UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended September 30, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 000-53486
ENOX BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
Nevada 26-0477124
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
303-1687 W. Broadway, Vancouver BC
V6J 1X2 Canada
(Address of principal executive offices)(Zip code)
Tel: +1 (604) 637-9744
Fax: +1 (888) 224-7259
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The issuer has 13,272,920 shares of common stock outstanding as of November 15,
2010.
ENOX BIOPHARMA, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Balance Sheets as of September 30, 2010 (Unaudited) and
December 31, 2009 3
Statements of Operations for the Three and Nine Months Ended September
30, 2010 and 2009, and from June 28, 2007 (Inception) through
September 30, 2010 (Unaudited) 4
Statements of Cash Flows for the Nine Months Ended September 30, 2010
and 2009, and from June 28, 2007 (Inception) through
September 30, 2010 (Unaudited) 5
Notes to the Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 17
ITEM 3. QUANTATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 20
ITEM 3. DEFAULTS IN SENIOR SECURITIES 20
ITEM 4. REMOVED AND RESERVED 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Enox Biopharma, Inc.
(A Development Stage Company)
Balance Sheets
September 30, December 31,
2010 2009
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 408,124 $ 234,076
Prepaid expenses -- 16,333
------------ ------------
TOTAL CURRENT ASSETS 408,124 250,409
EQUIPMENT - NET 16,194 1,144
------------ ------------
TOTAL ASSETS $ 424,318 $ 251,553
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 180,755 $ 1,400
Loan payable - related party 100,000 --
Derivative liability - warrants 71,996 --
------------ ------------
TOTAL CURRENT LIABILITIES 352,751 1,400
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, ($0.0001 par value, 50,000,000 shares authorized,
no shares outstanding) -- --
Common stock, ($0.0001 par value, 100,000,000 shares authorized,
13,272,920 and 12,829,587 issued and outstanding) 1,330 1,283
Additional paid in capital 1,667,700 844,898
Deficit accumulated during the development stage (1,597,463) (596,028)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 71,567 250,153
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 424,318 $ 251,553
============ ============
See accompanying notes to financial statements
3
Enox Biopharma, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
June 28, 2007
(Inception)
Three months Ended Nine months Ended through
September 30, September 30, September 30,
2010 2009 2010 2009 2010
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administrative $ 254,048 $ 95,004 $ 717,564 $ 141,375 $ 922,219
Research and development 74,202 30,500 211,875 78,537 603,251
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 328,251 125,504 929,440 219,912 1,525,469
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (328,251) (125,504) (929,440) (219,912) (1,525,469)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Derivative expense (60,500) -- (75,641) -- (75,641)
Change on fair value of derivative
liabilities 3,398 -- 3,645 -- 3,645
----------- ----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (57,102) -- (71,996) -- (71,996)
----------- ----------- ----------- ----------- -----------
NET LOSS $ (385,352) $ (125,504) $(1,001,435) $ (219,912) $(1,597,464)
=========== =========== =========== =========== ===========
Net loss per common share -
basic and diluted $ (0.03) $ (0.01) $ (0.08) $ (0.02) $ (0.15)
=========== =========== =========== =========== ===========
Weighted average number of common
shares outstanding during the period -
basic and diluted 13,185,275 11,491,963 12,950,277 11,298,004 10,849,684
=========== =========== =========== =========== ===========
See accompanying notes to financial statements
4
Enox Biopharma, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
June 28, 2007
(Inception)
Nine months Ended through
September 30, September 30,
2010 2009 2010
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,001,435) $ (219,912) $ (1,597,464)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,240 816 3,936
Share based payments 374,633 67,500 426,198
Derivative expense 75,641 -- 75,641
Change in fair value of derivative liabilities (3,645) -- (3,645)
Issuance of warrants for intelectual property 52,960 -- 52,960
Changes in operating assets and liabilities:
Accounts payable 179,356 (6,819) 180,755
Prepaid expenses 16,333 16,351 --
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (304,917) (142,064) (861,619)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of patent costs -- (17,804) --
Purchase of equipment (16,290) -- (20,130)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (16,290) (17,804) (20,130)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan payable - related party 100,000 -- 100,000
Proceeds from issuance of common stock and warrants 248,755 110,000 864,673
Proceeds from exercise of warrants 146,500 -- 325,201
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 495,255 110,000 1,289,874
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 174,048 (49,868) 408,125
CASH - BEGINNING OF PERIOD 234,076 103,730 --
------------ ------------ ------------
