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CELLCYTE GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
CellCyte Genetics Corporation (the “Company”) is in the development stage, as defined by Financial Accounting Standards Board (“FASB”) ASC 915, “Development Stage Entities” and its efforts have been principally devoted to the commercialization of its cell expansion technology since it previously discontinued the discovery and development of stem cell therapeutic products in 2008. To date, the Company has not generated any sales revenues, has incurred ongoing operating expenses and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.
As shown in the accompanying financial statements, the Company has incurred significant losses since inception and has not generated any revenues to date. The future of the Company is dependent upon its ability to obtain sufficient financing, demonstration that its bioreactor device can satisfy the cell expansion requirements of research organizations which it has, or will have, collaboration agreements with, the continued willingness of CCYG stock option holders to exercise their vested options and, ultimately, upon achieving future profitable operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instruction to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2011. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
The Company’s financial statements include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
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NOTE 2 – INTELLECTUAL PROPERTY
As of December 31, 2010, the Company had $70,002 of capitalized patents. Through June 30, 2011, the Company did not incur any additional costs for its intellectual property. The Company amortizes patents over the remaining life of the patents, which ranges from 7 to 17 years.
Intellectual property at June 30, 2011 and December 31, 2010 is as follows:
| | | | | | |
| | June 30, | | December 31, |
| | 2011 | | 2010 |
Patents | | $ | 70,002 | | $ | 70,002 |
Accumulated amortization | | | (42,528) | | | (38,776) |
Patents, net | | $ | 27,474 | | $ | 31,226 |
NOTE 3 – PROPERTY AND EQUIPMENT
As of December 31, 2010, the Company had a remaining cost basis of $120,745 in laboratory, computer and office equipment. During the six months ended June 30, 2011, the Company did not sell or otherwise dispose of any of its property and equipment.
Property and equipment as of June 30, 2011 and December 31, 2010 are as follows:
| | | | | | |
| | June 30, | | December 31, |
| | 2011 | | 2010 |
Laboratory equipment | | $ | 40,935 | | $ | 40,935 |
Computer and office equipment | | | 79,810 | | | 79,810 |
Accumulated depreciation | | | (109,645) | | | (105,555) |
Property and equipment, net | | $ | 11,100 | | $ | 15,190 |
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Promissory Note
Effective August 14, 2009, the Company finalized a lease termination agreement with its landlord whereby the Company executed a promissory note in the amount of $275,000 and agreed to vacate the facility and leave certain of its furniture behind in full settlement of all amounts owing. The promissory note bears interest at the annual rate of 12%, required an initial payment of $25,000 on or before December 1, 2009, and has monthly payments of $5,000 commencing January 1, 2010. The initial payment of $25,000 was paid on December 1, 2009.
On August 25, 2010, the Company entered into a forbearance agreement with its previous landlord whereby the landlord would forbear enforcement of its claims and causes of actions upon the following terms:
1.
A payment of $25,000 on or before December 21, 2010, and
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2.
Commencing July 1, 2011 and on the first day of each month thereafter, for a total of six months ending December 1, 2011, a payment of $5,000.
These payments will be first applied to all accrued but unpaid interest, with the remainder to be applied against principal of the previously executed promissory note. In addition, each of these payments is personally guaranteed by a stockholder of the Company.
Principal payments under the promissory note are as follows:
| | |
Year | | Principal Payments |
2011 | $ | 3,627 |
2012 | | 31,513 |
2013 | | 35,600 |
2014 | | 40,115 |
2015 | | 45,202 |
Thereafter | | 98,513 |
Total | $ | 254,570 |
NOTE 5 – CAPITAL STOCK
Common Stock
The Company has authorized 525,000,000 shares of its common stock, $0.001 par value. The Company had issued and outstanding 74,556,405 shares of its common stock at June 30, 2011 and December 31, 2010, respectively.
During the six month period ended June 30, 2011, the Company did not issue any shares of its common stock for services.
