Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Jul. 31, 2014 | Sep. 10, 2014 | |
Document and Entity Information: | ' | ' |
Entity Registrant Name | 'ARROGENE, INC | ' |
Document Type | '10-Q | ' |
Document Period End Date | 31-Jul-14 | ' |
Amendment Flag | 'false | ' |
Entity Central Index Key | '0001403792 | ' |
Current Fiscal Year End Date | '--10-31 | ' |
Entity Common Stock, Shares Outstanding | ' | 21,375,860 |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
Entity Incorporation, Date of Incorporation | 7-Dec-06 | ' |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (July 31, 2014 unaudited) (USD $) | Jul. 31, 2014 | Oct. 31, 2013 | ||
Current assets: | ' | ' | ||
Cash and cash equivalents | $219,035 | $13,822 | ||
Prepaid expenses and deposit | 20,142 | 13,709 | ||
Debt offering costs | 92,968 | ' | ||
Total current assets | 332,145 | 27,531 | ||
Property and equipment, net | 928 | 1,705 | ||
Total assets | 333,073 | 29,236 | ||
Current liabilities: | ' | ' | ||
Accrued compensation | 220,690 | 85,280 | ||
Accrued research expenses payable to CSMC | 258,091 | 229,003 | ||
Accounts Payable and accrued expenses | 438,043 | 128,368 | ||
Bridge notes | 554,470 | [1] | ' | [1] |
Related party payables | 49,000 | 39,000 | ||
Convertible notes | 10,000 | 10,000 | ||
Total current liabilities | 1,530,294 | 491,651 | ||
Total liabilities | 1,530,294 | 491,651 | ||
STOCKHOLDERS' EQUITY (DEFICIT): | ' | ' | ||
Preferred stock | ' | [2] | ' | [2] |
Common stock | 2,138 | [3] | 2,135 | [4] |
Additional paid-in capital | 4,820,625 | 4,287,289 | ||
Retained Deficit | -6,019,984 | -4,751,839 | ||
Total stockholders' equity (deficit) | -1,197,221 | -462,415 | ||
Total liabilities and stockholders' equity (deficit) | $333,073 | $29,236 | ||
[1] | Less discount of $145,530 | |||
[2] | Preferred stock, $.0001 par value 10,000,000 shares authorized, none issued. | |||
[3] | Common stock, $.0001 par value; 100,000,000 shares authorized; 21,375,860 shares issued and outstanding. | |||
[4] | Common stock, $.0001 par value; 100,000,000 shares authorized; 21,350,860 shares issued and outstanding. |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets - Parenthetical (July 31, 2014 unaudited) (USD $) | Jul. 31, 2014 | Oct. 31, 2013 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ' | ' |
Preferred Stock, Par Value | $0.00 | $0.00 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 0 | 0 |
Common Stock, Par Value | $0.00 | $0.00 |
Common Stock, Shares Authorized | 100,000,000 | 100,000,000 |
Common Stock, Shares Issued | 21,375,860 | 21,375,860 |
Common Stock, Shares Outstanding | 21,350,860 | 21,350,860 |
Condensed_Statements_of_Operat
Condensed Statements of Operations (unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | Jul. 31, 2013 | |
OPERATING EXPENSES: | ' | ' | ' | ' |
Research and development | $82,497 | $132,592 | $271,449 | $317,084 |
General and administrative | 312,827 | 147,799 | 876,494 | 466,813 |
Operating Expenses | 395,324 | 280,391 | 1,147,943 | 783,897 |
Income (Loss) from operations | -395,324 | -280,391 | -1,147,943 | -783,897 |
OTHER INCOME (EXPENSE): | ' | ' | ' | ' |
Interest | -94,790 | -278 | -120,202 | -561 |
Other Income (expense) | -94,790 | -278 | -120,202 | -561 |
Net Income (Loss) | ($490,114) | ($280,669) | ($1,268,145) | ($784,458) |
Weighted Average Shares Outstanding, Basic and diluted | 21,375,860 | 21,350,860 | 21,370,457 | 21,289,358 |
Loss Per Share, Basic and diluted | ($0.02) | ($0.01) | ($0.06) | ($0.04) |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Stockholders' Equity (Deficit) - (Unaudited) (USD $) | Common Stock | APIC | Deficit Accumulated in Development Stage | Total |
Balances, Value at Oct. 31, 2013 | $2,135 | $4,287,289 | ($4,751,839) | ($462,415) |
Balances, Shares at Oct. 31, 2013 | 21,350,860 | ' | ' | ' |
Sale of Units at $1.00 per Unit, Value | 3 | 24,953 | ' | 24,956 |
Sale of Units at $1.00 per Unit, Shares | 25,000 | ' | ' | ' |
Stock option compensation expense | ' | 176,883 | ' | 176,883 |
Bridge Note Warrants | ' | 205,800 | ' | 205,800 |
Placement Agent warrants | ' | 35,700 | ' | 35,700 |
Contributed services | ' | 90,000 | ' | 90,000 |
Net Income (Loss) | ' | ' | -1,268,145 | -1,268,145 |
Balances, Value at Jul. 31, 2014 | $2,138 | $4,820,625 | ($6,019,984) | ($1,197,221) |
Balances, Shares at Jul. 31, 2014 | 21,375,860 | ' | ' | ' |
Condensed_Statements_of_Cash_F
Condensed Statements of Cash Flows (unaudited) (USD $) | 9 Months Ended | 84 Months Ended | ||||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' | ' | |||
Net Income (Loss) | ($1,268,145) | ($784,458) | ' | |||
Adjustments to reconcile Net Income (Loss) to net cash used in operating activities: | ' | ' | ' | |||
Amortization of debt placement costs and debt discount | 96,683 | ' | ' | |||
Share-based payment expense | 344,883 | ' | ' | |||
Contributed services | 90,000 | ' | ' | |||
Depreciation expense | 777 | 1,174 | ' | |||
(Increase) decrease in prepaid services and deposit | -6,433 | -7,402 | ' | |||
Increase (decrease) in other payables and accrued expenses | 316,174 | 204,700 | ' | |||
Net cash used in operating activities | -426,061 | -585,986 | ' | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' | ' | |||
Net proceeds from sale of Units | 24,956 | [1] | 227,645 | [1] | ' | [1] |
Net proceeds from sale of Bridge Notes | 606,318 | ' | ' | |||
Net cash provided by financing activities | 631,274 | 227,645 | ' | |||
Net increase (decrease) in cash | 205,213 | -358,341 | ' | |||
Cash and cash equivalents at the beginning of period | 13,822 | 539,727 | ' | |||
Cash and cash equivalents at the end of period | $219,035 | $181,386 | $219,035 | |||
[1] | At $1.00 per Unit |
Business_and_Overview
Business and Overview | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Business and Overview | ' |
(1) BUSINESS AND OVERVIEW | |