CASH - END OF PERIOD $ 408,124 $ 53,862 $ 408,125
============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ -- $ --
============ ============ ============
Interest $ 4,000 $ -- $ --
============ ============ ============
See accompanying notes to financial statements
5
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
NOTE 1 NATURE OF OPERATIONS
Enox Biopharma, Inc. (the "Company" or "Enox") was organized and incorporated
under the laws of the State of Nevada on June 28, 2007. The Company is focusing
on the development and commercialization of advanced Nitric Oxide technologies
for a variety of medical uses. Enox's patented platform technology can be
utilized across a wide spectrum of applications ranging from the treatment of
upper respiratory tract infections, prevention of hospital acquired infections,
innovative solutions to assist in the prevention of the common cold and to
protect people from a diverse array of life threatening and drug resistant
infections. The Company has not yet received required approvals to commercially
sell any of its products that are in development.
NOTE 2 BASIS OF PRESENTATION
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the United States
Securities and Exchange Commission for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
The financial information as of December 31, 2009 is derived from the audited
financial statements presented in the Company's Annual Report on Form 10-K for
the year ended December 31, 2009. The unaudited condensed interim financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K, which contains the audited financial statements and notes thereto,
together with the Management's Discussion and Analysis, for the year ended
December 31, 2009.
Certain information or footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission for interim
financial reporting. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position,
results of operations, or cash flows. It is management's opinion, however, that
all material adjustments (consisting of normal recurring adjustments) have been
made which are necessary for a fair financial statement presentation. The
interim results for the period ended September 30, 2010 are not necessarily
indicative of results for the full fiscal year.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE
The Company's financial statements are presented as those of a development stage
enterprise. Activities during the development stage primarily include equity
based financing and further implementation of the business plan.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
6
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
statements and accompanying notes. Such estimates and assumptions impact, among
others, the following: the fair value of options and warrants granted as
compensation, estimates of the probability and potential magnitude of contingent
liabilities and the valuation allowance for deferred tax assets due to
continuing operating losses.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the consolidated
financial statements, which management considered in formulating its estimate
could change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from our estimates.
RISKS AND UNCERTAINTIES
The Company's operations are subject to significant risk and uncertainties
including financial, operational, technological, and regulatory risks including
the potential risk of business failure. Also see Note 3 regarding going concern
matters.
RESEARCH AND DEVELOPMENT
Research and development is expensed as incurred.
SHARE-BASED PAYMENTS
Generally, all forms of share-based payments, including stock option grants,
restricted stock grants and stock appreciation rights are measured at their fair
value on the awards' grant date, based on the estimated number of awards that
are ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded in cost of goods sold or general and administrative expense in the
consolidated statement of operations, depending on the nature of the services
provided.
DERIVATIVE FINANCIAL INSTRUMENTS
Fair value accounting requires bifurcation of embedded derivative instruments
such as conversion features in convertible debt or equity instruments, and
measurement of their fair value for accounting purposes. In determining the
appropriate fair value, the Company uses the Black-Scholes option-pricing model.
In assessing the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt and further if
there is a beneficial conversion feature requiring measurement. If the
instrument is not considered conventional convertible debt, the Company will
continue its evaluation process of these instruments as derivative financial
instruments.
Once determined, the derivative liabilities are adjusted to reflect fair value
at each reporting period end, with any increase or decrease in the fair value
being recorded in results of operations as an adjustment to fair value of
derivatives. In addition, the fair value of freestanding derivative instruments
7
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
such as warrants, are also valued using the Black-Scholes option-pricing model.
At September 30, 2010 and December 31, 2009, respectively, the Company had
derivative liabilities in the amounts of $71,996 and $0, respectively.
