Exhibit 99.2
ZYSTOR THERAPEUTICS, INC.
(A Development Stage Company)
TABLE OF CONTENTS
| | |
| | | Page |
UNAUDITED BALANCE SHEET AS OF JUNE 30, 2010 | | 2 |
| |
UNAUDITED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 | | 3 |
| |
UNAUDITED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 | | 4 |
| |
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 | | 5-6 |
1
ZYSTOR THERAPEUTICS, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 2010
| | | | |
| ASSETS | | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 195,371 | |
Other current assets | | | 30,991 | |
| | | | |
Total current assets | | | 226,352 | |
| |
PROPERTY AND EQUIPMENT – AT COST | | | | |
Laboratory equipment | | | 196,411 | |
Computer hardware and software | | | 31,548 | |
Furniture and fixtures | | | 12,095 | |
Telephone system | | | 8,243 | |
| | | | |
Total property and equipment, at cost | | | 248,297 | |
Less accumulated depreciation | | | 192,551 | |
| | | | |
Total property and equipment, net | | | 55,746 | |
OTHER ASSETS | | | | |
Deposits | | | 7,005 | |
| | | | |
| | | 289,103 | |
| | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | |
| |
CURRENT LIABILITIES | | | | |
Accounts payable | | $ | 1,319,650 | |
Accrued expenses | | | 895,063 | |
Subordinated notes payable | | | 6,122,282 | |
| | | | |
Total current liabilities | | | 8,336,995 | |
| |
STOCKHOLDERS’ DEFICIT | | | | |
Common stock – authorized, 50,347,399 shares of $0.001 par value; | | | 3,901 | |
3,900,878 shares issued and outstanding at June 30, 2010 | | | | |
Series A preferred stock – authorized, issued and outstanding | | | 9,762 | |
9,762,263 shares at $0.001 par value | | | | |
Series B preferred stock – authorized, 33,034,824 shares of | | | 26,785 | |
$0.001 par value; 26,784,824 shares issued and outstanding | | | (151,894 | ) |
Note receivable from shareholders | | | 21,654,869 | |
| | | | |
Additional paid-in capital | | | 21,543,423 | |
| |
Deficit accumulated during the development stage | | | (29,591,315 | ) |
| | | | |
Total stockholders’ deficit | | | (8,047,892 | ) |
| | | | |
| | $ | 289,103 | |
| | | | |
See accompanying notes to unaudited financial statements.
2
ZYSTOR THERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three and Six Months ended June 30, 2010 and 2009
| | | | | | | | |
| | | Six Months Ended June 30, | |
| | | 2010 | | | 2009 | |
Operating expenses | | | | | | | | |
General and administrative | | $ | 480,937 | | | $ | 356,725 | |
Research and development | | | 803,836 | | | | 2,888,164 | |
| | | | | | | | |
| | |
Operating loss | | | (1,284,773 | ) | | | (3,244,799 | ) |
| | |
Other income (expense) | | | | | | | | |
Interest income | | | 5,446 | | | | 10,503 | |
| | |
Interest expense | | | (242,288 | ) | | | (98,739 | ) |
Other income | | | 250,000 | | | | — | |
| | | | | | | | |
| | |
| | | 13,158 | | | | (88,236 | ) |
| | | | | | | | |
| | |
Net loss before taxes | | | (1,271,615 | ) | | | (3,333,035 | ) |
| | |
Income tax expense (benefit) | | | — | | | | (47,300 | ) |
| | | | | | | | |
| | |
NET LOSS | | $ | (1,271,615 | ) | | $ | (3,285,735 | ) |
| | | | | | | | |
See accompanying notes to unaudited financial statements.
3
ZYSTOR THERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
| | | | | | | | |
| | | 2010 | | | 2009 | |
Cash flows from operating activities | | | | | | | | |
Net loss | | $ | (1,271,615 | ) | | $ | (3,285,735 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | |
Depreciation | | | 16,156 | | | | 22,866 | |
Changes in operating assets and liabilities, net of effects of acquisition: | | | | | | | | |
Other current assets | | | 11,850 | | | | (3,476 | ) |
Accounts payable | | | (420,786 | ) | | | (910,983 | ) |
Accrued expenses | | | 240,634 | | | | (24,823 | ) |
| | | | | | | | |
| | |
Net cash used in operating activities | | | (1,423,761 | ) | | | (4,202,151 | ) |
| | |
Cash flows from investing activities | | | | | | | | |
Purchases of property and equipment | | | (1,507 | ) | | | — | |
| | |
Cash flows from financing activities | | | | | | | | |
Proceeds from subordinated notes payable | | | 1,508,400 | | | | 1,101,482 | |
Payments on long-term obligation | | | (6,708 | ) | | | (11,647 | ) |
Payments received on stockholder notes | | | 3,146 | | | | 38,760 | |
| | | | | | | | |
| | |
Net cash provided by financing activities | | | 1,504,838 | | | | 1,128,595 | |
| | | | | | | | |
| | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 79,570 | | | | (3,073,556 | ) |
| | |
Cash and cash equivalents at beginning of period | | | 115,801 | | | | 3,344,341 | |
| | | | | | | | |
| | |
Cash and cash equivalents at end of period | | $ | 195,371 | | | $ | 270,785 | |
| | | | | | | | |
See accompanying notes to unaudited financial statements.
4
ZYSTOR THERAPEUTICS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ZyStor Therapeutics, Inc. (the Company) was incorporated in Delaware on September 22, 2004. The Company’s purpose is to develop innovative therapeutics for the treatment of rare genetic disorders known as Lysosomal Storage Diseases. Developed technologies will be marketed through licensing agreements and product sales with various companies throughout the world.
A summary of the Company’s significant accounting policies applied in the preparation of the accompanying financial statements follows.
| | 1. | Development Stage Company |
Since incorporation on September 22, 2004, the Company has been primarily involved in research and development activities. Because the Company has no products approved for marketing and, therefore, has no source of revenue from its planned principal operations, it is considered to be in the development stage and the accompanying financial statements represent those of a development stage company.
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| | 3. | Cash and Cash Equivalents |
The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
Depreciation and amortization of property and equipment are provided using the straight-line method in amounts sufficient to relate the cost of the related assets to operations over their estimated service lives of three to five years.
Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs which do not improve the useful lives of the assets, are expensed as incurred.
| | 5. | Research and Development Costs |
Research and development costs are expensed in the period incurred.
5
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts and for net operating loss carryovers at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
Effective January 1, 2009, the Company adopted the new accounting and financial reporting standards for uncertain tax positions. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open. The adoption of the uncertain tax position guidance did not have a material effect on the financial statements. As of December 31, 2009, management concluded that there are no material uncertain tax positions that require recognition in the financial statements.
The Company is subject to income taxes in the U.S. federal jurisdiction and in the state of Wisconsin. Due to the Company being in a net operating loss carryforward position, all tax years since incorporation in 2004 are open under the statute of limitations.
The Company recognizes, if any, interest accrued related to unrecognized tax benefits in interest expense and recognizes penalties in operating expenses for all periods presented.
| | 7. | Stock-Based Compensation |
In accordance with generally accepted accounting principles, the Company recognizes expense related to the fair value of its stock-based compensation awards over the service period (generally the vesting period) of the grant. The calculated fair value of the Company’s stock options was not significant to the financial statements for the six months ended June 30, 2010 and 2009.
6