Arrogene, Inc. (“Arrogene” f/k/a SRKP 16, Inc.), was incorporated under the laws of the State of Delaware on December 7, 2006. On January 11, 2012, we consummated a reverse merger transaction (the “Reverse Merger”) with Arrogene Nanotechnology, Inc. (“ANI”), a company focused on oncology. Hereafter, SRKP 16, Inc., Arrogene and ANI are collectively referred to as the “Company.” Effective September 4, 2012, SRKP 16, Inc. officially changed its name to Arrogene, Inc. | |
The Company was founded to commercialize both new cancer treatments and imaging targeting technology as well as a proprietary molecular delivery platform that interferes with those targets in order to inhibit and finally eradicate tumor progression. The Company is the exclusive licensee to certain intellectual property rights owned by Cedars Sinai Medical Center (“CSMC”) in Los Angeles, one of the nation’s premiere research institutions (the “License”). CSMC has developed a family of related nano-biopolymers conjugates (collectively referred to here as Polycefin ), believed capable of acting as a drug delivery and targeting platform for cancer therapy and imaging. | |
We plan on commercializing our products using a licensing and cost sharing strategy, seeking to enter into arrangements with major pharmaceutical companies with existing cancer therapy drugs facing issues relating to patent expirations, market expansion or contraction. It is our goal to only commence later stage clinical trials with a commitment from a licensee to complete Phase II and III clinical trials, predicated on the successful outcome of each phase, and go to market, if approval is received. Further, we are also exploring use of Polycefin as a potential medical diagnostic product(s) for oncology related applications. We also have developed important related intellectual properties surrounding Laminin-411. Pre-clinical investigation is also on-going on methods of inhibiting Laminin-411 as a therapeutic agent, which could be conjugated in various forms of Polycefin in the future. | |
The majority, of our planned products will require approval or marketing clearance from the United States Food and Drug Administration (the “FDA”). To date we have not filed any applications with the FDA, but we have begun the process of validating our Laboratory Development Test (“LDT”) with applicable regulators. |
Going_Concern_Managements_Plan
Going Concern, Management's Plans and Basis of Presentation | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Going Concern, Management's Plans and Basis of Presentation | ' |
(2) GOING CONCERN, MANAGEMENT’S PLANS AND BASIS OF PRESENTATION | |
Going Concern and Management’s Plans | |
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since our inception in August 2007, we have not generated revenue, incurred operating losses, and as of July 31, 2014, had a retained deficit $6,019,984. Further, as of July 31, 2014, our cash balance was $219,035 and we had a working capital deficit of $1,198,149. These conditions raise substantial doubt about our ability to continue as a going concern. | |
During the nine months ended July 31, 2014, we sold $700,000 in Bridge Notes (defined below) receiving net proceeds of $606,318 after payment of offering expenses. Management believes that existing cash on hand will be sufficient to fund the Company’s planned activities through at least the end of our fiscal year. This assumes that we continue to defer payment of certain liabilities to our officers but allows for some payments to be made to CSMC for accrued research and development expenses. Additionally, certain key professionals such as legal counsel have also had payments deferred and the proceeds from the Bridge Notes will allow for some partial payments of these deferred balances but not payment in full. While these parties have continued to work with the Company despite this lack of payment, there is no assurance they will continue to do so, and the loss of a key management member, or the loss of CSMC as a research partner, could have a material adverse effect on the Company’s business prospects. | |
To raise sufficient capital to fund the Company’s business plan, we plan on filing a registration statement with the Securities and Exchange Commission (the “SEC”) for an initial public offering of the Company’s securities. No assurance can be given that this effort will be successful or adequately capitalize the Company. | |
In the event that we cannot raise sufficient capital within the required timeframe, it will have a material adverse effect on the Company’s liquidity, financial condition and business prospects or force the Company out of business. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from an inability of the Company to continue as a going concern. | |
Basis of Presentation | |
The accompanying condensed consolidated financial statements include the accounts of Arrogene and its wholly owned subsidiary ANI. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring entries), which in the opinion of management, are necessary to present fairly the financial position at July 31, 2014 and the results of operations and cash flows of the Company for the three and nine months ended July 31, 2014 and 2013. Operating results for the nine months ended July 31, 2014, are not necessarily indicative of the results that may be expected for the year ended October 31, 2014. | |
The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended October 31, 2013 filed on April 2, 2014. | |
Use of Estimates and Assumptions | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 reported periods. Actual results may differ from these estimates. | |
Adoption of New Accounting Pronouncement | |
In June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance (“ASU 2014-10”), which eliminates the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. Additionally, ASU 2014-10 eliminates the separate requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flow and shareholders’ equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. ASU 2014-10 is effective for fiscal years beginning after December 15, 2014 and interim periods therein, with early adoption permitted. The Company has adopted ASU 2014-10 effective with the filing of this Quarterly Report on Form 10-Q. |
License_Agreement