Common Stock Warrants
The Company did not issue any common stock purchase warrants during the six month period ended June 30, 2011. Warrants outstanding are as follows:
| | | | | |
| Warrants
Outstanding | | Weighted Average
Exercise Price | | Weighted Average
Remaining Life |
| | | | | |
Balance, December 31, 2009 | 919,230 | $ | 0.06 | | 4.62 years |
Warrants issued | - | | - | | |
Warrants exercised | - | | - | | |
Warrants expired | - | | - | | |
Balance, December 31, 2010 | 919,230 | | 0.06 | | 3.62 years |
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| | | | | |
Warrants issued | - | | - | | |
Warrants exercised | - | | - | | |
Warrants expired | - | | - | | |
Balance, June 30, 2011 | 919,230 | $ | 0.06 | | 3.12 years |
Common Stock Options
The Company did not grant any stock options for shares of its common stock during the six months ended June 30, 2011.
The Company’s stock option activity for the six month period ended June 30, 2011 is as follows:
| | | | | |
| Options
Outstanding | | Weighted Average
Exercise Price | | Weighted Average
Remaining Life |
| | | | | |
Balance, December 31, 2009 | 17,545,000 | $ | 0.19 | | 3.81 years |
Options granted | 19,700,000 | | 0.026 | | |
Options exercised | - | | - | | |
Options cancelled and expired | (2,800,000) | | 0.049 | | |
Balance, December 31, 2010 | 34,445,000 | | 0.109 | | 3.95 years |
Options granted | - | | - | | |
Options exercised | - | | - | | |
Options cancelled and expired | - | | - | | |
Balance, June 30, 2011 | 34,445,000 | $ | 0.109 | | 3.45 years |
NOTE 6 – BASIC AND DILUTED NET LOSS PER SHARE
The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share”. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as including common stock equivalents in the calculation of diluted earnings per share would have been anti-dilutive.
Common stock equivalents that were not included in diluted earnings per share at June 30, 2011 and 2010 are as follows:
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| | | | | | |
| | 2011 | | 2010 |
Stock options | | | 34,445,000 | | | 25,945,000 |
Warrants | | | 919,230 | | | 919,230 |
Convertible promissory notes | | | 5,036,417 | | | 1,209,013 |
Common stock equivalents | | | 40,400,647 | | | 28,073,243 |
NOTE 7 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, two former officers, Gary Reys and Dr. Ronald Berninger, who were also members of the Company’s board of directors, advanced funds in the amount of $26,290 for their defense of certain legal matters. During 2009, Dr. Berninger advanced an additional $6,465 for his defense. Under the Company’s Bylaws, the Company is required to provide for the legal defense of its officers and directors. These advances are included in due to related parties.
Convertible Promissory Notes
On December 23, 2009, a consultant of the Company loaned $25,000 to the Company in exchange for a convertible promissory note and a warrant to purchase 150,000 shares of common stock. The promissory note bears interest at the annual rate of eight percent and all interest and principal is due on December 22, 2014. The promissory note and accrued interest can be converted into common stock at any time, at the option of the holder, at the exchange rate of $0.035 per share. The fair market value of the warrants of $3,000 was recorded as a discount on the promissory note and is being amortized over five years.
During the year ended December 31, 2010, a stockholder of the Company advanced a total of $25,858 to help pay for certain operating costs. These advances were converted into a convertible promissory note. The promissory note bears interest at the annual rate of eight percent and all interest and principal is due on January 24, 2015. The promissory note and accrued interest can be converted into common stock at any time, at the option of the holder, at the exchange rate of $0.024 per share. During the six months ended June 30, 2011, this stockholder advanced an additional $48,700 to cover operating and debt service costs.
During the year ended December 31, 2010, a second stockholder of the Company advanced a total of $3,470 to help pay for certain operating costs. Effective August 18, 2010, these advances were converted into a convertible promissory note. The promissory note bears interest at the annual rate of eight percent and all interest and principal is due on August 17, 2015. The promissory note and accrued interest can be converted into common stock at any time, at the option of the holder, at the exchange rate of $0.02 per share. During the six months ended June 30, 2011, this stockholder advanced an additional $15,993 to cover operating and debt service costs.
