased equipment for the years endedwas approximately $196,000 and $56,000 at December 31, 20092010, respectively, and 2008 was approximately $10,000$143,000 and $7,000, respectively. Accumulated amortization of capitalized lease equipment was approximately $17,000 and $7,000 at December 31, 2009, respectively. Amortization expense for capitalized leased equipment was approximately $39,000 in 2010 and 2008, respectively.$10,000 in 2009. Future minimum lease payments under the capital leaseleases including interest are $52,000, $24,000$62,000, $17,000 and $2,000$4,000 for the years ending December 31, 2010, 2011, 2012 and 2012,2013, respectively.
64
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
7. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities consist of the following (in thousands):
| | | | | | | | | |
| | | | | | | | | | For the Years
| |
| | For the Year Ended
| | | Ended
| |
| | December 31, | | | December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Professional fees | | $ | 390 | | | $ | 398 | | | $ | 313 | | | $ | 390 | |
Research and development costs | | | 28 | | | | 47 | | | | 60 | | | | 28 | |
Payroll related costs | | | 659 | | | | 531 | | | | 740 | | | | 659 | |
| | | | | | | | | | |
Total accrued expenses and other current liabilities | | $ | 1,077 | | | $ | 976 | | | $ | 1,113 | | | $ | 1,077 | |
| | | | | | | | | | |
| |
8. | Commitments and Contingencies |
The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, RXithe Company is required to make royalty payments based
59
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
upon a percentage of the sales. Because of the contingent nature of these payments, they are not included in the table of contractual obligations shown below. See footnote 15.below (see also Note 14).
These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give RXithe Company the discretion to unilaterally terminate development of the product, which would allow RXithe Company to avoid making the contingent payments; however, RXithe Company is unlikely to cease development if the compound successfully achieves clinical testing objectives. The Company’s contractual obligations that will require future cash payments as of December 31, 20092010 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | | Non-Cancelable
| | | | | | Cancelable
| | | | |
| | Operating
| | | Employment
| | | | | | License
| | | | |
Years Ending December 31, | | Leases(1) | | | Agreements(2) | | | Subtotal | | | Agreements(3) | | | Total | |
|
2010 | | $ | 239 | | | $ | 1,389 | | | $ | 1,628 | | | $ | 2,068 | | | $ | 3,696 | |
2011 | | | 22 | | | | 198 | | | | 220 | | | | 875 | | | | 1,095 | |
2012 | | | | | | | 73 | | | | 73 | | | | 930 | | | | 1,003 | |
2013 | | | — | | | | — | | | | — | | | | 1,400 | | | | 1,400 | |
2014 | | | — | | | | — | | | | — | | | | 735 | | | | 735 | |
thereafter | | | — | | | | — | | | | — | | | | 13,481 | | | | 13,481 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 261 | | | $ | 1,660 | | | $ | 1,921 | | | $ | 19,489 | | | $ | 21,410 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Non-Cancelable
| | | | | | Cancelable
| | | | |
| | Operating
| | | Employment
| | | | | | License
| | | | |
| | Leases(1) | | | Agreements(2) | | | Subtotal | | | Agreements(3) | | | Total | |
| | (In thousands) | |
|
2011 | | $ | 219 | | | $ | 1,289 | | | $ | 1,508 | | | $ | 535 | | | $ | 2,043 | |
2012 | | | 19 | | | | 333 | | | | 352 | | | | 2,068 | | | | 2,420 | |
2013 | | | 0 | | | | 0 | | | | — | | | | 875 | | | | 875 | |
2014 | | | 0 | | | | 0 | | | | — | | | | 930 | | | | 930 | |
2015 | | | 0 | | | | 0 | | | | — | | | | 1,400 | | | | 1,400 | |
2016 and Thereafter | | | 0 | | | | 0 | | | | — | | | | 14,215 | | | | 14,215 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 238 | | | $ | 1,622 | | | $ | 1,860 | | | $ | 20,023 | | | $ | 21,883 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Operating leases are primarily facility and equipment related obligations with third party vendors. Operating lease expenses during the years ended December 31, 20092010 and 20082009 were approximately $260,000$274,000 and $216,000,$260,000, respectively. |
|
(2) | | Employment agreement obligations include management contracts, as well as scientific advisory board member compensation agreements. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the discretion of the Compensation Committee, as well as for minimum bonuses that are payable. |
|
(3) | | License agreements generally relate to the Company’s obligations with UMMS associated with RNAi and, for future periods, represent minimum annual royalty and milestone payment obligations, of the total |
65
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | |
| | amount due $2,250,000 can be paid in equity, provided that the securities are registered for resale at the time of such payment. The Company continually assesses the progress of its licensed technology and the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. In the event these licenses are terminated, no amounts will be due. |
The Company applies the disclosure provisions FASB ASC Topic 460 (“ASC 460”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, to its agreements that contain guarantee or indemnification clauses. The Company provides (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims and (ii) indemnifications of varying scope and size to officers and directors against third party claims arising from the services they provide to us. These indemnifications give rise only to the disclosure provisions of ASC 460. To date, the Company has not incurred costs as a result of these obligations and does not expect to incur material costs in the future. Accordingly, the Company has not accrued any liabilities in its financial statements related to these indemnifications.
Preferred Stock — The Company has authorized up to 5,000,000 shares of preferred stock, $0.00001$0.0001 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions,
60
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s board of directors upon its issuance. At December 31, 2009,2010, there were no shares of preferred stock outstanding.
Common Stock Warrants — On August 7, 2008, the Company issued 190,000 warrants to an investment bank as consideration for investment and business advisory services. The warrants have an exercise price of $7.036 per share and expire 5 years from the date of issuance, on August 7, 2013. The warrantwarrants vested as to 94,000 shares upon issuance, and vested at a rate of 32,000 shares per month starting on the 90 day anniversary of issuance, and isare exercisable for a period of five years. All shares were vested at December 31, 2009. The Company also agreed to give the holder of the warrantwarrants unlimited “piggy back” registration rights with respect to the shares of the Company’s common stock underlying the warrantwarrants in any registration statement the Company files in connection with an underwritten offering of its common stock. The fair value of these warrants has been estimated based on the Black-Scholes options pricing model and changes in the fair value are recorded in the condensed statement of expenses in accordance with the requirements of ASC 718 andASC505-50. There was no expense recorded for these warrants for the year ended December 31, 2010. Total expense related to these warrants was approximately $318,000 and $750,000 during the yearsyear ended December 31, 2009 and 2008, respectively2009.
On October 3, 2008, the Company acquired the rights to license exclusive worldwide technology for the oral delivery of RNAi therapeutics. As consideration for this license, the Company agreed to pay a total license fee of $2.5 million$2,500,000 over a 12 month period, which can be paid in cash, in equity or a combination thereof, provided that a specified amount of the license fee must be made in cash. During 2009, this 12 month period was extended to a date after January 1, 2010 to be agreed upon by the parties. Payments made in equity may only be made if, at the time of such payment, the shares of common stock issuable upon conversion of the warrant have been registered for resale under the Securities Act of 1933. No warrants have been issued under this agreement throughthru the date of this report. The Company continually assesses the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the Licensor at any time. Accordingly, the amounts are being expensed, as payments are made. DuringThere was no expense for this license for the year ended December 31, 2010. Total expense for the year ended December 31, 2009 and 2008, the Company paid and expensed $250,000 each year under this agreement.was $250,000.
On January 29, 2009, the Company issued 142,500 warrants to an investment bank as consideration for investment and business advisory services. The warrants have an exercise price of $4.273 per share and expire five years from the date of issuance on January 29, 2014. The warrants vested as to 71,250 shares upon
66
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
issuance, and vested at a rate of 23,750 shares per month starting on the 90 day anniversary of issuance, and are exercisable for a period of five years. All shares were vested at December 31, 2009. The Company has also agreed to give the holder of the warrants unlimited “piggy back” registration rights with respect to the shares of Common Stock underlying the warrants in any registration statement the Company files in connection with an underwritten offering of the common stock. The fair value of these warrants has been estimated based on the Black-Scholes options pricing model and changes in the fair value are recorded in the condensed statement of expenses in accordance with the requirements of ASC Topic 718 and ASC Topic505-50. There was no expense recorded for these warrants for the year ended December 31, 2010. Total expense related to these warrants was approximately $509,000 during the year ended December 31, 2009.
In connection with the 2009 Offering, the Company issued warrants to purchase 978,142 shares of the Company’s common stock. Details of the transaction can be found under the heading 2009 Registered Direct Offering below.
In connection with the 2010 Offering, the Company issued warrants to purchase 540,000 shares of the Company’s common stock. Details of the transaction can be found under the heading 2010 Registered Direct Offering below.
Private Investment in Public Equity — On June 24, 2008, the Company entered into a Securities Purchase Agreement pursuant to which RXi issued and sold to certain investors an aggregate of 1,073,299 shares of common stock in a private placement at a price of $8.12 per share. Net proceeds to the Company were approximately $7.9 million. The Company agreed to file a registration statement covering the resale of all shares issued in the private placement, with all expenses incurred in connection with such registration to be borne by the Company. The registration statement went effective on August 6, 2008.