License Agreement | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
License Agreement | ' |
(3) LICENSE AGREEMENT | |
On December 23, 2009, we entered into an agreement for the right to an exclusive license agreement with CSMC which provides us with the world-wide rights to U.S Patents No. 7,547,511 “Antisense Inhibition of Laminin-8 Expression to Inhibit Human Gliomas”, No. 7,935,677, “Polymalic Acid-Based Multifunctional Drug Delivery System”, No. 8,309,614 “Poly (Beta Malic Acid) with Pendant Leu-Leu-Leu Tripeptide for Effective Cytoplasmic Drug Delivery”, and No. 8,562,964 along with various Japanese, EU and Asian related patents and applications, related technical information to develop, market and sell human therapeutic and diagnostic products, including new pharmaceutical products and/or non-prescriptive products using the patented technology (the “CSMC Agreement”). The CSMC Agreement has been amended five times; December 8, 2010, June 30, 2011, August 31, 2011, October 28, 2011, and December 30, 2013. The CSMC Agreement also provides us with the rights to several other related, filed, but yet unissued patents. The CSMC Agreement requires royalty payments equal to 3.5% of the gross sales price and other forms of consideration (such as milestone and sublicense payments), as defined in the agreement, on all products using the licensed technology. The CSMC Agreement expires on a country-by-country basis on the date that the last patent covered under the agreement expires (currently 2032). | |
The CSMC Agreement, as amended, requires us to achieve certain other milestones in order to maintain the agreement. These include the following: | |
· Begin development or enter into a joint venture, licensing or sub-licensing agreement, or other business arrangement with a third party not an affiliate of the Company to cause development of at least one product consistent with sound business practices by December 31, 2012; | |
· Expend at least $500,000 in the aggregate toward the development or promotion of the sale of products based on the licensed patent rights or technical information commencing from the effective date of the agreement and continuing through and including December 31, 2012, and at least $1,000,000 annually thereafter, for further development or promotion of the sale of products through and including December 31, 2013; | |
· Provide to CSMC at least $150,000 (in aggregate) within at least a four year period to fund research and development of the licensed patent rights and technical information; | |
· On or before December 31, 2014, the Company shall have commenced a clinical trial or trials in connection with at least one intended commercial use; | |
We believe that we have achieved the required milestones for the contractual periods ended December 31, 2013. It is management’s belief that administrative expenses incurred in support of the Company’s business activities meet the definition of “development and promotion” of the licensed technology. We can, however, provide no assurance that CSMC has concurred with our position and that we will be able to meet any or all of these milestones in the future. In the event that we fail to meet one or more of the milestones required by the CSMC Agreement, there is no assurance that CSMC will agree to amend or waive the requirements and we could lose the License. Additionally, as discussed further in Note 9, we have entered into a research and development agreement with CSMC that satisfies the milestone requirement described above regarding funded research at CSMC. However, in order to extend the Company’s cash on hand, we have been deferring payment to CSMC of our obligations under the agreement. During the second quarter of 2014 we resumed making payments to CSMC but our outstanding balance with them remains delinquent. To date, CSMC has continued to do work under the agreement despite our payment delays but no assurance can be provided that CSMC will continue to do so. As of July 31, 2014, we had an outstanding liability to CSMC of $258,091 which represents amounts owed for services provided by CSMC. | |
Further, in the event the Company issues or sells shares of common stock, the CSMC Agreement requires that the Company issue to CSMC additional shares of common stock for no additional consideration so as to assure CSMC will own 5% of the total issued and outstanding shares of the Company until December 31, 2015. |
Bridge_Notes
Bridge Notes | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Bridge Notes | ' |
(4) BRIDGE NOTES | |
During the nine months ended July 31, 2014, we sold an aggregate of $700,000 in bridge notes (the “Bridge Notes”), receiving net proceeds of $606,318 after payment of offering costs. The Bridge Notes are due and payable one year after the close of the offering (the “Maturity Date”), bear interest at 10% per annum, and are convertible into shares of our common stock at a conversion price of either (i) 50% of the price per share of our common stock as sold through a qualified initial public offering as defined in the terms of the Bridge Notes, or (ii) in the event a Qualified IPO has not taken place prior to the Maturity Date but there has otherwise developed a public trading market for the Company’s common stock, then the conversion price shall be 50% of the 30 day Volume Weighted Average Price per share as quoted on the over-the-counter market, or (iii) in the event a public trading market has not been established for our common stock prior to the Maturity Date, then the conversion price shall be $1.00 per share. Accrued and unpaid interest on the Bridge Notes will be payable in shares of common stock at the conversion price on the earlier of (i) the date of conversion of the Bridge Notes or (ii) the Maturity Date. Further, for every $1.00 of Bridge Note principal that an investor elects to convert into shares of common stock, the investor will receive one warrant (the “Bridge Note Warrant”). Each warrant shall be exercisable to purchase shares of common stock at a price equal to the conversion price of the Bridge Notes and shall have a life of 5 years from the close of the offering. If the investor elects not to convert their Bridge Notes prior to the Maturity Date, then the note holder will receive one warrant for every $2.00 in Bridge Note principal. | |