Stockholder Advances
During the year ended December 31, 2007 a stockholder of the Company paid various outstanding payables on behalf of the Company. As of June 30, 2011 the Company owed this
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stockholder $107,949. These advances are unsecured, non-interest bearing with no set terms of repayment.
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”) (codified within ASC 820 “Fair Value Measurements and Disclosures”). ASU 2010-06 improves disclosures originally required under SFAS No. 157. ASU 2010-16 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this Accounting Standard Update on January 1, 2011 had no effect on the Company’s results of operations or disclosures.
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Item 2.
Management’s Discussion and Analysis
As used in this Quarterly Report: (i) the terms the “Company”, “our company”, “we”, “us” and “our” refer to CellCyte Genetics Corporation, a Nevada corporation, and its subsidiary, unless the context requires otherwise; (ii) references to “CellCyte” mean CellCyte Genetics Corporation, a Washington corporation; and (iii) all dollar amounts refer to United States dollars unless otherwise indicated.
The following discussion of our plan of operations, results of operations and financial condition as of and for the six months ended June 30, 2011 should be read in conjunction with (i) our unaudited interim consolidated financial statements and related notes for the six months ended June 30, 2011 included in this Quarterly Report, and (ii) our Annual Report on Form 10-K for the year ended December 31, 2010, including our annual audited financial statements set forth therein.
Overview
We are a biotechnology company involved in research and development, manufacture, sales, support and service of medical devices used for cell expansion and maintenance.
We have focused, and will continue to focus, our efforts for the foreseeable future within the device segment. These efforts will consist of entering into collaborative research agreements with well-known, established research organizations to utilize our patented CCG-E45 Culture Chamber product to enhance their cell production efforts. In conjunction with these research activities, our engineers will be developing alternative culture chamber configurations to optimize specific cell categories. Under these collaborative agreements, we will provide our CCG-E45 Incubators and Culture Chambers, and onsite training and oversight. Our collaboration partners will provide staffing, space and the cell types being tested.
On September 9, 2010, we finalized a collaborative research agreement with the Fred Hutchison Cancer Research Center in Seattle, Washington. We started our joint research activities under this agreement in April 2011.
Plan of Operations
Our operations over the next 12 months will be limited by the amount of resources we are able to raise, and the willingness of our contractors and consultants to work for stock and stock option compensation. Accordingly, we have developed an Interim Operating Plan that may allow us to complete certain limited research and development activities while we pursue other sources to provide adequate funding to restart our business, such as grant funding for evaluations of our bioreactor device..
Our plan of operations under our Interim Operating Plan for the next 12 months is to:
(a)
perform the work specified by out Interim Operating Plan under recently executed contracts with our scientists and manufacturing consultants.
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(b)
apply for State and Federal research grants to develop specific configurations and applications of the bioreactor device.
(c)
support the beta testing of our bioreactor product as specified in our agreements with independent research laboratories to maximize the possibility that such labs will adopt our bioreactor technology to satisfy their cell expansion needs.
(d)
continue small scale manufacturing of our cell expansion culture chambers, as needed, to maintain an adequate supply of bioreactors for the academic and institutional research organizations with which we have beta testing collaboration agreements.
(e)
locate and occupy new office, lab and manufacturing space if required to execute our Interim Operating Plan.
Over the next 12 months we anticipate that we will require an aggregate of $700,000 in cash and stock-based compensation to cover expenses and debt service, including certain accounts payable, as follows:
(a)
$50,000 for facility and equipment related expenses;
(b)
$60,000 for debt service;
(c)
$120,000 for pre-clinical work, quality assurance, manufacturing of biologic material, academic collaborations and further research collaborations;
(d)
$80,000 for design and device manufacturing;
(e)
$150,000 for legal expenses related to general corporate matters, and accounting expenses related to quarterly reviews and annual audits;
(f)
$125,000 for salaries and consulting; and
(g)
$115,000 for general and administrative, travel, conferences and public relations.
During the next 12 to 18 months we anticipate that we will generate minimal non-recoverable engineering (NRE) service revenue and revenue from the sale and licensing of our incubator and bioreactor device technology. We presently do not have sufficient cash to fund our operations, and have curtailed substantially all activities, other than those called for by the execution of our Interim Operating Plan.