61
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
2009 Registered Direct Offering — On March 17, 2009, the Company entered into a placement agency agreement, which was subsequently amended on May 26, 2009 and July 22, 2009, with Rodman & Renshaw, LLC (“Rodman”) as the exclusive placement agent, relating to a proposed offering by the Company of new securities to potential investors. On July 30, 2009, the Company entered into definitive agreements for the sale and issuance by the Company to certain investors of 2,385,715 units, with each unit consisting of one share of the Company’s common stock and a warrant to purchase 0.40 of a share of common stock, at a purchase price of $3.50 per unit (the “2009 Offering”). The 2009 Offering closed on August 4, 2009. The warrants have an exercise price of $4.50 per share and are exercisable for a period beginning on February 3, 2010 until their expiration on August 3, 2014. The Company raised gross proceeds of approximately $8,350,000 in the 2009 Offering and net cash proceeds, after deducting the placement agents’ fees and other offering expenses payable by the Company, of approximately $7.7 million. Total warrants issued in connection with the transaction were 954,285.
As part of the placement agency agreement, the Company issued a warrant to purchase 23,857 shares of the Company’s common stock to Rodman. The warrant has an exercise price of $4.38 per share. The warrant is immediately vested and is exercisable until its expiration on August 3, 2014.
The Company follows the guidance of ASC Topic815-40, as certain warrants issued in connection with the stock offering on August 4, 2009 were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the warrants at the dates of issuance totaling $2,862,640$2,863,000 was recorded as a liability and a cost of equity and was determined by the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose share or option prices are publically traded. The Company used a weighted average expected stock volatility of 122.69%. The expected life assumption is based on the contract term of five years. The dividend yield of zero is based on the fact that RXi has no present intention to pay cash dividends in the future. The risk free rate of 1.72% used for the warrant is equal to the zero coupon rate in effect at the time of the grant. The increasedecrease in the fair value
67
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
of the warrants from the date of issuance to December 31, 20092010 of $858,000$920,000 has been included as an offset to other expense in the accompanying condensed statements of expenses for the respective period. The fair value of the warrants at December 31, 20092010 of $3,721,000$1,943,000 is included as a current liability in the accompanying balance sheet as of that date and was determined by the Black-Scholes option pricing model. The following assumptions were used to determine the fair value as of December 31, 2009:2010: weighted average expected stock volatility of 119.10%133.62%; an expected life of fivefour years based on the contractual terms;terms and a dividend yield of zero;zero and a risk free rate of 2.69%1.48%.
2010 Registered Direct Offering — On March 22, 2010, the Company entered into a placement agency agreement relating to a proposed offering by the Company of new securities to potential investors. On March 23, 2010, the Company entered into definitive agreements for the sale and issuance by the Company to certain investors of 2,700,000 units, with each unit consisting of one share of the Company’s common stock and a warrant to purchase 0.20 of a share of the Company’s common stock, at a purchase price of $6.00 per unit (the “2010 Offering”). The 2010 Offering closed on March 26, 2010. The Company issued warrants to purchase 540,000 shares of the Company’s common stock at an exercise price of $6.00 per share and that are exercisable beginning on September 26, 2010 until their expiration on March 26, 2016. The Company raised gross proceeds of approximately $16.2 million in the 2010 Offering and net cash proceeds, after deducting the placement agent fees and other offering expenses payable by the Company, of approximately $15.2 million.
As part of the 2010 Offering, RXi entered in a stock redemption agreement whereby the Company was required to use 25% of the net proceeds from the 2010 Offering to repurchase from CytRx Corporation (“CytRx”) 675,000 shares of the Company’s common stock held by CytRx (“CytRx shares”). The Company repurchased such shares on March 29, 2010. The values of the shares at the date of repurchase totaling $3,849,000 were recorded at cost and have been included in treasury stock in the accompanying balance sheet at December 31, 2010. The Company is also required to use 25% of the proceeds from the exercise of warrants issued in the 2010 Offering to repurchase from CytRx a number of CytRx Shares equal to 25% of shares issued upon the exercise of such warrants. To date, no such warrants have been exercised.
Shares of common stock that are mandatorily redeemable under the stock redemption agreement upon the exercise of warrants issued in the 2010 Offering, were determined to embody an obligation that may require the Company to settle the obligation by transferring assets, and as such, shall be classified as a liability. The fair value of the common stock potentially redeemable under the stock redemption agreement totaling $785,000 was recorded as a liability and a cost of equity and was determined using the fixed monetary amount of each warrant multiplied by assumptions regarding the number and timing of warrants to be exercised. On December 29, 2010, CytRx sold all of their shares held in RXi, thus reducing the potential redemption liability to zero as December 31, 2010.
Certain warrants issued in connection with the 2010 Offering were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the warrants at the dates of issuance totaling $2,466,000 was recorded as a liability and a cost of equity and was determined by the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose share or option prices are publically traded. The Company used a weighted average expected stock volatility of 119.49%. The expected life assumption is based on the contract term of 6.5 years. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 3.22% used for the warrant is equal to the zero coupon rate in effect at the time of the grant. The decrease in the fair value of the warrants from the date of issuance to December 31, 2010 was $1,271,000 and has been included in other income and expense in the accompanying condensed statements of expenses for the year ended December 31, 2010. The fair value of the warrants at December 31, 2010 of $1,195,000 is included as a current liability in the accompanying balance sheets and was determined by the Black-Scholes option pricing model. In the model, the Company used a weighted average expected stock
6268
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
volatility of 133.62%. The expected life assumption is based on the contract term of 6.0 years. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 2.37% used for the warrant is equal to the zero coupon rate in effect on the date of the re-measurement.
On January 30, 2009, the Company entered into a Standby Equity Distribution Agreement, or SEDA, pursuant to which the Company may, at its option over a two-year period, ending on January 30, 2011, periodically to sell to YA Global shares of the Company’s common stock, for a total purchase price of up to $25.0 million. To date no shares have been sold under the SEDA. The SEDA expired in January 2011 and was not renewed.
On August 4, 2009, the Company closed the 2009 Offering in which it sold 2,385,715 shares of its common stock and warrants to purchase 954,286 shares of its common stock and a at an exercise price of $4.50 per share resulting in approximately $7.8 million in net proceeds after deducting the placement agent fee and offering expenses.
| |
10. | Development Stage Supplemental Equity Disclosure |
Summarized below are the Company’s equity (common stock and common stock options) transactions since the Company’s inception through December 31, 20092010 (in thousands except per share data).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Price per
| | | | | | | | | | | | | | Price per
| | | | | | |
| | | | | | | | Share or
| | | | | | | | | | | | | | Share or
| | | | | | |
| | | | | | Dollar
| | Exercise
| | | | | | | | | | | | Dollar
| | Exercise
| | | | | | |
| | | | Shares of
| | Amount of
| | Price per
| | Counter
| | Nature of
| | | | | | Shares of
| | Amount of
| | Price per
| | Counter
| | Nature of
| | |
| | | | Common
| | Consideration
| | Share
| | Party to
| | Non-Cash
| | Basis of
| | | | Common
| | Consideration
| | Share
| | Party to
| | Non-Cash
| | Basis of
|
Type of Security | | Date of Issuance | | Stock | | ($) | | ($) | | Transaction | | Consideration | | Assigning Cost | | Date of Issuance | | Stock | | ($) | | ($) | | Transaction | | Consideration | | Assigning Cost |
|
Common Stock | | April 3, 2006 | | | 1,624,278 | | | | 2 | | | | 0.002 | | | Founders | | NA | | Cash | | April 3, 2006 | | | 1,624,278 | | | | 2 | | | | 0.002 | | | Founders | | NA | | Cash |
Common Stock | | January 8, 2007 | | | 7.040,318 | | | | 48 | (A) | | | 0.007 | | | CytRx | | Contributed Assets | | Predecessor Cost | | January 8, 2007 | | | 7.040,318 | | | | 48 | (A) | | | 0.007 | | | CytRx | | Contributed Assets | | Predecessor Cost |
Common Stock | | April 30, 2007 | | | 3,273,292 | | | | 15,348 | (B) | | | 5.19 | | | CytRx | | NA | | Cash | | April 30, 2007 | | | 3,273,292 | | | | 15,348 | (B) | | | 5.19 | | | CytRx | | NA | | Cash |
Common Stock | | April 30, 2007 | | | 462,112 | | | | 2,311 | | | | 5.00 | | | UMMS | | Intellectual Properties | | Independent Third Party Valuation | | April 30, 2007 | | | 462,112 | | | | 2,311 | | | | 5.00 | | | UMMS | | Intellectual Properties | | Independent Third Party Valuation |
Common Stock | | August 18, 2007 | | | 30,000 | | | | 150 | | | | 5.00 | | | Directors | | — | | Cash | | August 18, 2007 | | | 30,000 | | | | 150 | | | | 5.00 | | | Directors | | — | | Cash |
Common Stock | | September 28, 2007 | | | 188,387 | | | | 978 | | | | 5.19 | | | CytRx | | NA | | Independent Third Party Valuation | | September 28, 2007 | | | 188,387 | | | | 978 | | | | 5.19 | | | CytRx | | NA | | Independent Third Party Valuation |
Common Stock | | November 21, 2007 | | | 66,045 | | | | 331 | | | | 5.00 | | | Exercise of Stock Options | | NA | | Cash | | November 21, 2007 | | | 66,045 | | | | 331 | | | | 5.00 | | | Exercise of Stock Options | | NA | | Cash |
Common Stock | | June 26, 2008 | | | 1,073,299 | | | | 7,918 | | | | 8.12 | | | PIPE | | NA | | Net Cash | | June 26, 2008 | | | 1,073,299 | | | | 7,918 | | | | 8.12 | | | PIPE | | NA | | Net Cash |
Common Stock | | October 6, 2008 and November 16, 2008 | | | 5,500 | | | | 26 | | | | 5.00 | | | Exercise of Stock Options | | NA | | Cash | | October 6, 2008 and November 16, 2008 | | | 5,500 | | | | 26 | | | | 5.00 | | | Exercise of Stock Options | | NA | | Cash |
Common Stock | | January 30, 2009 | | | 58,398 | | | | NA | | | | NA | | | | | NA | | Market Value | | January 30, 2009 | | | 58,398 | | | | NA | | | | NA | | | | | NA | | Market Value |
Common Stock | | May 1, 2009 | | | 281 | | | | NA | | | | 4.19 | | | Exercise of Stock Options | | NA | | Cash | | May 1, 2009 | | | 281 | | | | NA | | | | 4.19 | | | Exercise of Stock Options | | NA | | Cash |
Common Stock | | August 3, 2009 and August 4, 2009 | | | 2,385,715 | | | | 7,714 | | | | 3.50 | | | Register Direct | | NA | | Net Cash | | August 3, 2009 and August 4, 2009 | | | 2,385,715 | | | | 7,714 | | | | 3.50 | | | Registered Direct | | NA | | Net Cash |
Common Stock | | | March 22, 2010 | | | 2,700,000 | | | | 15,235 | | | | 6.00 | | | Registered Direct | | NA | | Net Cash |
Common Stock | | | Various — 2010 | | | 53,500 | | | | 254 | | | | 4.75 | | | Exercise of Stock Options | | NA | | Cash |
Common Stock | | | January 2, 2010 and February 9, 2010 | | | 86,634 | | | | 207 | | | | NA | | | Restricted Stock Units | | NA | | Market Value |
69
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | |
(A) | | Transactions between related parties are accounted for at the historical cost of CytRx, with the intellectual property which was previously expensed on CytRx’s books being recorded at zero cost and equipment and furnishings being recorded at $48,000. |
|
(B) | | RXi received gross proceeds of $17.0 million for the issuance of the 3,273,292 shares of common stock which equals $5.19 per share. The gross proceeds were reduced by a reimbursement to CytRx of (1) $1.3 million for RXi’s pro rata share of offering costs related to the April 17, 2007 private placement conducted by CytRx to fund its capital contribution to the Company and (2) $363,000 of expenses incurred on behalf of RXi for the year ended December 31, 2006. Net proceeds to RXi after these charges were $15.3 million or $4.69 a share. |
| |
11. | Stock Based Compensation |
Options to Purchase Shares of Common Stock — The Company follows the provisions ASC 718 which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.