EARNINGS PER SHARE
In accordance with accounting guidance now codified as FASB ASC Topic 260,
"EARNINGS PER SHARE," basic earnings (loss) per share is computed by dividing
net income (loss) by weighted average number of shares of common stock
outstanding during each period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding
during the period.
The Company had the following potential common stock equivalents at September
30, 2010 and December 31, 2009:
September 30, 2010 December 31, 2009
------------------ -----------------
Warrants 780,753 1,005,586
Options 854,416 --
--------- ---------
Total common stock equivalents 1,635,169 1,005,586
========= =========
Since the Company reflected a net loss in for the periods ended September 30,
2010 and 2009, respectively, the effect of considering any common stock
equivalents, if outstanding, would have been anti-dilutive. A separate
computation of diluted earnings (loss) per share is not presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2010-06, "IMPROVING DISCLOSURES ABOUT FAIR VALUE
MEASUREMENTS ("ASU 2010-06"). ASU 2010-06 amends ASC 820, "FAIR VALUE
MEASUREMENTS" ("ASC 820") to require a number of additional disclosures
regarding fair value measurements. The amended guidance requires entities to
disclose the amounts of significant transfers between Level 1 and Level 2 of the
fair value hierarchy and the reasons for these transfers, the reasons for any
transfers in or out of Level 3, and information in the reconciliation of
recurring Level 3 measurements about purchases, sales, issuances and settlements
on a gross basis. The ASU also clarifies the requirement for entities to
disclose information about both the valuation techniques and inputs used in
estimating Level 2 and Level 3 fair value measurements. The amended guidance was
effective for financial periods beginning after December 15, 2009, except the
requirement to disclose Level 3 transactions on a gross basis, which becomes
effective for financial periods beginning after December 15, 2010. ASU 2010-06
did not have a significant effect on the Company's consolidated financial
position or results of operations.
In April 2010, FASB issued ASU No. 2010-17, Revenue Recognition -- Milestone
Method (Topic 605): Milestone Method of Revenue Recognition. ASU No. 2010-17
codifies the consensus reached in Emerging Issues Task Force Issue No. 08-9,
"Milestone Method of Revenue Recognition." ASU No. 2010-17 provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
8
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
transactions. Consideration that is contingent on achievement of a milestone in
its entirety may be recognized as revenue in the period in which the milestone
is achieved only if the milestone is judged to meet certain criteria to be
considered substantive. Milestones should be considered substantive in their
entirety and may not be bifurcated. An arrangement may contain both substantive
and non-substantive milestones, and each milestone should be evaluated
individually to determine if it is substantive. ASU No. 2010-17 is effective on
a prospective basis for milestones achieved in fiscal years, and interim periods
within those years, beginning on or after June 15, 2010. Early adoption is
permitted. The Company does not expect the adoption of this ASU to have a
material impact on its results of operations or financial condition.
NOTE 4 GOING CONCERN
As reflected in the accompanying financial statements, the Company has a net
loss of $1,001,435 and net cash used in operations of $304,917 for the nine
months ended September 30, 2010. The Company is in the development stage and has
not generated any revenues.
The ability of the Company to continue its operations is dependent on
Management's plans, which include the raising of capital through debt and/or
equity markets with some additional funding from other traditional financing
sources, including term notes, until such time that funds provided by operations
are sufficient to fund working capital requirements. The Company may need to
incur additional liabilities with certain related parties to sustain the
Company's existence.
The Company will require additional funding to finance the growth of its current
and expected future operations as well as to achieve its strategic objectives.
The Company believes its current available cash along with anticipated revenues
may be insufficient to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms acceptable to the
Company, if at all.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 5 LOANS PAYABLE RELATED PARTY
In May 2010, the Company executed a loan with its founder and president for
$100,000. The loan bears interest at 12%, is unsecured and due May 15, 2011. The
amount of principal and interest outstanding as of September 30, 2010 was
$100,000.
NOTE 6 DERIVATIVE LIABILITY
On June 23, 2010 and August 12, 2010, the Company issued 12,500 and 50,000,
respectively, of Series "A" warrants to investors, as more fully discussed in
Note 7.