During the period covered by our Interim Operating Plan, we expect to fund our operations through a combination of the sale of excess laboratory equipment, the exercise of vested stock options by the holders of such options, the issuances of stock, including issuances of stock and stock options registered pursuant to an S-8 registration statement, as payment in-kind to our independent contractors, consultants and other service providers, and the issuance of convertible loans from current stockholders and other investors. We may also seek other forms of equity and debt financing. However, there is no certainty that we will be able to obtain these loans or
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investments on commercially reasonable terms or when needed, or that they will be sufficient to meet our cash requirements. Accordingly, we anticipate that we will require additional financing to enable us to pay our planned expenses and debt service for the next 12 months and pursue our plan of operations.
At this time, we cannot accurately estimate a date of transition from operating under our Interim Operating Plan to a state in which our operations will be funded by a combination of equity funding and cash provided from bioreactor and incubator sales. Further, there is no assurance that our research, product and device demonstration program will result in significant revenues, or that we will obtain the cash necessary to fund the Interim Operating Plan.
We cannot provide investors with any assurance that we will be able to raise sufficient funding from the issuance of promissory notes or the sale of our common stock to fund our business plan going forward. In the absence of such financing, our business plan will fail.
Results of Operations
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010.
The following table sets out our consolidated loss for the periods indicated:
| | |
| Three Months Ended
June 30, 2011 | Three Months
Ended
June 30, 2010 |
| (Unaudited) | (Unaudited) |
Revenues | $ — | $ — |
Operating Expenses | | |
Consulting | - | 500 |
General and administrative | 17,780 | 30,869 |
Professional fees | 33,769 | 61,351 |
Stock-based compensation | - | 45,500 |
Other Income (Expense) | (13,152) | (16,530) |
Net Loss | (64,701) | (154,750) |
Revenues
We have had no operating revenues since our inception on January 4, 2005 to June 30, 2011. We anticipate that we will not generate any revenues for so long as we are a development stage company.
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Consulting Fees
In the three months ended June 30, 2011, we had no consulting fees, compared to $500 for the same period of 2010, primarily due to the curtailment of nearly all activities and limited resources.
General and Administrative Expenses
Our general and administrative expenses in the three months ended June 30, 2011 decreased to $17,780 from $30,869 for the same period of 2010, primarily as a result of the curtailment of nearly all activities. General and administrative costs consist primarily of insurance expense and office lease costs.
Professional Fees
In the three months ended June 30, 2011, we incurred professional fees of $33,769, compared to $61,351 for the same period of 2010. The decrease is primarily related to a reduction in the activities of the contract accountants providing general operating support, and that audit fees and legal services have declined due to limited activities.
Stock-Based Compensation
In the three months ended June 30, 2011, we incurred no stock-based compensation expense, compared to stock-based compensation expense of $45,500 for the same period in 2010. Stock-based compensation was related to stock options granted to our directors and consultants. The cost of our stock-based compensation has been declining due to the decline in the market price of our stock, and that certain performance criteria within the stock-option awards have not yet been met.
Other Income (Expense)
In the three months ended June 30, 2011, other income (expense) was $(13,152), compared to $(16,350) for the same period in 2010. Other income (expense) consisted primarily of interest expense in 2011 and both interest expense and a loss on disposal of equipment in 2010.
Net Loss
As a result of the above, our net loss for the three months ended June 30, 2011 was $64,701, compared to $154,750 for the same period of 2010.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010.
The following table sets out our consolidated loss for the periods indicated:
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| | |
| Six Months Ended
June 30, 2011 | Six Months
Ended
June 30, 2010 |
| (Unaudited) | (Unaudited) |
Revenues | $ — | $ — |
Operating Expenses | | |
Consulting | - | 500 |
General and administrative | 34,228 | 65,073 |
Professional fees | 51,236 | 95,896 |
Stock-based compensation | - | 229,500 |
Other Income (Expense) | (24,080) | (26,723) |
Net Loss | (109,544) | (417,692) |
Revenues
We have had no operating revenues since our inception on January 4, 2005 to June 30, 2011. We anticipate that we will not generate any revenues for so long as we are a development stage company.