For stock options granted as consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic505-50(“ASC 505-50”)505-50 “Equity Based Payments to Non- Employees.” Non-employee option grants that do not vest
63
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
immediately upon grant are recorded as an expense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will beis being re-measured using the fair value of the Company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
The Company is currently using the Black-Scholes option-pricing model to determine the fair value of all its option grants. For options grants issued for the year ended December 31, 20092010 and 2008,2009, the following assumptions were used:
| | | | | | | | |
| | 2009 | | 2008 | | 2010 | | 2009 |
|
Weighted average risk free interest rate | | 1.55% - 3.91% | | 1.55% - 3.99% | | 1.88% - 3.28% | | 1.55% - 3.91% |
Weighted average volatility | | 116.72% - 122.93% | | 101.79% - 116.74% | | 118.3% - 133.62% | | 116.72% - 122.93% |
Expected lives (years) | | 6 - 10 | | 6 - 10 | | 6 - 10 | | 6 - 10 |
Expected dividend yield | | 0% | | 0% | | 0% | | 0% |
The weighted average fair value of options granted during the years ended December 31, 2010 and 2009 was $4.31 and 2008 was $4.11 and $6.37 per share, respectively.
RXi’s expected common stock price volatility assumption is based upon the volatility of a basket of comparable companies. The expected life assumptions for employee grants were based upon the simplified method provided for under ASC 718, which averages the contractual term of RXi’s options of ten years with the average vesting term of four years for an average of six years. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption of zero is based upon the fact that RXi has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. RXi has estimated an annualized forfeiture rate of 4.0%15% for options granted to its employees, 2.1%8% for options granted to senior management and no forfeiture rate for the directors. RXi will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.
70
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
RXi recorded approximately $4,202,000$4,368,000 and $3,824,000$4,202,000 of stock-based compensation for the years ended December 31, 20092010 and 2008,2009, respectively. As of December 31, 2009,2010, there was $4.7 million$2,700,000 of unrecognized compensation cost related to outstanding options that is expected to be recognized as a component of RXi’s operating expenses through 2013.
On November 4, 2009, as part of a plan succession in leadership, Tod Woolf, Ph.D., resigned as our President, Chief Executive Officer and a member of our Board of Directors. According to the Separation Agreement between Dr. Woolf and the Company, Dr. Woolf received in one lump sum payment his full severance equivalent to a six (6) month salary ($187,500), six (6) months acceleration of vesting of all of his outstanding unvested Stock Options as of November 4, 2009, and an offer to join the Company’s Scientific Advisory Board (SAB) for 3 years (the “New Position”). In addition, and as part of the Separation Agreement, the Company agreed to extend the exercise period for all of Dr. Woolf’s vested Stock Options as of November 4, 2009, to the later of: (i) a period of two (2) years from his resignation (until November 4, 2011), or (ii) ninety (90) days following the end of the term of the SAB Agreement (February 4, 2013) or such earlier date as the SAB Agreement may be terminated pursuant to the terms of the SAB Agreement provided Dr. Woolf has not violated the non-competition provisions of the SAB Agreement prior to the date of exercise (whether or not the SAB Agreement is still in effect at that time). Notwithstanding any provision of the Company’s 2007 Incentive Plan, the Company also agreed that Dr. Woolf’s previously awarded Stock Options shall continue to vest during his continuing role in the Company in the New Position. The option modification resulted in an incremental value of the options of approximately $153,000 of which $37,000 was expensed during 2009. The remaining $411,000 will be expensed over the remaining vesting periodtotal expense for 2010 was $193,000. As of approximately 3 years.
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)December 31, 2010, there were 2,344 shares subject to future vesting.
As of December 31, 2009,2010, an aggregate of 4,750,0006,750,000 shares of common stock were reserved for issuance under the RXi Pharmaceuticals Corporation 2007 Incentive Plan, including 3,630,8394,333,136 shares subject to outstanding common stock options and restricted stock units granted under this plan and 1,047,3352,199,497 shares available for future grants. The administrator of the plan determines the times when an option may become exercisable. Vesting periods of options granted to date include vesting upon grant to vesting at the end of a four year period. The options will expire, unless previously exercised, no later than ten years from the grant date.
The following table summarizes the activity of the Company’s stock option plan:
| | | | | | | | | | | | | | | | |
| | | | Weighted
| | | | | Weighted
| |
| | Stock
| | Average
| | | Stock
| | Average
| |
| | Options | | Exercise Price | | | Options | | Exercise Price | |
|
Outstanding — January 1, 2008 | | | 1,335,184 | | | $ | 5.00 | | |
Outstanding — January 1, 2009 | | | | 2,223,452 | | | $ | 6.11 | |
Granted | | | | 1,622,546 | | | | 3.84 | |
Exercised | | | | (281 | ) | | | 4.19 | |
Forfeited | | | | (263,378 | ) | | | 5.05 | |
Outstanding — December 31, 2009 | | | | 3,582,339 | | | | 5.16 | |
Granted | | | 899,609 | | | | 7.76 | | | | 926,768 | | | | 4.81 | |
Exercised | | | (5,500 | ) | | | 5.00 | | | | (53,500 | ) | | | 4.75 | |
Forfeited | | | (5,841 | ) | | | 6.03 | | | | (122,471 | ) | | | 4.85 | |
| | | | | | |
Outstanding — December 31, 2008 | | | 2,223,452 | | | | 6.11 | | |
Granted | | | 1,622,546 | | | | 3.84 | | |
Exercised | | | (281 | ) | | | 4.19 | | |
Forfeited | | | (263,378 | ) | | | 5.05 | | |
Outstanding — December 31, 2009 | | | 3,582,339 | | | | 5.16 | | |
| | | | |
Exercisable — December 31, 2008 | | | 1,238,187 | | | | 5.65 | | |
Outstanding — December 31, 2010 | | | | 4,333,136 | | | | 5.10 | |
| | | | | | |
Exercisable — December 31, 2009 | | | 2,131,298 | | | | 5.42 | | | | 2,131,298 | | | | 5.42 | |
| | | | | | |
Exercisable — December 31, 2010 | | | | 3,155,900 | | | | 5.22 | |
| | | | |
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity for non-vested stock options:
| | | | | | | | | | | | | | | | |
| | | | Weighted Average
| | | | | Weighted Average
| |
| | Stock
| | Grant Date Fair
| | | Stock
| | Grant Date Fair
| |
| | Options | | Value per Share | | | Options | | Value per Share | |
|
Non-vested at January 1, 2008 | | | 839,361 | | | $ | 3.54 | | |
Granted | | | 899,609 | | | | 6.37 | | |
Vested | | | (740,364 | ) | | | 4.94 | | |
Exercised | | | (5,500 | ) | | | 3.93 | | |
Pre-vested forfeitures | | | (5,841 | ) | | | 4.76 | | |
| | | | |
Non-vested at December 31, 2008 | | | 987,265 | | | | 5.15 | | |
Non-vested at January 1, 2009 | | | | 987,265 | | | $ | 5.15 | |
Granted | | | 1,622,546 | | | | 3.44 | | | | 1,622,546 | | | | 3.44 | |
Vested | | | (895,111 | ) | | | 4.27 | | | | (895,111 | ) | | | 4.27 | |
Exercised | | | (281 | ) | | | 3.71 | | | | (281 | ) | | | 3.71 | |
Pre-vested forfeitures | | | (263,378 | ) | | | 4.07 | | | | (263,378 | ) | | | 4.07 | |
| | | | | | |
Non-vested at December 31, 2009 | | | 1,451,041 | | | | 3.94 | | | | 1,451,041 | | | | 3.94 | |
Granted | | | | 926,768 | | | | 4.31 | |
Vested | | | | (1,024,602 | ) | | | 4.06 | |
Exercised | | | | (53,500 | ) | | | 3.31 | |
Pre-vested forfeitures | | | | (122,471 | ) | | | 4.54 | |
| | | | | | |
Non-vested at December 31, 2010 | | | | 1,177,236 | | | $ | 4.01 | |
| | | | |
The weighted average remaining contractual life of options outstanding and exercisable at December 31, 2010 was 7.35 years and 7.09 years, respectively. The weighted average remaining contractual life of options outstanding and exercisable at December 31, 2009 was 8.47 years and 8.14 years, respectively. The weighted average remaining contractual life of options outstanding and exercisable at December 31, 2008 was 8.832 years and 8.733 years, respectively.