We evaluated the conversion feature of the Bridge Notes within the context of ASC 815 and determined that it did not meet the definition of an embedded derivative due to the Company having no active market for its common stock. We further evaluated the conversion feature of the Bridge Notes within the context of ASC 470-20 and determined that the Bridge Notes did not contain a beneficial conversion feature as the default conversion price of $1.00 per share is greater than the current fair value of the Company’s common stock based on the most recent price paid for the Units. | |
We evaluated the Bridge Note Warrants using the guidelines established by ASC 815 and determined that it did not meet the definition of a derivative due to the Company having no active market for its common stock. We valued these warrants at $205,800 using the Black-Scholes option pricing model which we recorded as debt discount with a corresponding increase to additional paid in capital using the following assumptions: expected life 5 years, risk free interest rate 1.69% and annualized volatility 78.9%. We are amortizing the debt discount over the life of the Bridge Notes. For the three and nine months ended July 31, 2014, we amortized $49,541 and $60,270, respectively, of debt discount which is included in interest expense on the accompanying condensed consolidated financial statements. | |
We are also obligated to issue to the placement agents warrants to acquire shares of common stock equal to 10% of the securities underlying the Bridge Notes and Bridge Note Warrants (the “PA Bridge Note Warrants”). The PA Bridge Note Warrants have a life of 5 years and are exercisable at the conversion price of the Bridge Notes and the exercise price of the Bridge Note Warrants, respectively. We evaluated the PA Bridge Note Warrants using the guidelines established by ASC 815 and determined that they did not meet the definition of a derivative due to the Company having no active trading market for its common stock. We valued the PA Bridge Note Warrants at $35,700 using the Black-Scholes pricing model using the following assumptions: expected life 5 years, risk free interest rate 1.69% and annualized volatility 78.9%. We recorded the PA Bridge Note Warrants as a debt offering cost on the accompanying condensed consolidated balance sheet. We are amortizing the PA Bridge Note Warrants over the life of the Bridge Notes. For the three and nine months ended July 31, 2014, we amortized $8,292 and $10,825, respectively, of PA Bridge Note Warrants which is included in interest expense on the accompanying condensed consolidated financial statements. | |
The effective rate of the Bridge Notes after taking into account the Bridge Note Warrants and PA Bridge Note Warrants is 44.5%. |
Convertible_Notes
Convertible Notes | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Convertible Notes | ' |
(5) CONVERTIBLE NOTES | |
Commencing October 2010 through April 2011, we sold in private transactions an aggregate of $726,550 of Convertible Notes. The Convertible Notes were initially convertible into shares of our common stock at $.30 per share (the “Conversion Price”). The Convertible Notes do not bear interest and were originally payable on October 19, 2011. The Convertible Notes are secured by a first lien security interest on all of our tangible and intangible assets. We did not repay the Convertible Notes by the maturity date and the notes were therefore technically in default. During the year ended October 31, 2012, agreed to reduce the conversion price of the Convertible Notes to $.15 per share. $10,000 of Convertible Notes remains outstanding as of July 31, 2014. On an as converted basis, as of July 31, 2014, the estimated value of the Convertible Notes exceeds the principal balance by $27,333. |
Stockholders_Equity
Stockholders' Equity | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Stockholders' Equity | ' |
(6) STOCKHOLDERS’ EQUITY | |
Common Stock | |
On August 29, 2013, we entered into an agreement for investor relation services that requires us to issue up to 400,000 shares of common stock as a component of the consideration for the services. The shares are issuable in 100,000 increments for each quarter of service rendered. We valued these shares at $224,000 using the Black-Scholes option-pricing model and are recognizing expense over the 12 months the services are being rendered. For the three months and nine months ended July 31, 2014, we recorded $56,000 and $168,000, respectively, of stock compensation expense which is included in general and administrative expense in the accompanying condensed consolidated statements of operations with a corresponding increase in accounts payable and other accrued expenses on the accompanying condensed consolidated balance sheet. | |
Units | |
During the nine months ended July 31, 2014 and 2013, we sold 25,000 and 260,000 units (the “Units”), respectively, for $1.00 per Unit, receiving net proceeds of $24,956 and $227,645, respectively. Each Unit consists of (i) one share of common stock, and (ii) two warrants with one warrant exercisable at $1.50 per share and one warrant exercisable at $2.00 per share. (the “Unit Warrants”). The Unit Warrants expire five years from the date of issuance. | |
Warrants | |
In connection with the sale of the Units during nine months ended July 31, 2013, the placement agents earned warrants to acquire 78,000 shares of common stock consisting of 26,000 warrants exercisable at $1.00 per share, 26,000 warrants exercisable at $1.50 per share and 26,000 warrants exercisable at $2.00 per share. Each warrant expires five years from the date of issuance. We valued these warrants at $17,160 using the Black Scholes option-pricing model. We recorded the warrants as a reduction to the net proceeds from the sale of the Units with a corresponding increase to additional paid in capital. The placement agents voluntarily agreed to forgo the earning of warrants in connection with the Unit sale that took place during the nine months ended July 31, 2014. | |