Consulting Fees
In the six months ended June 30, 2011, we had no consulting fees, compared to $500 for the same period of 2010, primarily due to the curtailment of nearly all activities and limited resources.
General and Administrative Expenses
Our general and administrative expenses in the six months ended June 30, 2011 decreased to $34,228 from $65,073 for the same period of 2010, primarily as a result of the curtailment of nearly all activities. General and administrative costs consist primarily of insurance expense and office lease costs.
Professional Fees
In the six months ended June 30, 2011, we incurred professional fees of $51,236, compared to $95,896 for the same period of 2010. The decrease is primarily related to a reduction in the activities of the contract accountants providing general operating support, and that audit fees and legal services have declined due to limited activities.
Stock-Based Compensation
In the six months ended June 30, 2011, we incurred no stock-based compensation expense compared to stock-based compensation expense of $229,500 for the same period in 2010. Stock-based compensation was related to stock options granted to our directors and consultants.
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Other Income (Expense)
In the six months ended June 30, 2011, other income (expense) was $(24,080), compared to $(26,723) for the same period in 2010. Other income (expense) consisted primarily of interest expense in 2011 and interest expense and loss on disposal of furniture and equipment in 2010.
Net Loss
As a result of the above, our net loss for the six months ended June 30, 2011 was $109,544, compared to $417,692 for the same period of 2010.
Liquidity and Capital Resources
As of June 30, 2011, we had no cash and a working capital deficit of $1,008,100. Our planned expenditures over the next 12 months are expected to amount to approximately $700,000 and will exceed our cash reserves and working capital. We presently do not have sufficient cash to fund our operations and have curtailed significantly all activities.
During the period covered by our Interim Operating Plan, we expect to fund our operations through a combination of the exercise of vested stock options by the holders of such options, the issuance of stock, including issuances of stock and stock options registered pursuant to an S-8 registration statement as payment in-kind to our independent contractors, consultants and other service providers, and the issuance of convertible loans from current stockholders and other investors. We anticipate that we will not require additional financing beyond the results of actions described above in order to pursue our operations under the Interim Operating Plan. Our business activities and plan of operations beyond the next 12 months will depend on the extent to which our bioreactor product is found to be a superior way for clinical research laboratories, with which we establish collaborative research agreements, to satisfy their cell expansion needs.
In the event that the testing under our collaborative research agreements is successful, our goal is to convert each of our collaboration partners into a paying customer. With each collaborating laboratory, there exists the potential for our bioreactor to become a component of some diagnostic or therapeutic procedure that could be licensed to a biopharmaceutical manufacturer. At this time, we do not have any definitive information from any of our collaboration partners as to the effectiveness of our bioreactor, so there is a risk that the tests will not be successful and that our Interim Operating Plan will fail.
We cannot provide investors with any assurance that we will be able to raise sufficient funding from the activities discussed above to fund our plan of operations going forward. In the absence of such financing, our business plan will fail. Even if we are successful in obtaining short-term financing, there is no assurance that we will obtain the funding necessary to pursue our business plan. If we do not continue to obtain additional financing going forward, we will be forced to abandon our plan of operations.
Cash Used in Operating Activities
Cash used in operating activities in the six months ended June 30, 2011 was $81,971, compared to $38,979 for the same period of 2010. In 2011 and 2010, operating activities used cash
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primarily for insurance, storage of our equipment, and payment to our outside auditors. We have funded our operations primarily from the sale of excess laboratory equipment, the issuance of convertible loans to stockholders, and from the issuance of our common stock. We expect to continue efforts to raise additional capital through these and other sources.
Cash Provided by Investing Activities
In the six months ended June 30, 2011, investing activities generated no cash compared to generating cash of $22,240 from the sale of excess equipment in the same period of 2010.