The aggregate intrinsic value of outstanding options as of December 31, 2010 and 2009 is $137,000 and 2008 is $1,262,270 and $653,974,$1,262,000, respectively. The aggregate intrinsic value of exercisable options as of December 31, 2010 and 2009 is $34,000 and 2008 is $138,881 and $654,000,$139,000, respectively. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of RXi’sthe Company’s common stock and the exercise price of the underlying options.
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The aggregate intrinsic value of options exercised during 20092010 and 20082009 was approximately $1,000$164,000 and $18,000,$1,000, respectively.
Restricted Stock Units — In addition to options to purchase shares of common stock, the Company may grant restricted stock units (“RSU”) as part of its compensation package. Each RSU is granted at the fair market value based on the date of grant. Vesting is determined on a grant by grant basis. As of December 31,
In 2010 and 2009, the Company had granted a total of 43,541 and 48,500 RSUs, withrespectively. The RSUs granted in 2010 and 2009 had an aggregate intrinsic value of $222,000$112,000 and recognized total expense$222,000. As of $105,000. TheDecember 31, 2010, all of the RSUs vesthad vested in full on January 2, 2010.full.
The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260 “Earnings per Share.”Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants. Because the inclusion of potential common shares would be anti-dilutive for all periods presented, diluted net loss per common share is the same as basic net loss per common share.
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:
| | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Options to purchase common stock | | | 3,582,339 | | | | 2,223,452 | | | | 4,333,136 | | | | 3,582,339 | |
Restricted stock units | | | 48,500 | | | | — | | | | — | | | | 48,500 | |
Warrants to purchase common stock | | | 1,310,642 | | | | 190,000 | | | | 2,100,642 | | | | 1,310,642 | |
| | | | | | | | | | |
Total | | | 4,941,481 | | | | 2,413,452 | | | | 6,433,778 | | | | 4,941,481 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The components of federal and state income tax expense are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | As of December 31, | | | As of December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Current | | | | | | | | | | | | | | | | |
Federal | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
State | | | — | | | | — | | | | — | | | | — | |
Deferred | | | | | | | | | | | | | | | | |
Federal | | | (5,533 | ) | | | (4,466 | ) | | | 4,853 | | | | (5,533 | ) |
State | | | (2,257 | ) | | | (1,513 | ) | | | 1,283 | | | | (2,257 | ) |
| | | | | | | | | | |
Total deferred | | | (7,789 | ) | | | (5,979 | ) | | | 6,136 | | | | (7,790 | ) |
Valuation allowance | | | 7,789 | | | | 5,979 | | | | 6,136 | | | | 7,790 | |
| | | | | | | | | | |
Total income tax expense | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | |
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RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The components of net deferred tax assets are as follows (in thousands):
| | | | | | | | | |
| | As of December 31, | | | | | | | | | |
| | 2009 | | 2008 | | | As of December 31, | |
| | 2010 | | 2009 | |
Net operating loss carryforwards | | $ | 10,348 | | | $ | 6,710 | | | $ | 13,328 | | | $ | 10,348 | |
Tax credit carryforwards | | | 753 | | | | 948 | | | | 1,061 | | | | 753 | |
Non-qualified stock based compensation | | | 4,222 | | | | 2,471 | | |
Stock based compensation | | | | 5,864 | | | | 4,222 | |
Other | | | 74 | | | | 28 | | | | 104 | | | | 74 | |
Licensing deduction deferral | | | 2,089 | | | | 1,225 | | | | 3,264 | | | | 2,089 | |
| | | | | | | | | | |
Gross deferred tax assets | | | 17,486 | | | | 11,382 | | | | 23,621 | | | | 17,486 | |
Valuation allowance | | | (17,486 | ) | | | (11,382 | ) | | | (23,621 | ) | | | (17,486 | ) |
| | | | | | | | | | |
Net deferred tax asset | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | |
73
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The provision for income taxes differs from the provision computed by applying the federal statutory rate to net loss before income taxes as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | As of December 31, | | | As of December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Expected federal income tax benefit | | $ | (6,252 | ) | | $ | (4,887 | ) | | $ | (4,078 | ) | | $ | (6,252 | ) |
Non-qualified stock compensation | | | 621 | | | | 186 | | | | (1,236 | ) | | | 621 | |
Effect of change in valuation allowance | | | 6,103 | | | | 6,707 | | | | 6,136 | | | | 6,103 | |
State income tax credits | | | 821 | | | | (426 | ) | |
Income tax credits | | | | (231 | ) | | | 821 | |
State income taxes after credits | | | (324 | ) | | | (867 | ) | | | (994 | ) | | | (324 | ) |
Other | | | (969 | ) | | | (713 | ) | | | 403 | | | | (969 | ) |
| | | | | | | | | | |
| | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | |
The Company has incurred net operating losses from inception. At December 31, 2009,2010, the Company had domestic federal and state net operating loss carryforwards of approximately $25.7$34.0 million available to reduce future taxable income, which expire at various dates beginning in 2012 through 2029.2030. The Company also had federal and state research and development tax credit carryforwards of approximately $500,000$705,000 and $400,000,$536,000, respectively, available to reduce future tax liabilities and which expire at various dates beginning in 2022 through 2029.2030.
Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable.
Based on an assessment of all available evidence including, but not limited to the fact the RXi operating results have been included in CytRx consolidated U.S. federal and state income tax return for the year ended December 31, 2007, the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred income tax valuation allowance has been recorded against these assets.
The Company adopted certain provisions of theASC 740,effective January 1, 2007 which clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax
67
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The adoption ofASC740-10did not have any effect on the Company’s financial position or results of operations.
The Company files income tax returns in the U.S. federal and Massachusetts jurisdictions. The Company is subject to tax examinations throughfor the 20092007 tax year.year and beyond. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.
As part of its business, the Company enters into numerous licensing agreements. These license agreements with third parties often require milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, RXi is required to make royalty payments based upon a percentage of net sales.
74
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The expenditures required under these arrangements may be material individually in the event that the Company develops product candidates covered by the intellectual property licensed under any such arrangement, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give RXi the discretion to unilaterally terminate development of the product, which would allow RXi to avoid making the contingent payments; however, RXi is unlikely to cease development if the compound successfully achieves clinical testing objectives
During the year ended December 31, 2007, RXi entered into a license agreement with Cold Spring Harbor Laboratory (“CSHL”) for small hairpin RNA, or “shRNA”, for which the Company paid $50,000 and agreed to make future milestone and royalty payments upon successful development and commercialization of products. The Company also entered into four exclusive license agreements and an invention disclosure agreement with UMMS for which the Company paid cash of $453,000 and issued 462,112 shares of its common stock valued at $2.3 million, or $5.00 per share. For each RNAi product developed in connection with the license granted by CSHL, the possible aggregate milestone payments equal $2,650,000. The invention disclosure agreement has an initial term of three years and provides the option to negotiate licenses to certain RNAi technologies discovered at UMMS.
On August 29, 2007, RXi entered into a license agreement with TriLink Biotechnologies, Inc. for three RNAi chemistry technologies for all therapeutic RNAi applications, for which the Company paid $100,000 and agreed to pay yearly maintenance fees of $30,000, as well as future clinical milestone payments and royalty payments based on sales of therapeutic products developed from the licensed technologies. There was no expense recorded in 2010. The Company expensed $30,000 for each of the years ended December 31, 2009 and 2008, respectively.in 2009.
In October 2007, RXi entered into a license agreement with Dharmacon, Inc. (now part of Thermo Fisher Scientific Inc.), pursuant to which the Company obtained an exclusive license to certain RNAi sequences to a number of target genes for the development of the Company’s rxRNA compounds. Further, the Company has obtained the right to license additional RNAi sequences, under the same terms, disclosed by Thermo Fisher Scientific Inc. in its pending patent applications against target genes and has received an option for exclusivity for other siRNA configurations. As consideration for this license, the Company paid an up-front fee of $150,000 and agreed to pay future clinical milestone payments and royalty payments based on sales of siRNA compositions developed in connection with the licensed technology. No amounts were expensed in 20082009 and 20092010 related to this license.