As of July 31, 2014, we had 6,358,358 warrants outstanding with weighted average remaining lives of 31 months and a weighted average exercise price of $1.44. | |
Stock Options | |
On November 1, 2013, we issued a non-statutory stock option to acquire up to 200,000 shares of common stock with an exercise price of $1.00 per share to a consultant for providing certain services as defined in the consulting agreement. The option expires 7 years from the date of grant. The options vest as follows: (i) as to 100,000 options, vesting shall occur 1/3 on each one year anniversary date of the consulting agreement (“Vesting 1”) and (ii) as to 100,000 options, vesting shall occur upon the closing of certain transactions as defined in the agreement at a rate of 2 stock options for each $100 received by the Company in a deal or transaction resulting from the efforts of the consultant (“Vesting 2”). We valued this option at $58,400 using the Black Scholes option-pricing model using the following assumptions: option life 5 years, risk free interest rate 1.37%, and annualized volatility of 78.9% based on a peer group of publicly traded common stocks. Stock options issued to non-employees are remeasured at each reporting date and the cumulative expense is adjusted based on the remeasured grant. We are recognizing expense for this option as the underlying services are provided, ratably over 36 months for Vesting 1, and upon the occurrence of a vesting event for Vesting 2. For the three and nine months ended July 31, 2014, we recognized $2,433 and $7,300, respectively, of expense for this option which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. | |
In April 2014, we issued stock options to acquire 1,200,000 shares of common stock to certain employees and consultants with an exercise price of $1.00 per share. The options expire 7 years from the date of grant. The options vest under terms ranging from immediately to 1/3 on each anniversary date from the date of grant. We valued these options at $352,800 using the Black Scholes option-pricing model using the following assumptions: option life 5 years, risk free interest rate 1.65%, and annualized volatility of 78.9% based on a peer group of publicly traded stocks. We are recognizing expense for these options over the respective vesting periods. For the three and nine months ended July 31, 2014, we recognized $56,066 and $169,583, respectively, of expense for these options which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. |
Earnings_loss_Per_Share
Earnings (loss) Per Share | 9 Months Ended | ||||||
Jul. 31, 2014 | |||||||
Notes | ' | ||||||
Earnings (loss) Per Share | ' | ||||||
(7) EARNINGS (LOSS) PER SHARE | |||||||
Earnings (loss) per share are calculated in accordance with the provisions of ASC 260 “Earnings Per Share” (“ASC 260”). Under ASC 260, basic earnings (loss) per share are computed by dividing the Company’s income (loss) by the weighted average number of common shares outstanding. The impact of any potentially dilutive securities is excluded. Diluted earnings per share are computed by dividing the Company’s income (loss) attributable to common shareholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. In calculating diluted earnings per share, we utilize the “treasury stock method” for all stock options and warrants and the “if converted method” for all other convertible securities. For all periods presented, the basic and diluted loss per share is the same as the impact of potential dilutive common shares is anti-dilutive. | |||||||
Warrants and convertible securities excluded from the calculation of diluted loss per share are as follows: | |||||||
Three and Nine Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Warrants | 6,358,358 | 5,422,858 | |||||
Stock options | 1,400,000 | — | |||||
Convertible debt* | 766,667 | 66,667 | |||||
Three and Nine Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Warrants | 6,358,358 | 5,422,858 | |||||
Stock options | 1,400,000 | — | |||||
Convertible debt* | 766,667 | 66,667 | |||||
*Assumes Bridge Note conversion price of $1.00 per share see Note 4 for conversion price calculations. |
Supplemental_Disclosure_of_Cas
Supplemental Disclosure of Cash Flow Information | 9 Months Ended | |||||||
Jul. 31, 2014 | ||||||||
Notes | ' | |||||||
Supplemental Disclosure of Cash Flow Information | ' | |||||||
(8) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for: | ||||||||
Nine Months Ended July 31, | ||||||||
2014 | 2013 | |||||||
Interest | $ | 435 | $ | 561 | ||||
Income taxes | — | — | ||||||
Related_Party_Transactions
Related Party Transactions | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Related Party Transactions | ' |
Related Party Transactions | |
Consulting Agreements | |
We have an agreement with an entity controlled by our chief executive officer for his part-time personal services as CEO. The agreement is referred to as the Synthetica Agreement. In December 2013, the Synthetica Agreement was amended so that the compensation paid for the services of our CEO is capped at $1 per annum effective January 1, 2014. However, our chief executive may request that his compensation revert back to the original terms of the Synthetica Agreement with 30 days written notice. Under the original terms, there was no monthly retainer or minimum billing amount but the maximum that could be charged to us in any given month was $15,000. During the three and nine months ended July 31, 2014, we were billed $0 and $20,000, respectively, under the Synthetica Agreement. During the three and nine months ended July 31, 2013, we were billed $33,900 and $117,600, respectively, under the Synthetica Agreement. At July 31, 2014 and October 31 2013, $67,600 and $47,600, respectively, is included in accrued compensation on the accompanying condensed consolidated balance sheets resulting from a voluntary deferral of fees due under the agreement, agreed to by Synthetica to allow the Company to optimize its cash flow. | |