In connection with ASC 815, "DETERMINING WHETHER AN INSTRUMENT (OR EMBEDDED
FEATURE) IS INDEXED TO AN ENTITY'S OWN STOCK," the Company determined that the
warrants (ratchet down of exercise price based upon lower exercise price in
9
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
future offerings) are not indexed to the Company's own stock and, therefore, is
an embedded derivative liability (the "Embedded Derivative"), which requires
bifurcation and to be separately accounted for.
The Company measured the fair value of the derivative liabilities using a
Black-Scholes valuation model.
The fair value of the derivative liabilities are summarized as follow:
August 12, 2010 June 23, 2010 Total
--------------- ------------- -----
Fair value at the commitment date for the warrants: $ 60,500 $ 15,141 $ 75,641
Mark to market adjustments during the nine months ended
September 30, 2010: (2,266) (1,378) (3,645)
-------- -------- --------
Derivative liability balance at September 30, 2010 $ 58,234 $ 13,762 $ 71,996
======== ======== ========
The Company recorded a derivative expense at the commitment dates of August 12,
2010 and June 23, 2010 of $60,500 and $15,141, respectively.
The fair value of the derivative liabilities at issuance was based upon the
following management assumptions:
Exercise price $4.00
Expected dividends 0%
Expected volatility 150%
Expected term: warrants 2 years
Risk free interest rate 0.55 - 0.74%
MARK TO MARKET
At September 30, 2010, the Company remeasured the derivative liabilities, and
recorded fair value adjustments of $3,398 for the three months ended September
30, 2010. The following management assumptions were considered:
Exercise price $4.00
Expected dividends 0%
Expected volatility 150%
Expected term: warrants 1.7 - 1.9 years
Risk free interest rate 0.61%
10
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
NOTE 7 STOCKHOLDERS' EQUITY
I. FOUNDER SHARES, COMMON STOCK AND WARRANTS
YEAR ENDED DECEMBER 31, 2007
On June 28, 2007 (inception), the Company issued 6,350,000 shares of common
stock to founders and 400,000 shares of common stock to consultants for a total
of $683 ($0.0001/share).
During 2007, the Company had the following private placement:
DECEMBER 28, 2007
* 3,819,227 units for $234,883 ($0.06/unit),
* Each unit consisted of one share of stock (3,819,227) and one warrant
(3,819,227 Series "A"),
* Series "A" warrants have an exercise price of $0.20/share and an expiration
date of two years,
YEAR ENDED DECEMBER 31, 2008
During 2008, the Company had the following private placements:
(A) JULY 15, 2008
* 304,000 units for $76,000 (0.25/unit),
* Each unit consisted of one share of stock (304,000) and two warrants
(304,000 Series "A") and (304,000 Series "B"),
* Series "A" warrants have an exercise price of $0.30/share and an expiration
date of one year,
* Series "B" warrants have an exercise price of $0.40/share and an expiration
date of two years.
* On July 13, 2010, 160,000 of the Series A warrants were exercised resulting
in the Company receiving $64,000.
(B) JULY 20, 2008
* 183,000 units for $55,000 ($0.30/unit),
* Each unit consisted of one share of stock (183,333) and two warrants
(183,333 Series "A") and (183,333 Series "B"),
* Series "A" warrants have an exercise price of $0.35/share and an expiration
date of one year,
* Series "B" warrants have an exercise price of $0.45/share and an expiration
date of two years.
* On July 13, 2010, the Series B warrants were exercised resulting in the
Company receiving $82,500
11
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
(C) DECEMBER 25, 2008
* 142,857 units for $50,000 ($0.35/unit),
* Each unit consisted of one share of stock (142,857) and one warrant
(142,857 Series "A"),
* Series "A" warrants have an exercise price of $0.20/share and an expiration
date of three years.
YEAR ENDED DECEMBER 31, 2009
During 2009, the Company had the following private placements:
(A) JULY 2, 2009
* 14,285 units for $5,000 ($0.35/unit),
* Each unit consisted of one share of stock (14,285) and one warrant (14,285
Series "A"),
* Series "A" warrants have an exercise price of $0.50/share and an expiration
date of three years.