In November 2007, RXi entered into a license agreement with Life Technologies, Inc., pursuant to which the Company was granted rights under four patents relating to RNA target sequences, RNA chemical modifications, RNA configurationsand/or RNA delivery to cells. As consideration for this license, RXi paid an up-front fee of $250,000 and agreed to pay yearly maintenance fees of the same amount beginning in 2008. Further, the Company is obligated to pay a fee for each additional gene target added to the license as well as a fee on the first and second anniversaries on the date of which consent to add the gene target to the list of those covered by the license was granted. The Company has also been granted, for each gene target, an option to secure pre-clinical rightsand/or the clinical rights, for which RXi would be required to pay additional fees. Further, the Company is required to make future clinical milestone payments and royalty payments based on sales of therapeutic products developed from the licensed technologies. The Company expensed $62,500 and $250,000 for each of the years ended December 31, 20092010 and 20082009 related to this license.
On October 3, 2008, the Company acquired co-exclusive rights to technology for the oral delivery of RNAi therapeutics from UMMS. As consideration for this license, the Company agreed to pay a total license
68
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
fee of $2,500,000 over a 12 month period, which can be paid in cash, in equity or a combination thereof, provided that a specified amount of the license fee must be made in cash. This Agreement was amended on July 1, 2009, allowing the Company to extend the periods for which certain milestone payments are due to UMMS. Payments made in equity may only be made if, at the time of such payment, the shares of common
75
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
stock issuable upon conversion of the warrant have been registered for resale under the Securities Act of 1933. No warrants have been issued under this agreement through the date of this report. The Company continually assesses the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. Accordingly, the amounts are being expensed, as payments are made. There were no expenses recorded for the year ended December 31, 2010. The Company expensed $250,000 for each of the yearsyear ended December 31, 2009 and 2008 related to this license2009.
In September, 2009, the Company entered into a Patent and Technology Assignment Agreement with Advirna, LLC (“Advirna”), a Colorado limited liability company co-founded by RXi’s Chief Scientific Officer. Pursuant to the terms of the agreement, Advirna assigned to the Company certain patent and technology rights related to chemically modified polynucleotides (the “Rights”) and the Company granted to Advirna a fullypaid-up license to the Rights in a specified field. Under the terms of the agreement, the Company will pay to Advirna an annual maintenance fee beginning on January 1, 2011, certain payments upon the achievement of regulatory milestones and royalty payments on the sales of certain products. In addition, the Company may terminate the agreement upon 90 days’ prior written notice to Advirna and Advirna may terminate upon 90 days’ prior written notice to the Company in the event the Company ceases to use reasonable efforts to research, develop, license or otherwise commercialize the Rights. If the agreement expires in accordance with its terms or is terminated by a party in the absence of a material breach or for cause in the event that the Company fails to pay Advirna certain fees, the Company will assign the Rights back to Advirna. During the yearsyear ended December 31, 2009, and 2008, the Company paid and expensed $5,000 and $75,000 respectively,for the initial maintenance fee under this agreement. There was no expense recorded for the year ended December 31, 2010.
| |
15. | Related Party Transactions |
On February 15, 2007, the Company entered into a letter agreement with CytRx and certain current RXi stockholders. Under the stockholders agreement, the Company agreed to grant to CytRx preemptive rights to acquire any new securities, as defined therein, that RXi proposes to sell or issue so that CytRx may maintain its percentage ownership of the Company. The preemptive rights are effective so long as CytRx owns less than 50% of the Company’s outstanding shares of common stock, and will expire on January 8, 2012 or such earlier time at which CytRx owns less than 10% of RXi’s outstanding common stock. Under this letter agreement, CytRx also undertakes to vote its shares of the Company’s stock in the election of its directors and dispose of its shares of RXi stock in accordance with the terms of its letter agreement with UMMS described above. CytRx has further agreed in this letter agreement to approve of actions that may be adopted and recommended by RXi’s board of directors to facilitate any future financing.
On April 30, 2007, the Company entered into a Registration Rights Agreement with CytRx. Under the Registration Rights Agreement, RXi agreed, with certain exceptions, that at any time after its common stock is registered under the Exchange Act, to use its best efforts to cause all of RXi’s shares issued to CytRx pursuant to the Contribution Agreement to be registered under the Securities Act if CytRx shall so request. All expenses incurred in connection with any such registration will be borne by the Company.
One of the members of RXi’s board of directors is the President, Chief Executive Officer and a member of the board of directors for CytRx.
The Company’s current Chief Scientific Officer or CSO, prior to her employment by the Company, was a consultant to RXi from January 2008 until the date of her employment. This consulting contract resulted in payments to the CSO’s consulting firm of approximately $13,400 which was recorded in the year ended December 31, 2008, in consulting fees and $5,000 recorded as license expense as discussed below. As the
69
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
CSO is not the sole owner of the consulting firm, the approximate dollar value of her interest in this consulting contract is approximately $9,250.
In addition, RXi and the CSO’s 50% owned Company, Advirna, are parties to an option agreement whereby the Company paid $5,000 in 2008 for consideration to be granted the exclusive worldwide rights to license certain technology by paying anand $75,000 for the initial maintenance fee of $75,000 before June 12, 2009.
The Company’s current Chief Intellectual Property Counselin 2009 under a Patent and Vice President of Legal Counsel, prior to his employment by the Company, was a consultant to RXi fromTechnology Assignment Agreement with Advirna entered into in September 2008 until the date of his employment. This consulting contract resulted in payments to him of approximately $5,000 which was recorded in the year ended December 31, 2008 in patent and legal fees. The approximate dollar value of his interest in this consulting contract is2009 (see also approximately $5,000.Note 14).
On February 26, 2007, the Company entered into Scientific Advisory Board Agreements (the “SAB Agreements”), with four of its founders. At the time of the execution of the SAB Agreements, each of the founders were beneficial owners of more than five percent of the Company’s outstanding stock. Pursuant to the SAB Agreements, on May 23, 2007, the Company granted to each of the founders a stock option under the 2007 Plan to purchase 52,832 shares of its common stock. In addition, under the SAB Agreements, the Company will grant each of the founders a stock option under the 2007 Plan to purchase 52,832 shares of its common stock on February 26, 2008, June 5, 2009 and June 4, 2010 with a per share exercise price equal to the closing price of such stock on the public market on the date of grant unless a founder terminates a SAB Agreement without good reason (as defined) or the Company terminates a SAB Agreement with cause (as defined therein) in which case no further option grants will be made to the founder. If the Company’s common stock is not publicly available on the dates specified above, its Board of Directors will grant the stock options to the founders at the first scheduled board meeting after such date and the per share exercise price of the options will be determined in good faith by the Company’s board of directors. All options granted pursuant to the SAB Agreements are fully vested on the date of grant and have a term of ten years. The fair value of stock options granted during 20092010 and 20082009 under the SAB Agreement for each founder is
76
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
approximately $245,000$142,000 and $338,000$245,000 which was estimated using the Black-Scholes option-pricing model as more fully discussed above under significant accounting policies and the stock based compensation footnote. Included in the accompanying financial statements for the years ended December 31, 20092010 and 20082009 is approximately $978,000$566,000 and $1,350,000,$978,000, respectively, of expense related to the granting of these stock options.
Additionally, pursuant to a letter agreement between the Company and each founder dated as of April 30, 2007, the “SAB Letters”, in further consideration of the services to be rendered by the founders under the SAB Agreements, the Company granted additional stock options on May 23, 2007 under the 2007 Plan to each of the founders to purchase 26,416 shares of its common stock. Unless a founder terminates a SAB Agreement without good reason (as defined) or the Company terminates a SAB Agreement with cause (as defined therein), the options granted pursuant to the SAB Letters will fully vest from and after April 29, 2012 and will have a term of ten years from the date of grant. At December 31, 2009,2010, the fair market value of stock options under the SAB Agreement for each founder is approximately $60,000$20,500 which was estimated using the Black-Scholes option-pricing model as more fully discussed above under the summary of significant accounting policies and the stock based compensation footnote. Included in the accompanying financial statements for the years ended December 31, 20092010 and 20082009 is approximately $73,000$38,000 of income and $156,000, respectively,$73,000, of expense, respectively, related to these stock options.
| |
16. | Employee Benefit Plan |
RXi sponsors a 401(k) retirement savings plan (the “Plan”). Participation in the Plan is available to full-time employees who meet eligibility requirements. Eligible employees may defer a portion of their salary as defined by Internal Revenue Service regulations. The Company may make matching contributions on behalf of all participants in the 401(k) Plan in an amount determined by the Company’s board of directors. The
70
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
Company may also make additional discretionary profit sharing contributions in amounts as determined by the board of directors, subject t to statutory limitations. Matching and profit-sharing contributions, if any, are subject to a vesting schedule; all other contributions are at all times fully vested. The Company intends the 401(k) Plan, and the accompanying trust, to qualify under Sections 401(k) and 501 of the Internal Revenue Code so that contributions by employees to the 401(k) Plan, and income earned (if any) on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that the Company will be able to deduct its contributions, if any, when made. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of a number of investment options. To date, the Company has not made any matching contributions.
On January 14,The Company evaluated all events or transactions that occurred after December 31, 2010 up through the date these financial statements were issued. Other than what is disclosed below, during this period, the Company granted options to purchase 572,440 shares of common stock to employees and members of the Board of Directors. These options had an exercise price of $5.66 per share, which represented the Company’s closing stock price on that date. These options vest quarterly over a one to four year period and expire no later than 10 years from the grant date.did not have any material recognizable or unrecognizable subsequent events.
On January 20, 2010, the Company granted 43,541 RSUs with a contingent right to receive one share of Company common stock for each restricted stock unit to certain employees. The RSUs vested on February 9, 2010.