In September 2010, we entered into a business and financial consulting agreement with an entity controlled by our Board chairman for operational consulting services. The agreement was for an initial term of 12 months with an automatic 12 month renewal period unless terminated by either party upon 30 days written notice. The agreement is now on a month-to-month basis. There is no monthly retainer or minimum billing amount but the maximum that can be billed to us in a given month cannot exceed $10,000. Effective January 2014, the fees for this agreement were capped at $1.00 per year. During the three and nine months ended July 31, 2014, we were charged $0 and $10,000, respectively, under this agreement. During the three and nine months ended July 31, 2013, we were charged $20,100 and $75,100, respectively, under this agreement which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. At July 31, 2014 and October 31, 2013, $49,000 and $39,000, respectively, is included in related party payables on the accompanying condensed consolidated balance sheets resulting from a voluntary deferral of fees due under the agreement, agreed to by our Board chairman, to allow the Company to optimize its cash flow. | |
Contributed Services | |
As discussed above, effective January 1, 2014, the Company’s chief executive officer and Board chairman began to provide their services for $1 per year. The fair value of those services has been recorded as an expense in the accompanying condensed consolidated financial statements based on the estimated fair value for such services, with a corresponding credit to additional paid in capital. The fair value of the services was estimated based on the terms of the respective agreements prior to January 1, 2014. Contributed services were $45,000 and $90,000, respectively, for the three and nine months ended July 31, 2014. | |
CSMC | |
Certain founders and directors of the Company are employees of CSMC. These individuals are also the inventors of the Polycefin technology and are primarily responsible for its development. As described further in Note 3 above, we have an exclusive license agreement with CSMC for this technology. | |
The License requires royalty payments equal to 3.5% of the gross sales price and other forms of consideration (such as milestone and sublicense payments), as defined in the agreement, on all products using the licensed technology. The License also requires us to achieve certain milestones as described in Note 3. | |
In December 2012, we entered into an agreement with CSMC to support certain activities within the laboratory necessary to prepare compounds. For the three and nine months ended July 31, 2014, we were charged $38,625 and $142,087, respectively, by CSMC under this agreement which is included in research and development costs on the accompanying condensed consolidated statements of operations. For the three and nine months ended July 31, 2013, we were charged $87,000 and $195,884, respectively, by CSMC under this agreement. As of July 31, 2014, $258,091 is reflected as payable on the accompanying condensed consolidated balance sheets. Work under the agreement concluded during the three months ended July 31, 2014. As discussed in Note 3, we have deferred payments under this agreement in order to extend our cash balance. |
Commitments_and_Contingencies
Commitments and Contingencies | 9 Months Ended | |||
Jul. 31, 2014 | ||||
Notes | ' | |||
Commitments and Contingencies | ' | |||
Commitments and Contingencies | ||||
Litigation | ||||
From time to time, we may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management would provide for them if upon the advice of counsel, losses are determined to be both probable and estimable. We are currently not party to any litigation. | ||||
Office Lease | ||||
We have a lease agreement for office space with a third party (the “Office Lease”) that expires on May 31, 2015. For the three month periods ended July 31, 2014 and 2013, we recorded $9,434 and $10,950, respectively, of rent expense under the Office Lease which is included in general and administrative expense on the accompanying condensed consolidated statements of operations. For the nine months ended July 31, 2014 and 2013, we recorded $31,880 and $30,392, respectively, of rent expense under the Office Lease. | ||||
Commitments under non-cancelable operating leases are as follows as of July 31, 2014: | ||||
Year Ended October 31, | ||||
2014 | $ 8,100 | |||
2015 | 10,800 | |||
$ 18,900 | ||||
Subsequent_Events
Subsequent Events | 9 Months Ended |
Jul. 31, 2014 | |
Notes | ' |
Subsequent Events | ' |
(10) SUBSEQUENT EVENTS | |
In August 2014, Dr. Randolphe Swenson, Jr. was elected to serve as a member of the Board of Directors. In consideration of his agreement to serve as a member of the Board of Directors, the Company granted to Dr. Swenson non-qualified options to purchase for five (5) years 50,000 shares of common stock at an exercise price of $1.00 per share, which options are deemed immediately vested. | |
The Company also entered into a Consultation and Securities Compensation Agreement between the Company, on the one hand and Dr. Swenson, pursuant to which Dr. Swenson was engaged to serve as a consultant to the Company for a term of six (6) months, to oversee and supervise an executive search to recruit a new CEO under the direction and supervision of the Board of Directors. | |
Pursuant to the Consultation and Securities Compensation Agreement and in consideration of his services as a consultant to conduct a CEO recruitment search, the Company (i) granted to Dr. Swenson non-qualified stock options exercisable for five (5) years to purchase an aggregate of 25,000 shares of common stock at an exercise price of $1.00, and (ii) conditioned on the Company successfully engaging a new CEO on terms acceptable to the Board of Directors during the term of Mr. Swenson’s consultancy, in its sole discretion, agreed to grant to Mr. Swenson additional non-qualified stock options exercisable for five (5) years to purchase an additional 35,000 shares of common stock at an exercise price of $1.00 per share. All of such options will be fully vested and exercisable upon grant. |