(B) JULY 22, 2009
* 57,143 units for $20,000 ($0.35/share)
(C) JULY 28, 2009
* 250,000 units for $75,000 ($0.30/unit),
* Each unit consisted of one share of stock (250,000) and one warrant
(250,000 Series "A"),
* Series "A" warrants have an exercise price of $0.40/share and an expiration
date of two years.
(D) NOVEMBER 23, 2009
* 111,111 units for $100,000 ($0.90/unit),
* Each unit consisted of two shares of stock (222,000) and one warrant
(111,000 Series "A"),
* Series "A" warrants have an exercise price of $0.60/share and an expiration
date of two years.
(E) DURING 2009, THE COMPANY HAD THE FOLLOWING WARRANT EXERCISES:
* July 10, 2009 - 50,000 shares at $0.20/share for $10,000.
* November 12, 2009 - 250,000 shares at $0.20/share for $50,000.
* December 28, 2009 - 593,663 shares at $0.20/share for $118,732
12
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2010
On April 30, 2010, the Company granted 200,000 warrants to acquire intellectual
property from two individuals. These warrants have an exercise price of $1.00,
and expire in 2 years. The grant date fair value of these warrants was $52,960.
The Company determined the fair value of these share based payments based upon
the following assumptions:
Expected term 2 years
Expected volatility 150%
Expected dividends 0%
Risk free interest rate 0.97%
Expected forfeitures 0%
During 2010, The Company had the following private placements:
JUNE 23, 2010
* 25,000 units for $50,000 (2.00/unit),
* Each unit consisted of one share of stock (25,000) and1/2warrant (12,500
Series "A"), and
* Series "A" warrants have an exercise price of $4.00/share and an expiration
date of two years.
AUGUST 12, 2010
* 100,000 units for $200,000 (2.00/unit),
* Each unit consisted of one share of stock (100,000) and1/2warrant (50,000
Series "A"), and
* Series "A" warrants have an exercise price of $4.00/share and an expiration
date of two years.
See Note 6 for treatment of these warrants as derivative liabilities.
WARRANTS EXERCISED DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2010
On July 13, 2010, the Series B warrants to acquire 183,333 shares of common
stock issued in July 2008 were exercised for net proceeds of $82,500.
On July 23, 2010, the Series A warrants to acquire 160,000 shares of common
stock issued in July 2008 were exercised for net proceeds of $64,000.
The following is a summary of the Company's warrants that are outstanding and
exercisable at September 30, 2010, December 31, 2009 and 2008:
13
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
Weighted
Average
Weighted Remaining
Average Contractual
Exercise Life in Intrinsic
Warrants Price Years Value
-------- ----- ----- -----
Balance - December 31, 2008 4,936,750 0.23 0.54
Granted 375,396 0.46
Forfeited/Cancelled (3,412,897) 0.22
Exercised (893,663) 0.20
----------- -----
Balance - December 31, 2009 - outstanding 1,005,586 0.40 1.18 $ --
=========== ===== =====
Balance - December 31, 2009 - exercisable 1,005,586 0.40 1.18 $ --
=========== ===== =====
Granted 262,500 1.71
Exercised (343,333) 0.43
Forfeited/Cancelled (144,000) 0.40
-----------
Balance - September 30, 2010 - outstanding 780,753 0.84 1.23 $ --
=========== ===== =====
Balance - September 30, 2010 - exercisable 780,753 0.84 1.23 $ --
=========== ===== =====
II. STOCK OPTIONS
(A) STOCK OPTION GRANT IN 2008
On December 20, 2008, the Company granted 100,000 stock options having a fair
value of $14,363 for services rendered.
(B) STOCK OPTION GRANT AND EXERCISE IN 2009
On September 25, 2009, the Company granted 350,000 stock options having a fair
value of $36,519 for services rendered.
On September 25, 2009, the Company issued 192,857 shares of common stock in
connection with a cashless exercise provision related to all 450,000 stock
options previously granted.