On March 2, 2010,13, 2011, the Company granted an option to purchase 50,000 shares of common stock to aeach member of the Board of Directors. ThisThese options had an exercise price of $5.28$2.31 per share, which represented the Company’s closing stock price on that date. This option vested immediatelyvests quarterly over a one year period and expires no later than 10 years from the grant date.
On January 29, 2010,February 1, 2011, the Company granted warrants to purchase 250,000150,000 shares of common stock at an exercise price of $5.66$2.10 per share in exchange for business advisory services to the Company for a period of up to twelve months. The warrants vested as to 71,25037,500 shares upon issuance, and then will vest at a rate of 23,75037,500 shares per monthquarter starting on the 90 day anniversary of issuance. The Company has also agreed to give “piggy back” registration rights with respect to the shares of common stock underlying the warrants in any registration statement filed by the company in connection with an underwritten offering of the common stock.
77
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
On March 22, 2010,4, 2011, the Company closed an underwritten public offering of 6,000,000 units at a price to the public of $1.35 per unit for gross proceeds of $8.1 million. The financing provided approximately $7.3 million to the Company after deducting the underwriting fee and offering expenses. Each unit consists of (i) one share of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common stock at an exercise of $1.70 per share (subject to anti-dilution adjustment) and (iii) a five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per share (subject to anti-dilution adjustment). As a result of the offering that occurred on April 15, 2011, the exercise price of these warrants will be reduced to $1.00 per share.
On March 15, 2011, the Company granted 147,040 shares of common stock to certain employees at a price of $1.16 per share, which represented the Company’s closing stock price on that date.
On March 15, 2011, the Company granted 220,729 RSUs with a contingent right to receive one share of Company common stock for each restricted stock unit to certain employees. The RSUs vested on March 23, 2011.
On March 25, 2011, the Company granted a total of 900,000 shares of common stock to the members of the Board of Directors at $1.18 per share, which represented the Company’s closing stock price on that date.
On April 1, 2011, the Company granted 33,558 shares of common stock to Tod Woolf, Ph.D., a member of its Scientific Advisory Board (SAB) at $1.49 per share which represented the Company’s closing stock price on that date.
On April 1, 2011, the Company granted 201,342 shares of common stock to the former President and Chief Executive Officer, Noah Beerman as part of a Severance Agreement. The shares were granted at a price of $1.49 per share which represented the Company’s closing stock price on that day.
On March 31, 2011, the Company, Diamondback Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), Apthera, Inc., a Delaware corporation (“Apthera”), and Robert E. Kennedy, in his capacity as representative of Apthera’s stockholders (the “Stockholder Representative”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Apthera, with Apthera surviving as a placement agencywholly-owned subsidiary of the Company (the “Merger”). Pursuant to the Merger Agreement, the aggregate merger consideration that the Company will pay to Apthera’s stockholders consists of (i) 19.9% of the number of shares of the Company’s common stock issued and outstanding as of the date of the Merger Agreement, or approximately 4.9 million shares of common stock (the “Aggregate Stock Consideration”); and (ii) contingent payments of up to $32 million (the “Contingent Consideration”) based on the achievement of certain development and commercial milestones relating to Apthera’s NeuVax product candidate. The payment of the Contingent Consideration will be subject to and in accordance with the terms of a Contingent Value Rights Agreement to be entered into between the Company and the Stockholder Representative in connection with the Merger (the “CVR Agreement”). Under the CVR Agreement, a form of which is attached to the Merger Agreement as Exhibit A, the Contingent Consideration is payable, at the election of the Company, in either cash or additional shares of common stock; provided, however, that the Company may not issue any shares in satisfaction of any Contingent Consideration unless it has first obtained approval of its stockholders in accordance with Rule 5635(a) of the NASDAQ Listing Rules.
The Merger Agreement provides that the Company and the Stockholder Representative will also enter into an escrow agreement (the “Escrow Agreement”), pursuant to which the Company shall deposit with Rodmana third-party escrow agent certificates representing 10% of the Aggregate Stock Consideration (the “Escrow Shares”). Pursuant to the terms of the Escrow Agreement, the Escrow Shares will be available to compensate the Company and related parties for certain indemnifiable losses as described in the Merger Agreement.
78
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The transaction closed as of April 13, 2011. Under the Merger Agreement, the Company has agreed to file, within 10 days of the closing date of the Merger, a Registration Statement onForm S-3 with the Securities and Exchange Commission, registering the resale of the shares representing the Aggregate Stock Consideration exchanged.
Our Board of Directors continually evaluates our strategic alternatives and recently determined that it was in the best interests of our stockholders to diversify our development programs with additional development candidates at various stages of development. Our acquisition of Apthera followed from this determination to broaden our strategic direction. We believe that acquiring Apthera will enhance our long term prospects by giving us access to a late stage product candidate, NeuVax, which is expected to enter Phase III clinical trials under an FDA-approved Special Protocol Assessment (“SPA”) for the treatment of breast cancer in the first half of 2012 if we are able to satisfy certain FDA information requirements to be released from a clinical hold to commence the trial. Based on our clinical trials, we also believe that NeuVax has the potential to treat other cancers, including prostate, bladder and ovarian cancers. In addition, we believe that reducing the scope of our RNAi activities will enable us to commit more resources to RXI-109, our lead RNAi-product, while maintaining our core RNAi discovery and development capability to advance current collaborations, as well as enable alliances.
The purchase price consideration and allocation of purchase price was as follows:
| | | | |
| | (in 000’s) | |
|
Calculation of allocable purchase price(i): | | | | |
Fair value of shares issued at closing including escrowed shares expected to be released | | $ | 6,317 | (ii) |
Estimated value of earn-out | | | 3,194 | |
| | | | |
Total allocable purchase price | | $ | 9,511 | |
| | | | |
Estimated allocation of purchase price(i): | | | | |
Cash | | $ | 20 | |
Prepaid expenses and other current assets | | | 7 | |
Equipment and furnishings | | | 13 | |
Goodwill | | | 2,214 | |
In-process research and development | | | 9,637 | |
Accounts payable | | | (1,299 | ) |
Accrued expenses and other current liabilities | | | (720 | ) |
Notes payable | | | (361 | ) |
| | | | |
| | $ | 9,511 | |
| | | | |
| | |
(i) | | The purchase price has not been finalized and is subject to change upon completion of the valuation of intangible assets |
|
(ii) | | The value of the Company’s common stock was based upon a per share value of $1.27, the closing price of the Company’s common stock as of the close of business on April 13, 2011. |
79
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following presents the pro forma net loss and net loss per common share for the years ended December 31, 2010 and 2009 of the Company’s acquisition of Apthera assuming the acquisition occurred as of January 1, 2009:
| | | | | | | | |
| | Year Ended December 31, | |
| | (unaudited) | |
| | 2010 | | | 2009 | |
|
Net loss | | | (14,244 | ) | | | (20,275 | ) |
| | | | | | | | |
Net loss per common share | | | $(0.62 | ) | | | $(1.03 | ) |
| | | | | | | | |
Weighted average shares outstanding | | | 22,287,471 | | | | 19,770,631 | |
| | | | | | | | |
On April 14, 2011, all of our directors and certain of our executive officers executed agreements with the Company under which they agreed that none of their outstanding stock options will be exercisable unless and until our stockholders increase the number of authorized shares of common stock to a number that is sufficient to permit the exercise or conversion in full of all then outstanding options of the Company (including their stock options), warrants and other securities of the Company that are convertible into shares of common stock, and at that point all of their options shall thereafter be exercisable in accordance with the terms of their options awards. An aggregate of 3,398,256 outstanding stock options are covered by these agreements.
On April 15, 2011, the holders of outstanding warrants issued on March 4, 2011 to purchase an aggregate of 3,450,000 shares of our common stock agreed to exchange such warrants for warrants exercisable for the same number of shares as those being exchanged, but otherwise on the same terms, including the exercise price, as the exclusive placement agent, relating to a proposed offering bywarrants sold in our April, 15 2011 financing. Such exchanged warrants will not be exercisable unless our stockholders approve an increase in the number of authorized shares of common stock.
On April 15, 2011, the Company announced that it had priced an underwritten public offering of new securities11,950,000 units at a price to potential investors. On March 23, 2010, the Company entered into definitive agreementspublic of $1.00 per unit for the sale and issuance by the Company to certain investorsgross proceeds of 2,700,000 units, with eachapproximately $12 million. Each unit consistingconsists of one share of the Company’s common stock and a warrant to purchase 0.20 of aone share of common stock at a purchase price of $6.00 per unit (the “2010 Offering”). The 2010 Offering closed on March 26, 2010. The Company issued 540,000 warrants with an exercise price of $6.00$1.00 per shareshare. The shares of common stock and warrants are immediately separable and will be issued separately such that no units will be issued. The warrants are exercisable for a period beginning on September 26, 2010 until their expiration on March 26, 2016. The Company raised gross proceedsone year and one day from the date of approximately $16.2 millionissuance, but only if RXi’s stockholders approve an increase in the 2010 Offeringnumber of its authorized shares of common stock, and net cashexpire on the sixth anniversary of the date of issuance. Net proceeds, after deducting the placement agentunderwriting discounts and commissions and other estimated fees and other offering expenses payable by RXi, and assuming the Company, ofwarrants are not exercised, will be approximately $15.2$10.9 million.