Going_Concern_Managements_Plan1
Going Concern, Management's Plans and Basis of Presentation: Going Concern and Management's Plans (Policies) | 9 Months Ended |
Jul. 31, 2014 | |
Policies | ' |
Going Concern and Management's Plans | ' |
Going Concern and Management’s Plans | |
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since our inception in August 2007, we have not generated revenue, incurred operating losses, and as of July 31, 2014, had a retained deficit $6,019,984. Further, as of July 31, 2014, our cash balance was $219,035 and we had a working capital deficit of $1,198,149. These conditions raise substantial doubt about our ability to continue as a going concern. | |
During the nine months ended July 31, 2014, we sold $700,000 in Bridge Notes (defined below) receiving net proceeds of $606,318 after payment of offering expenses. Management believes that existing cash on hand will be sufficient to fund the Company’s planned activities through at least the end of our fiscal year. This assumes that we continue to defer payment of certain liabilities to our officers but allows for some payments to be made to CSMC for accrued research and development expenses. Additionally, certain key professionals such as legal counsel have also had payments deferred and the proceeds from the Bridge Notes will allow for some partial payments of these deferred balances but not payment in full. While these parties have continued to work with the Company despite this lack of payment, there is no assurance they will continue to do so, and the loss of a key management member, or the loss of CSMC as a research partner, could have a material adverse effect on the Company’s business prospects. | |
To raise sufficient capital to fund the Company’s business plan, we plan on filing a registration statement with the Securities and Exchange Commission (the “SEC”) for an initial public offering of the Company’s securities. No assurance can be given that this effort will be successful or adequately capitalize the Company. | |
In the event that we cannot raise sufficient capital within the required timeframe, it will have a material adverse effect on the Company’s liquidity, financial condition and business prospects or force the Company out of business. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from an inability of the Company to continue as a going concern. |
Going_Concern_Managements_Plan2
Going Concern, Management's Plans and Basis of Presentation: Basis of Presentation (Policies) | 9 Months Ended |
Jul. 31, 2014 | |
Policies | ' |
Basis of Presentation | ' |
Basis of Presentation | |
The accompanying condensed consolidated financial statements include the accounts of Arrogene and its wholly owned subsidiary ANI. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring entries), which in the opinion of management, are necessary to present fairly the financial position at July 31, 2014 and the results of operations and cash flows of the Company for the three and nine months ended July 31, 2014 and 2013. Operating results for the nine months ended July 31, 2014, are not necessarily indicative of the results that may be expected for the year ended October 31, 2014. | |
The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended October 31, 2013 filed on April 2, 2014. |
Going_Concern_Managements_Plan3
Going Concern, Management's Plans and Basis of Presentation: Use of Estimates and Assumptions (Policies) | 9 Months Ended |
Jul. 31, 2014 | |
Policies | ' |
Use of Estimates and Assumptions | ' |
Use of Estimates and Assumptions | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 reported periods. Actual results may differ from these estimates. |
Earnings_loss_Per_Share_Schedu
Earnings (loss) Per Share: Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Tables) | 9 Months Ended | ||||||
Jul. 31, 2014 | |||||||
Tables/Schedules | ' | ||||||
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | ' | ||||||
Three and Nine Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Warrants | 6,358,358 | 5,422,858 | |||||
Stock options | 1,400,000 | — | |||||
Convertible debt* | 766,667 | 66,667 | |||||
Three and Nine Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Warrants | 6,358,358 | 5,422,858 | |||||
Stock options | 1,400,000 | — | |||||
Convertible debt* | 766,667 | 66,667 | |||||
Supplemental_Disclosure_of_Cas1
Supplemental Disclosure of Cash Flow Information: Schedule of Cash Flow, Supplemental Disclosures (Tables) | 9 Months Ended | |||||||
Jul. 31, 2014 | ||||||||
Tables/Schedules | ' | |||||||
Schedule of Cash Flow, Supplemental Disclosures | ' | |||||||
Nine Months Ended July 31, | ||||||||
2014 | 2013 | |||||||
Interest | $ | 435 | $ | 561 | ||||
Income taxes | — | — | ||||||
Commitments_and_Contingencies_
Commitments and Contingencies: Schedule of Commitments under non-cancelable operating leases (Tables) | 9 Months Ended | |||
Jul. 31, 2014 | ||||
Tables/Schedules | ' | |||
Schedule of Commitments under non-cancelable operating leases | ' | |||
Year Ended October 31, | ||||
2014 | $ 8,100 | |||
2015 | 10,800 | |||
$ 18,900 | ||||
Business_and_Overview_Details
Business and Overview (Details) | 9 Months Ended |
Jul. 31, 2014 | |
Entity Incorporation, Date of Incorporation | 7-Dec-06 |
Arrogene Nanotechnology, Inc. | ' |
Business Acquisition, Effective Date of Acquisition | 'January 11, 2012 |
Business Acquisition, Name of Acquired Entity | 'Arrogene Nanotechnology, Inc. (“ANI”) |
Business Acquisition, Description of Acquired Entity | 'a company focused on oncology |
Going_Concern_Managements_Plan4
Going Concern, Management's Plans and Basis of Presentation: Going Concern and Management's Plans (Details) (USD $) | 9 Months Ended | |||
Jul. 31, 2014 | Oct. 31, 2013 | Jul. 31, 2013 | Oct. 31, 2012 | |
Details | ' | ' | ' | ' |
Revenue since inception | $0 | ' | ' | ' |