Cash Provided By Financing Activities
We have funded our business to date primarily from sales of our common stock, issuance of convertible promissory notes, and advances from our stockholders. In the six months ended June 30, 2011, we had net cash provided by financing activities of $81,971 related to advances under convertible promissory notes of $86,817, offset by payments on promissory notes of $4,846. Net cash provided by financing activities of $9,438 for the same period of 2010 was from advances under convertible promissory notes of $10,974, advances from our stockholders of $8,435, offset by payments on promissory notes of $9,971.
Going Concern
As shown in the accompanying financial statements and more fully detailed in our 2010 Annual Report on Form 10-K, we have incurred significant losses since inception and have not generated any revenues to date. The future of our company is dependent upon our ability to obtain sufficient financing and upon achieving future profitable operations. These factors, among others, raise substantial doubt about our company’s ability to continue as a going concern. The accompanying interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Future Financings
We anticipate continuing to rely on equity sales of our common stock and the issuance of convertible debt in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our business plan.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our historical financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
Use of Estimates
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
Income Taxes
We follow the provisions of FASB ASC 740, “Income Taxes”, under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The provisions of ASC 740 also require the recognition of future tax benefits such as net operating loss carry-forwards, to the extent that the realization of such benefits is more likely than not. To the extent that it is more likely than not that such benefits will not be received, we record a valuation allowance against the related deferred tax asset.
Intangible Assets
Our intangible assets primarily consist of patents and intellectual property, which are carried at the purchase price and/or the legal cost to obtain them less accumulated amortization. Patents and licenses are being amortized over their estimated useful lives, which range from seven to seventeen years. Annually these assets are reviewed for recoverability to determine if the carrying amount on the balance sheet is appropriate.
Research and Development Costs
Research and development costs are expensed as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset. We periodically review our capitalized intangible assets to assess recoverability based on the projected undiscounted cash flows from operations, and impairments are recognized in operating results when a permanent diminution in value occurs.
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Stock-Based Compensation
We account for our stock option plan primarily under the recognition and measurement principles of FASB ASC 718, “Compensation – Stock Compensation”. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed in ASC 718. We recorded no stock-based compensation expense during the six months ended June 30, 2011.
Recent Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”) (codified within ASC 820 “Fair Value Measurements and Disclosures”). ASU 2010-06 improves disclosures originally required under SFAS No. 157. ASU 2010-16 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this Accounting Standard Update on January 1, 2011 had no effect on the results of our operations or financial statement disclosures.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4.
Controls And Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Principal Executive Officer and Principal Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2011. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Accounting Officer, to allow timely decisions regarding required disclosures. Based on its evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our
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internal control over financial reporting. The Company has not begun remediation efforts to correct the previously disclosed material weakness (as defined in Rule 13a-15(d) under the Exchange Act) reported on the Company’s Form 10-K filed for the period ended December 31, 2010.
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PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
We are not currently a party to any legal proceedings.
Item 1A.
Risk Factors
Not Applicable.
Item 2.
Unregistered Sales of Equity Securities
We did not issue any shares of our common stock during the six month period ended June 30, 2011.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
[Removed and Reserved]
None.
Item 5.
Other Information
None.
Item 6.
Exhibits
The following exhibits are included with this Quarterly Report on Form 10-Q:
| |
Exhibit
Number | Description of Exhibit |
3.1 | Articles of Incorporation, as amended. Incorporated by reference to our Registration Statement on Form SB-2 filed on May 4, 2005. |
3.2 | Bylaws. Incorporated by reference to our Current Report on Form 8-K filed May 14, 2004. |
31.1 | Rule 13a-14(a)/15(d)-14(a) Certification of Principal Executive Officer. |
31.2 | Rule 13a-14(a)/15(d)-14(a) Certification of Principal Accounting Officer. |
32.1 | 18 U.S.C. Section 1350 Certification of Principal Executive Officer. |
32.2 | 18 U.S.C. Section 1350 Certification of Principal Accounting Officer. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
CELLCYTE GENETICS CORPORATION |
Dated: August 12, 2011. Per: |
/s/ “John M. Fluke, Jr.”
John M. Fluke, Jr. Interim Principal Executive Officer |
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