(C) STOCK OPTION GRANT IN 2010
During the nine months ended September 30, 2010, the Company granted 3,896,938
stock options, having a grant date fair value of $1,619,667, and recognized
$374,633 of expense associated with these share based payments as follows:
On January 1, 2010, the Company granted 800,000 stock options having a grant
date fair value of $328,521, which vest evenly over a thirty six month period,
for services rendered.
On January 9, 2010, the Company granted 1,886,938 stock options having a grant
date fair value of $783,702, which vest evenly over a thirty six month period,
for services rendered.
14
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
On February 1, 2010, the Company granted 200,000 stock options having a grant
date fair value of $82,069, which vest over a two year period, quarterly, at
50,000 shares beginning August 1, 2010 through February 1, 2012, for services
rendered. These options are considered outstanding, but not exercisable.
On February 15, 2010, the Company granted 1,000,000 stock options having a grant
date fair value of $410,315, which vest evenly over a thirty six month period,
for services rendered.
On August 1, 2010, the Company granted 10,000 stock options having a grant date
fair value of $15,060, which vest evenly over a thirty six month period, for
services rendered.
The Company determined the fair value of its share based payments based upon the
following assumptions:
2010 2009 2008
---- ---- ----
Expected term 5 years 2 years 2 years
Expected volatility 150% 100% 100%
Expected dividends 0% 0% 0%
Risk free interest rate 2.35-2.69% 0.30% 0.30%
Expected forfeitures 0% 0% 0%
The following is a summary of the Company's options that are outstanding and
exercisable at September 30, 2010, December 31, 2009 and 2008:
Weighted
Average
Weighted Remaining
Average Contractual
Exercise Life in Intrinsic
Options Price Years Value
------- ----- ----- -----
Balance - December 31, 2008 100,000 0.20
Granted 350,000 0.20
Exercised (450,000) 0.20
Forfeited/Cancelled -- --
---------- -----
Balance - December 31, 2009 - outstanding -- -- -- --
========== ===== ========== =====
Balance - December 31, 2009 - exercisable -- -- -- --
========== ===== ========== =====
Granted 3,896,938 0.40
Exercised -- --
Forfeited/Cancelled -- --
---------- -----
Balance - September 30, 2010 - outstanding 3,896,938 0.40 4.30 --
========== ===== ========== =====
Balance - September 30, 2010 - exercisable 854,416 0.40 4.30 --
========== ===== ========== =====
15
Enox Biopharma, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2010
(Unaudited)
NOTE 8 COMMITMENTS AND CONTINGENCIES
(A) LITIGATIONS, CLAIMS AND ASSESSMENTS
From time to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
(B) EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS
In 2010, the Company entered into agreements with individuals who will serve as
officers and directors. The terms of these agreements are as follows:
1. President (January 1, 2010)
a. Monthly fee of $6,000.
b. 800,000 stock options having a grant date fair value of $328,521,
which vest evenly over a thirty six month period.
2. Chairman (January 9, 2010)
a. Entitled to receive monthly cash payment based upon Company's on
hand cash resources. Currently, the Company does not have
sufficient resources to meet the agreed upon amounts.
b. 1,886,938 stock options having a grant date fair value of
$783,702, which vest evenly over a thirty six month period.
3. Consultant (February 1, 2010)
a. Annual salary - $50,000
b. 200,000 stock options having a grant date fair value of $82,069,
which vest over a two year period, quarterly, at 50,000 shares
beginning August 1, 2010 through February 1, 2012. This agreement
was terminated in July 2010.
4. Chief Financial Officer (February 15, 2010)
a. 1,000,000 stock options having a grant date fair value of
$410,315, which vest evenly over a thirty six month period.
5. Investor Relations & Public Relations (March 15, 2010)
a. Monthly retainer of $8,000. Under the agreement until the company
has raised capital in the amount of at least $3,000,000, the
company shall pay $2,500 per month, whereas the remaining $5,500
per month shall be deferred until the Investment Threshold is
reached. This agreement was terminated in May 2010.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements.