Deficit accumulated during development stage | 6,019,984 | ' | ' | ' |
Cash and cash equivalents | $219,035 | $13,822 | $181,386 | $539,727 |
Bridge_Notes_Details
Bridge Notes (Details) (USD $) | 9 Months Ended |
Jul. 31, 2014 | |
Details | ' |
Bridge Notes, Aggregate sold | $700,000 |
Bridge Notes, Net Proceeds | $606,318 |
Bridge_Notes_Bridge_Note_Warra
Bridge Notes: Bridge Note Warrants (Details) (USD $) | 3 Months Ended | 9 Months Ended |
Jul. 31, 2014 | Jul. 31, 2014 | |
Bridge Notes, Debt Discount Amortized | $49,541 | $60,270 |
Bridge Note Warrants | ' | ' |
Assets, Fair Value Disclosure | $205,800 | $205,800 |
Fair Value Measurements, Valuation Techniques | ' | 'Black-Scholes option pricing model |
Fair Value Assumptions, Expected Term | ' | '5 years |
Fair Value Assumptions, Risk Free Interest Rate | ' | 1.69% |
Fair Value Assumptions, Expected Volatility Rate | ' | 78.90% |
Bridge_Notes_PA_Bridge_Note_Wa
Bridge Notes: PA Bridge Note Warrants (Details) (USD $) | 3 Months Ended | 9 Months Ended |
Jul. 31, 2014 | Jul. 31, 2014 | |
PA Bridge Note Warrants, Debt Discount Amortized | $8,292 | $10,825 |
PA Bridge Note Warrants | ' | ' |
Assets, Fair Value Disclosure | $35,700 | $35,700 |
Fair Value Measurements, Valuation Techniques | ' | 'Black-Scholes pricing model |
Fair Value Assumptions, Expected Term | ' | '5 years |
Fair Value Assumptions, Risk Free Interest Rate | ' | 1.69% |
Fair Value Assumptions, Expected Volatility Rate | ' | 78.90% |
Convertible_Notes_Details
Convertible Notes (Details) (Convertible Debt, USD $) | 9 Months Ended |
Jul. 31, 2014 | |
Convertible Debt Outstanding | $10,000 |
October 2010 through April 2011 | ' |
Net proceeds from sale of Convertible Notes | $726,550 |
Debt Instrument, Convertible, Terms of Conversion Feature | 'The Convertible Notes were initially convertible into shares of our common stock at $.30 per share (the “Conversion Price”). |
Debt Conversion, Converted Instrument, Type | 'shares of our common stock |
Debt Instrument, Interest Rate Terms | 'Convertible Notes do not bear interest |
Debt Instrument, Payment Terms | 'originally payable on October 19, 2011 |
Stockholders_Equity_Details
Stockholders' Equity (Details) (USD $) | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | Jul. 31, 2014 | Jul. 31, 2014 | Jul. 31, 2014 | Jul. 31, 2014 | |
Common Stock | Common Stock | Common Stock Purchase Warrants | Stock options | Stock options | |||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value | ' | ' | ' | $224,000 | $17,160 | ' | $58,400 |
Allocated Share-based Compensation Expense | ' | ' | 56,000 | 168,000 | ' | 2,433 | 7,300 |
Sale of Units, Shares | 25,000 | 260,000 | ' | ' | ' | ' | ' |
Sale of Units, price per unit | $1 | $1 | ' | ' | ' | ' | ' |
Sale of Units, Value | $24,956 | $227,645 | ' | ' | ' | ' | ' |
Fair Value Assumptions, Expected Term | ' | ' | ' | ' | ' | ' | '5 years |
Fair Value Assumptions, Risk Free Interest Rate | ' | ' | ' | ' | ' | ' | 1.37% |
Fair Value Assumptions, Expected Volatility Rate | ' | ' | ' | ' | ' | ' | 78.90% |
Earnings_loss_Per_Share_Schedu1
Earnings (loss) Per Share: Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) | 3 Months Ended | 9 Months Ended | ||||||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | Jul. 31, 2013 | |||||
Warrants | ' | ' | ' | ' | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 6,358,358 | 5,422,858 | 6,358,358 | 5,422,858 | ||||
Stock options | ' | ' | ' | ' | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 1,400,000 | ' | 1,400,000 | ' | ||||
Convertible Debt | ' | ' | ' | ' | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 766,667 | [1] | 66,667 | [1] | 766,667 | [1] | 66,667 | [1] |
[1] | Assumes Bridge Note conversion price of $1.00 per share see Note 4 for conversion price calculations. |
Supplemental_Disclosure_of_Cas2
Supplemental Disclosure of Cash Flow Information: Schedule of Cash Flow, Supplemental Disclosures (Details) (USD $) | 9 Months Ended | |
Jul. 31, 2014 | Jul. 31, 2013 | |
Details | ' | ' |
Interest Paid | $435 | $561 |
Related_Party_Transactions_Con
Related Party Transactions: Consulting Agreements (Details) (USD $) | Jul. 31, 2014 | Oct. 31, 2013 | Jul. 31, 2014 | Oct. 31, 2013 | Jul. 31, 2014 | Oct. 31, 2013 | Jul. 31, 2014 |
Synthetica, Ltd | Synthetica, Ltd | Entity controlled by Board chairman | Entity controlled by Board chairman | Entity controlled by Board chairman | |||
Sep-10 | |||||||
AccruedCompensation | ' | ' | $67,600 | $47,600 | ' | ' | ' |
Related Party Transaction, Description of Transaction | ' | ' | ' | ' | ' | ' | 'In September 2010, we entered into a business and financial consulting agreement with an entity controlled by our Board chairman for operational consulting services. |
Related party payables | $49,000 | $39,000 | ' | ' | $49,000 | $39,000 | ' |
Related_Party_Transactions_Det
Related Party Transactions (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | Jul. 31, 2013 | |
Research and development | $82,497 | $132,592 | $271,449 | $317,084 |
CSMC | ' | ' | ' | ' |
Research and development | 38,625 | 87,000 | 142,087 | 195,884 |
Accounts Payable, Related Parties, Current | $258,091 | ' | $258,091 | ' |
Commitments_and_Contingencies_1
Commitments and Contingencies (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Jul. 31, 2014 | Jul. 31, 2013 | Jul. 31, 2014 | Jul. 31, 2013 | |
Details | ' | ' | ' | ' |
Operating Leases, Rent Expense | $9,434 | $10,950 | $31,880 | $30,392 |
Commitments_and_Contingencies_2
Commitments and Contingencies: Schedule of Commitments under non-cancelable operating leases (Details) (USD $) | Jul. 31, 2014 |
Commitments under non-cancelable operating leases | $18,900 |
Year ending October 31, 2014 | ' |
Commitments under non-cancelable operating leases | 8,100 |
Year ending October 31, 2015 | ' |
Commitments under non-cancelable operating leases | $10,800 |
Subsequent_Events_Details
Subsequent Events (Details) | 9 Months Ended |
Jul. 31, 2014 | |
Details | ' |
Subsequent Event, Description | 'Dr. Randolphe Swenson, Jr. was elected to serve as a member of the Board of Directors |