As part of the 2010 Offering, the Company is required to use 25% of the net proceeds from the 2010 Offering to repurchase from CytRx 675,000 shares of the Company’s common stock held by CytRx (“CytRx shares”). The Company is also required to use 25% of the proceeds from the exercise of warrants issued in the 2010 Offering to repurchase from CytRx a number of CytRx Shares equal to 25% of shares issued upon the exercise of such warrants. Subject to the satisfaction of certain closing conditions, the Company is required to repurchase the CytRx Shares on March 29, 2010 and if any warrant issued in this 2010 Offering is exercised, on the first business day after the exercise of such warrant.
The Company RXi intends to use the net proceeds remaining from the 2010 Offering, after the repurchase of the CytRx Sharesoffering for general corporate purposes.purposes, which may include working capital, capital expenditures, research and development expenditures, clinical and pre-clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to its current technologies or business focus, and investments. The offering is expected to close on or about April 20, 2011, subject to satisfaction of customary closing conditions.
7180
| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. |
None
| |
ITEM 9A(T).9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Principal Accounting Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined underRules 13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Principal Accounting Officer have concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 20092010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Evaluation of Disclosure Controls and Procedure Management’s report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, we conducted evaluations of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluations under the framework in Internal Control-Integrated Framework issued by the COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.2010.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’sCompany’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
| |
ITEM ITEM��9B. | OTHER INFORMATION |
None
7281
PART III
| |
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
We will file with the SEC a definitive Proxy Statement, which we refer to herein as the Proxy Statement, not later than 120 days after the close of the fiscal year ended December 31, 2009.2010. The information required by this item is incorporated herein by reference to the information contained in the Proxy Statement.
| |
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is incorporated herein by reference to the information contained in the Proxy Statement.
| |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by this item is incorporated herein by reference to the information contained in the Proxy Statement.
| |
ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated herein by reference to the information contained in the Proxy Statement.
| |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated herein by reference to the information contained in the Proxy Statement.
PART IV
| |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) (1) Financial Statements
See Item 8 in Part II of this annual report onForm 10-K, “Financial Statements and Supplementary Data”, for an index to the financial statements filed in this annual report.
(2) Financial Statement Schedules
Certain schedules are omitted because they are not applicable, or not required by smaller reporting companies.
(3) Exhibits
The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this annual report onForm 10-K.
7382
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RXi PHARMACEUTICALS CORPORATION
| | |
| By: | /s/ Noah D. BeermanMark J. Ahn |
Noah D. BeermanMark J. Ahn, Ph.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: March 31, 2010April 15, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | |
Signatures | | Title | | Date |
|
| | | | |
/s/ Noah D. BeermanMark J. Ahn
Noah D. BeermanMark J. Ahn, Ph.D. | | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Amy TataCaitlin Kontulis
Amy TataCaitlin Kontulis | | Principal Accounting Officer (Principal Financial Officer and Accounting Officer) | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Sanford J. Hillsberg Sanford J. Hillsberg | | Director | | March 31, 2010 |
| | | | |
/s/ Mark J. Ahn
Mark J. Ahn | | Director | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Richard Chin Richard Chin | | Director | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Stephen S. Galliker Stephen S. Galliker | | Director | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Steven A. Kriegsman Steven A. Kriegsman | | Director | | March 31, 2010April 15, 2011 |
| | | | |
/s/ Rudolph Nisi Rudolph Nisi | | Director | | March 31, 2010April 15, 2011 |
7483
EXHIBIT INDEX
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 2 | .1 | | Contribution Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated January 8, 2007(1) | 2 | .1 | | Contribution Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated January 8, 2007(1) |
| 2 | .2 | | Contribution Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated April 30, 2007(1) | 2 | .2 | | Contribution Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated April 30, 2007(1) |
| 2 | .3 | | Reimbursement Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated January 8, 2007(1) | 3 | .1 | | Form of Amended and Restated Certificate of Incorporation of RXi Pharmaceuticals Corporation(1) |
| 3 | .1 | | Form of Amended and Restated Certificate of Incorporation of RXi Pharmaceuticals Corporation(1) | 3 | .2 | | Form of Amended and Restated By-laws of RXi Pharmaceuticals Corporation(1) |
| 3 | .2 | | Form of Amended and Restated By-laws of RXi Pharmaceuticals Corporation(1) | 4 | .1 | | Specimen common stock certificate(3) |
| 4 | .1 | | Specimen common stock certificate(3) | 4 | .2 | | Stockholders Agreement between CytRx Corporation, RXi Pharmaceuticals Corporation, the other Stockholders and the Scientific Advisory Board Members, dated February 23, 2007(1) |
| 4 | .2 | | Stockholders Agreement between CytRx Corporation, RXi Pharmaceuticals Corporation, the other Stockholders and the Scientific Advisory Board Members, dated February 23, 2007(1) | 4 | .3 | | Annex I to form of Subscription Agreement — Registration Rights Terms between RXi Pharmaceuticals Corporation and Stephen Galliker, Mark Ahn and Sanford Hillsberg(1) |
| 4 | .3 | | Exhibit A to Contribution Agreement — Registration Rights Terms between CytRx Corporation and RXi Pharmaceuticals Corporation, dated April 30, 2007(1) | 4 | .4 | | Form of Securities Purchase Agreement between RXi Pharmaceuticals Corporation and various investors, dated June 24, 2008(5) |
| 4 | .4 | | Annex I to form of Subscription Agreement — Registration Rights Terms between RXi Pharmaceuticals Corporation and Stephen Galliker, Mark Ahn and Sanford Hillsberg(1) | 4 | .5 | | Amendment to Stockholders Agreement between CytRx Corporation, RXi Pharmaceuticals Corporation, the Stockholders and the Scientific Advisory Board Members, dated July 28, 2008(6) |
| 4 | .5 | | Form of Securities Purchase Agreement between RXi Pharmaceuticals Corporation and various investors, dated June 24, 2008(5) | 4 | .6 | | WarrantNo. A-1 in favor of J.P. Turner Partners, dated August 7, 2008(8) |
| 4 | .6 | | Amendment to Stockholders Agreement between CytRx Corporation, RXi Pharmaceuticals Corporation, the Stockholders and the Scientific Advisory Board Members, dated July 28, 2008(7) | 4 | .7 | | Form of Common Stock Purchase Warrant dated July 31, 2009(11) |
| 4 | .7 | | Amendment to Exhibit A to Contribution Agreement — Registration Rights Terms between CytRx Corporation and RXi Pharmaceuticals Corporation, dated July 28, 2008(7) | 4 | .8 | | Form of Warrant issued in August 2009(11) |
| 4 | .8 | | Form of Warrant Certificate issued to certain purchasers of the RXI Pharmaceuticals Corporation’s common stock in August 2009(14) | 4 | .9 | | Form of Common Stock Purchase Warrant issued in March 2010(13) |
| 10 | .1 | | Voting Agreement between CytRx Corporation and the University of Massachusetts Medical School, dated January 10, 2007(1) | 4 | .10 | | Form of13-Month Common Stock Purchase Warrant issued in March 2011(15) |
| 10 | .2 | | Invention Disclosure Agreement between the University of Massachusetts Medical School and RXi Pharmaceuticals Corporation, dated January 10, 2007(2) | 4 | .11 | | Form ofFive-Year Common Stock Purchase Warrant issued in March 2011(15) |
| 10 | .3 | | Placement Agency Agreement between RXi Pharmaceuticals Corporation, Jeffries & Company, Inc., Natixis Bleichroeder Inc., Broadpoint Securities Group, Inc. and Griffin Securities, Inc., dated June 24, 2008(5) | 4 | .12 | | Form of Common Stock Purchase Warrant issued in April 2011(17) |
| 10 | .4 | | RXI Pharmaceuticals Corporation’s Amended 2007 Incentive Plan, dated June 5, 2009(13) | 10 | .1 | | Voting Agreement between CytRx Corporation and the University of Massachusetts Medical School, dated January 10, 2007(1) |
| 10 | .5 | | WarrantNo. A-1 in favor of J.P. Turner Partners, dated August 7, 2008(8) | 10 | .2 | | Form of Securities Purchase Agreement between RXi Pharmaceuticals Corporation and various investors, dated July 31, 2009(11) |
| 10 | .6 | | Standby Equity Distribution Agreement between RXi Pharmaceuticals Corporation and YA Global Master SPV Ltd. dated January 30, 2009(10) | 10 | .3 | | Form of Contingent Value Rights Agreement among RXi Pharmaceuticals Corporation, Computershare Trust Company, N.A., Computershare Inc., and Robert E Kennedy, dated April 13, 2011(16) |
| 10 | .7 | | Registration Rights Agreement between RXi Pharmaceuticals Corporation and YA Global Master SPV Ltd. dated January 30, 2009(10) | 10 | .4 | | Exclusive License Agreement (No.: UMMC06-21-01) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) |
| 10 | .8 | | Form of Securities Purchase Agreement between RXi Pharmaceuticals Corporation and various investors, dated July 31, 2009(14) | 10 | .5 | | Exclusive License Agreement (No.: UMMC03-75-01) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) |