Forward-looking statements may include our statements regarding our goals,
beliefs, strategies, objectives, plans, including product and service
developments, future financial conditions, results or projections or current
expectations. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. Such forward-looking statements
appear in this Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and include statements regarding our
expectations regarding our short - and long-term capital requirements and our
business plan and estimated expenses for the coming 12 months. These statements
are subject to known and unknown risks, uncertainties, assumptions and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. The business and operations of
Enox Biopharma, Inc. are subject to substantial risks, which increase the
uncertainty inherent in the forward-looking statements contained in this report.
We undertake no obligation to release publicly the result of any revision to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Further information on potential factors that could affect
our business is described under the heading "Risks Related To Our Business,
Strategy, And Industry" in Part I, Item 1, "Risk Factors" in our registration
statement on Form S-1 no 333-154763, which was declared effective on October 31,
2008. Readers are also urged to carefully review and consider the various
disclosures we have made in this report.
OVERVIEW
Enox Biopharma, Inc. ("Enox", "us", "we" and "our") was incorporated on June 28,
2007 in the State of Nevada. We are a development stage biotechnology company,
and to date have not earned any revenue and currently do not have any
significant assets. Our corporate offices are located at 303-1687 W. Broadway,
Vancouver BC, V6J 1X2, Canada. Our telephone number is (604) 637-9744 and our
fax number is (888) 224-7259. We do not have any subsidiaries. We have a website
at www.enoxbiopharma.com, however, the information contained on our website does
not form part of this Quarterly Report.
We are focusing on the development and commercialization of advanced Nitric
Oxide technologies for a variety of medical uses. Enox's patented platform
technology can be utilized across a wide spectrum of applications ranging from
the treatment of upper respiratory tract infections, prevention of hospital
acquired infections (HAI), innovative solutions to assist in the prevention of
the common cold and to protect people from a diverse array of life threatening,
drug resistant, infections.
During the fiscal period ending September 30, 2010 we further expanded our IP
portfolio by strengthening our worldwide patent applications. In addition to
patents issued in China and South Africa we pursued national phase with Enox's
original patent. We have completed field tests for our manufacturing device
which is now fully in operation and renewed our service agreement with the
University of British Columbia enabling us to continue our research and
development efforts. Collectively our efforts strengthened our position in
global business opportunities.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2010 AND NINE MONTHS ENDED SEPTEMBER 30, 2010
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2009
During the three months ended September 30, 2010, we incurred operating expenses
of $328,251, an increase of $202,747 or approximately 162% from the three months
ended September 30, 2009. Operating expenses increased during the three month
17
ended September 30, 2010 from the comparative period primarily due to the
recognition of stock based compensation related to stock options issued during
2010.
Other significant elements include:
* research and development costs of $74,202, which increased from
$30,500 during the same period in the prior year, an increase of
approximately 143%, due to payments on the purchase of intellectual
property acquired in 2010;
* general and administrative fees of $254,048, which is an increase from
$159,044 during the same period in the prior year, an increase of
approximately 167%, due to increase in consulting, professional fess
related to accounting and legal services, increase in travel and other
related expenses;
During the nine months ended September 30, 2010, we incurred operating expenses
of $929,440, an increase of $709,528 from the nine months ended September 30,
2009. Operating expenses increased during the nine months ended September 30,
2010 primarily due to the vesting of stock options issued for consulting
services. These services included consulting for the Company by the President
and Director of the Company, a Director of the Company, and the CFO of the
company. An increase of approximately $107,000 in legal fees was the result of
the acquisition of international patents and for the procurement of investments.
Other consulting costs of $35,308 were incurred for a business plan and patents.
Other significant issues were:
* Research and Development expenses increased by $133,338 and travel
costs increased by approximately $32,000. These expenses were incurred
during the process of seeking capital and for the procurement of
patents. Other noteworthy increases were in Investor Relations, having
an increase of $20,598 and a Derivative expense of $60,516.
NET LOSS
We incurred a net loss of $1,001,435 for the nine months ended September 30,
2010, compared to a net loss of $219,912 for the nine months ended September 30,
2009.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have had negative cash flows from operations and we have been
dependent on sales of our equity securities to meet our cash requirements. We
expect this situation to continue for the foreseeable future. We anticipate that
we will have negative cash flows from operations in the next twelve month
period.
As of September 30, 2010, we had cash of $408,124 representing a net increase in
cash of $174,048 since December 31, 2009.
There was $248,755 cash generated from the sale of common stock and warrants and
an additional $146,500 generated from the exercise of warrants during the nine
months ended September 30, 2010. In May 2010, the Company accepted a loan in the
amount of $100,000 from a stockholder which is due in full on or before May 15,
2011. Interest payments of 12%, or $1,000 are paid each month.
Because we have not generated any revenue from our business, we will need to
raise additional funds for the future development of our business and to respond
to unanticipated requirements or expenses. There can be no assurance that
additional financing will be available to us, or on terms that are acceptable.
Consequently, we may not be able to proceed with our intended business plans or
complete the development and commercialization of our product.
If we fail to generate sufficient net revenues, we will need to raise additional
capital to continue our operations thereafter. We cannot guarantee that
additional funding will be available on favorable terms, if at all. Any
shortfall will affect our ability to expand or even continue our operations. We
cannot guarantee that additional funding will be available on favorable terms,
if at all.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15/15d-15 under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), as of September 30, 2010, we have carried out
an evaluation of the effectiveness of the design and operation of our Company's
disclosure controls and procedures. This evaluation was carried out under the
supervision and with the participation of our Company's management, our
President (Principal Executive Officer) and Treasurer (Principal Accounting
Officer). Based upon the results of that evaluation, our management has
concluded that, as of September 30, 2010, our Company's disclosure controls and
procedures were effective and provide reasonable assurance that material
information related to our Company required to be disclosed in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to management to allow
timely decisions on required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control system is designed to provide
reasonable assurance to our management and board of directors regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those
policies and procedures that:
* Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
* Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles in the United States of
America, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company; and
* Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.
Management assessed the effectiveness of our internal control over financial
reporting as of September 30, 2010. In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control -- Integrated Framework.
Because of the material weaknesses described below, our management, under the
supervision of and with the participation of our President and Chief Financial
Officer, concluded that, as of September 30, 2010, our internal control over
financial reporting was not effective based on the criteria in Internal Control
- -- Integrated Framework issued by the COSO.
A material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
In our assessment of the effectiveness of internal control over financial
reporting as of September 30, 2010, we identified that our material weaknesses
derived from the small size of our Company. That small size makes the proper
identification and authorization of transactions difficult, as we have
essentially only two individuals overseeing this process, which and creates
difficulties with separation of duties for handling, approving and coding
invoices, entering transactions into the accounts, writing checks and requests
for wire transfers. Additionally, the Company's officers are also its sole board
members. This does not provide an adequate level of layers of internal controls,
19
which in turn make it difficult to accumulate information required to be
disclosed by our Company in the reports that it files or submits under the
Exchange Act.
This annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management's report in
this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting
identified in connection with the evaluation described above during the quarter
ended September 30, 2010 that has materially affected or is reasonably likely to
materially affect our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. REMOVED AND RESERVED.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
(a) Pursuant to Rule 601 of Regulation SK, the following exhibits are included
herein or incorporated by reference.
Exhibit
Number Description
------ -----------
31.1 Certification of CEO Pursuant to 18 U.S.C. ss. 1350, Section 302
31.2 Certification of CFO Pursuant to 18 U.S.C. ss. 1350, Section 302
32.1 Certification Pursuant to 18 U.S.C. ss.1350, Section 906
32.2 Certification Pursuant to 18 U.S.C. ss. 1350, Section 906
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Enox Biopharma, Inc.
By: /s/ Prof. Yossef Av-Gay
--------------------------------------------
Prof. Yossef Av-Gay, President
(Principal Executive Officer)
Dated: November 15, 2010
By: /s/ Itamar David
--------------------------------------------
Mr. Itamar David, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 15, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Prof. Yossef Av-Gay
--------------------------------------------
Prof. Yossef Av-Gay, President
(Principal Executive Officer)
Dated: November 15, 2010
By: /s/ Itamar David
--------------------------------------------
Mr. Itamar David, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 15, 2010
By: /s/ Amir Avniel
--------------------------------------------
Mr. Amir Avniel, Chairman of the Board of
Directors
Dated: November 15, 2010
21