| 10 | .9 | | Form of Common Stock Purchase Warrant dated July 31, 2009 | 10 | .6 | | Non-Exclusive License Agreement (No.: UMMC06-08-03) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) |
| 10 | .10 | | Exclusive License Agreement (No.: UMMC06-21-01) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) | 10 | .7 | | Non-Exclusive License Agreement, between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number01-36, dated April 15, 2003, as amended February 1, 2004+(2) |
| 10 | .11 | | Exclusive License Agreement (No.: UMMC03-68-02) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) | 10 | .8 | | Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number02-01, dated April 15, 2003, as amended September 10, 2004+(2) |
| 10 | .12 | | Exclusive License Agreement (No.: UMMC03-75-01) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) | 10 | .9 | | Amended and Restated Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-05,00-37,01-31,03-134,93-09 and02-38, dated September 15, 2003, as amended September 17, 2003 and February 1, 2004+(2) |
| 10 | .13 | | Non-Exclusive License Agreement (No.: UMMC06-08-03) between the University of Massachusetts and RXi Pharmaceuticals Corporation, dated January 10, 2007+(2) | 10 | .10 | | Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-17, dated April 15, 2003, as amended January 7, 2004 and February 1, 2004+(2) |
| | 10 | .11 | | Employment Agreement between RXi Pharmaceuticals Corporation and Pamela Pavco, dated March 7, 2007*(1) |
| | 10 | .12 | | Employment Agreement between RXi Pharmaceuticals Corporation and Anastasia Khvorova, dated October 17, 2008*(9) |
| | 10 | .13 | | Employment Agreement between RXi Pharmaceuticals and Mark Ahn, dated March 31, 2011*(16) |
7584
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .14 | | Non-Exclusive License Agreement, between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number01-36, dated April 15, 2003, as amended February 1, 2004+(2) |
| 10 | .15 | | Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number02-01, dated April 15, 2003, as amended September 10, 2004+(2) |
| 10 | .16 | | Amended and Restated Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-05,00-37,01-31,03-134,93-09 and02-38, dated September 15, 2003, as amended September 17, 2003 and February 1, 2004+(2) |
| 10 | .17 | | Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-17, dated April 15, 2003, as amended January 7, 2004 and February 1, 2004+(2) |
| 10 | .18 | | Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-60, dated April 15, 2003 as amended February 1, 2004+(2) |
| 10 | .19 | | Co-Exclusive License Agreement between CytRx Corporation and the University of Massachusetts Medical School related to UMMS disclosure number03-33, and all amendments thereto, dated May 18, 2006+(2) |
| 10 | .20 | | License Agreement between CytRx Corporation, Imperial College Innovations Limited and Imperial College of Science and Technology, dated May 19, 2004+(2) |
| 10 | .21 | | Employment Agreement between RXi Pharmaceuticals Corporation and Pamela Pavco, dated March 7, 2007*(1) |
| 10 | .22 | | Employment Agreement between RXi Pharmaceuticals Corporation and James Warren, dated May 23, 2007*(1) |
| 10 | .23 | | Employment Agreement between RXi Pharmaceuticals Corporation and Dmitry Samarsky, dated June 25, 2007*(1) |
| 10 | .24 | | Employment Agreement between RXi Pharmaceuticals Corporation and Stephen J. DiPalma, dated August 28, 2007*(1) |
| 10 | .25 | | Employment Agreement between RXi Pharmaceuticals Corporation and Anastasia Khvorova, dated October 17, 2008*(11) |
| 10 | .26 | | Employment Agreement between RXi Pharmaceuticals Corporation and Konstantinos Andrikopoulos, dated November 10, 2008*(11) |
| 10 | .27 | | Employment Agreement between RXi Pharmaceuticals Corporation and Noah D. Beerman, dated November 5, 2009*(16) |
| 10 | .28 | | Separation Agreement and General Release between RXi Pharmaceuticals Corporation and Tod Woolf, dated November 5, 2009*(16) |
| 10 | .29 | | RXi Pharmaceuticals Corporation’s 2007 Incentive Plan*(1) |
| 10 | .30 | | Form of Incentive Stock Option*(1) |
| 10 | .31 | | Form of Non-qualified Stock Option*(2) |
| 10 | .32 | | Lease between RXi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts, 01605, dated September 25, 2007(3) |
| 10 | .33 | | Amendment to Lease between Xi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts, 01605, dated January 23, 2009(9) |
| 10 | .34 | | Amendment to Lease between Xi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts, 01605, dated March 5, 2009(12) |
| 10 | .35 | | Form of Subscription Agreement between RXi Pharmaceuticals Corporation and each of Mark K. Ahn, Ph.D., Stephen S. Galliker and Sanford J. Hillsberg(3) |
| 10 | .36 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Tariq Rana, Ph.D., dated February 26, 2007 and corresponding Letter Agreement, dated April 30, 2007(3) |
76
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 10 | .37 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Gregory Hannon, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) | 10 | .14 | | RXI Pharmaceuticals Corporation’s Amended and Restated 2007 Incentive Plan*(14) |
| 10 | .38 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Michael Czech, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) | 10 | .15 | | Form of Incentive Stock Option*(1) |
| 10 | .39 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Craig C. Mello, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) | 10 | .16 | | Form of Non-qualified Stock Option*(2) |
| 10 | .40 | | Letter Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated December 27, 2007(3) | 10 | .17 | | Lease between RXi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts 01605, dated September 25, 2007(3) |
| 10 | .41 | | Patent License Agreement between RXi Pharmaceuticals Corporation and Invitrogen IP Holdings, Inc. dated November 1, 2007(4) | 10 | .18 | | Amendment to Lease between RXi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts 01605, dated January 23, 2009(8) |
| 10 | .42 | | Patent and Technology Assignment Agreement between RXi Pharmaceuticals Corporation and Advirna, LLC dated September 21, 2009+(15) | 10 | .19 | | Amendment to Lease between RXi Pharmaceuticals Corporation and Newgate Properties, LLC for One Gateway Place, Worcester, Massachusetts 01605, dated March 5, 2009(10) |
| 14 | .1 | | Code of Conduct(5) | 10 | .20 | | Form of Subscription Agreement between RXi Pharmaceuticals Corporation and each of Mark K. Ahn, Ph.D., Stephen S. Galliker and Sanford J. Hillsberg(3) |
| 23 | .1 | | Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm(16) | 10 | .21 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Tariq Rana, Ph.D., dated February 26, 2007 and corresponding Letter Agreement, dated April 30, 2007(3) |
| 31 | .1 | | Sarbanes-Oxley Act Section 302 Certification of Noah D. Beerman(16) | 10 | .22 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Gregory Hannon, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) |
| 31 | .2 | | Sarbanes-Oxley Act Section 302 Certification of Amy Tata(16) | 10 | .23 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Michael Czech, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) |
| 32 | .1 | | Sarbanes-Oxley Act Section 906 Certification of Noah D. Beerman and Amy Tata(16) | 10 | .24 | | Scientific Advisory Board Agreement between RXi Pharmaceuticals Corporation and Craig C. Mello, Ph.D., dated February 26, 2007 and corresponding Letter Agreement dated April 30, 2007(3) |
| | 10 | .25 | | Letter Agreement between CytRx Corporation and RXi Pharmaceuticals Corporation, dated December 27, 2007(3) |
| | 10 | .26 | | Patent License Agreement between RXi Pharmaceuticals Corporation and Invitrogen IP Holdings, Inc. dated November 1, 2007(4) |
| | 10 | .27 | | Patent and Technology Assignment Agreement between RXi Pharmaceuticals Corporation and Advirna, LLC dated September 21, 2009+(12) |
| | 14 | .1 | | Code of Conduct(5) |
| | 21 | .1 | | Subsidiaries of the Registrant |
| | 23 | .1 | | Consent of BDO USA, LLP, Independent Registered Public Accounting Firm |
| | 31 | .1 | | Sarbanes-Oxley Act Section 302 Certification of Mark J. Ahn |
| | 31 | .2 | | Sarbanes-Oxley Act Section 302 Certification of Caitlin Kontulis |
| | 32 | .1 | | Sarbanes-Oxley Act Section 906 Certification of Mark J. Ahn and Caitlin Kontulis |
| | |
(1) | | Previously filed as an Exhibit to the Company’s Registration Statement onForm S-1 filed on October 30, 2007 (FileNo. 333-147009) and incorporated by reference herein |
|
(2) | | Previously filed as an Exhibit to Amendment No. 1 to the Company’s Registration Statement onForm S-1 filed on November 19, 2007(FileNo. 333-147009) and incorporated by reference herein. |
|
(3) | | Previously filed as an Exhibit to Amendment No. 2 to the Company’s Registration Statement onForm S-1 filed on January 20, 2008 (FileNo. 333-147009) and incorporated by reference herein. |
|
(4) | | Previously filed as an Exhibit to Amendment No. 3 to the Company’s Registration Statement onForm S-1 filed on February 1, 2008 (FileNo. 333-147009) and incorporated by reference herein. |
|
(5) | | Previously filed as an Exhibit to the Company’sForm 8-K filed on June 26, 2008 (File No.001-33958) and incorporated by reference herein. |
|
(6) | | Previously filed as an Exhibit to the Company’sForm 8-K filed on July 24, 2008 (File No.001-33958) and incorporated by reference herein. |
|
(7) | | Previously filed as an Exhibit to Amendment No. 1 to the Company’s Registration Statement onForm S-1 filed on August 4, 2008 (FileNo. 333-152555) and incorporated by reference herein. |
|
(8)(7) | | Previously filed as an Exhibit to the Company’sForm 10-Q filed on November 14, 2008(File No. 001-33958) and incorporated by reference herein. |
|
(9)(8) | | Previously filed as an Exhibit to the Company’sForm 8-K filed on January 23, 2009(File No. 001-33958) and incorporated by reference herein. |
|
(10) | | Previously filed as an Exhibit to the Company’sForm 8-K filed on February 5, 2009(File No. 001-33958) and incorporated by reference herein. |
|
(11)(9) | | Previously filed as an Exhibit to the Company’sForm 10-K filed on March 18, 2009(File No. 001-33958) and incorporated by reference herein. |
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