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
the quarterly period ended September
30, 2007
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 001-16043
SYNVISTA
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
13-3304550
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification
No.)
|
221
West Grand Avenue, Suite 200, Montvale, New Jersey
07645
(Address
of principal executive offices)
(Zip
Code)
(201)
934-5000
(Registrant's
telephone number, including area code)
_______________________________________
(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 check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).
Large
accelerated filer ___Accelerated filer ___Non-accelerated filer 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
On
November 1, 2007, 2,586,377 shares of the registrant’s Common Stock were
outstanding.
Page
1 of
28 pages
The
Exhibit Index is on page 28
SYNVISTA
THERAPEUTICS, INC.
INDEX
|
Page
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2007
|
|
|
and
December 31, 2006
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Operations
|
|
|
for
the three and nine months ended September 30, 2007 and
2006
|
4
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity
|
|
|
for
the nine
months ended September 30, 2007
|
5
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months
|
|
|
ended
September 30, 2007 and 2006
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of
|
|
|
Financial
Condition and Results of Operations
|
15
|
|
|
|
Item
3.
|
Qualitative
and Quantitative Disclosures about Market Risk
|
20
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
20
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security-holders
|
24
|
|
|
|
Item
6.
|
Exhibits
|
26
|
|
|
|
SIGNATURES
|
27
|
|
|
|
INDEX
TO EXHIBITS
|
28
|
PART
I - FINANCIAL INFORMATION
ITEM
l. Condensed
Consolidated Financial Statements (Unaudited).
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
(Note
1)
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
17,297,916
|
|
$
|
1,478,780
|
|
Other
current assets
|
|
|
350,542
|
|
|
314,156
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
17,648,458
|
|
|
1,792,936
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
16,481
|
|
|
10,500
|
|
Other
assets
|
|
|
835,022
|
|
|
501,889
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
18,499,961
|
|
$
|
2,305,325
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
566,071
|
|
$
|
809,492
|
|
Accrued
expenses
|
|
|
827,834
|
|
|
253,022
|
|
Preferred
stock dividends payable
|
|
|
375,000
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,768,905
|
|
|
1,062,514
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 15,000,000
|
|
|
|
|
|
|
|
shares
authorized, 400,000 shares designated as Series A, none issued
and
|
|
|
|
|
|
|
|
outstanding,
12,500,000 shares designated as Series B convertible
|
|
|
|
|
|
|
|
preferred
stock, 10,000,000 shares issued and outstanding
|
|
|
|
|
|
|
|
at
September 30, 2007, 0 shares issued and outstanding at
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
100,000
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value; 300,000,000 shares authorized,
|
|
|
|
|
|
|
|
and
2,586,377 shares issued and outstanding
|
|
|
|
|
|
|
|
at
September 30, 2007 and December 31, 2006
|
|
|
25,864
|
|
|
25,864
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
274,900,500
|
|
|
244,362,808
|
|
Accumulated
deficit
|
|
|
(258,295,308
|
)
|
|
(243,145,861
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
16,731,056
|
|
|
1,242,811
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
18,499,961
|
|
$
|
2,305,325
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
$
|
1,066
|
|
$
|
---
|
|
$
|
51,066
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,264,503
|
|
|
736,539
|
|
|
4,665,580
|
|
|
1,768,582
|
|
In-process
research and development
|
|
|
---
|
|
|
11,379,348
|
|
|
---
|
|
|
11,379,348
|
|
General
and administrative
|
|
|
894,469
|
|
|
1,998,154
|
|
|
2,534,847
|
|
|
3,807,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,158,972
|
|
|
14,114,041
|
|
|
7,200,427
|
|
|
16,955,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,157,906
|
)
|
|
(14,114,041
|
)
|
|
(7,149,361
|
)
|
|
(16,905,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
194,692
|
|
|
38,560
|
|
|
257,738
|
|
|
165,122
|
|
Interest
expense
|
|
|
1,402,515
|
|
|
715
|
|
|
6,637,831
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(4,365,729
|
)
|
|
(14,076,196
|
)
|
|
(13,529,454
|
)
|
|
(16,740,705
|
)
|
Preferred
stock dividends - Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends - Series G and Series H
|
|
|
375,000
|
|
|
---
|
|
|
375,000
|
|
|
---
|
|
Deemed
dividends to Series B preferred
|
|
|
---
|
|
|
283,607
|
|
|
---
|
|
|
2,652,679
|
|
stockholders from
beneficial conversion feature
|
|
|
1,244,993
|
|
|
---
|
|
|
1,244,993
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(5,985,722
|
)
|
$
|
(14,359,803
|
)
|
$
|
(15,149,447
|
)
|
$
|
(19,393,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic/diluted
net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
applicable
to common stockholders
|
|
$
|
(2.31
|
)
|
$
|
(6.49
|
)
|
$
|
(5.86
|
)
|
$
|
(12.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares used
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
computing basic/diluted net loss per share
|
|
|
2,586,377
|
|
|
2,212,761
|
|
|
2,586,377
|
|
|
1,573,349
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’
EQUITY
(Unaudited)
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
---
|
|
$
|
---
|
|
|
2,586,377
|
|
$
|
25,864
|
|
$
|
244,362,808
|
|
$
|
(243,145,861
|
)
|
$
|
1,242,811
|
|
Net
loss
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(13,529,454
|
)
|
|
(13,529,454
|
)
|
Warrants
issued and embedded beneficial
conversion
feature
associated
with debt financing with
debt
financing
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
6,000,000
|
|
|
---
|
|
|
6,000,000
|
|
Issuance
of shares of preferred stock
through private
placement
at
$2.50 per share
|
|
|
7,534,246
|
|
|
75,342
|
|
|
---
|
|
|
---
|
|
|
18,760,274
|
|
|
---
|
|
|
18,835,616
|
|
Issuance
of shares of preferred stock
through debt
conversion
at
$2.50 per share
|
|
|
2,465,754
|
|
|
24,658
|
|
|
---
|
|
|
---
|
|
|
6,139,726
|
|
|
---
|
|
|
6,164,384
|
|
Costs
incurred in connection with private
placement,
including issuance
of warrants
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(1,837,954
|
)
|
|
---
|
|
|
(1,837,954
|
)
|
Deemed
dividends to Series B stockholders
on
beneficial
conversion preferred
on beneficial
conversion
feature
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
1,244,993
|
|
|
(1,244,993
|
)
|
|
---
|
|
Series
B preferred stock dividend Payable
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(375,000
|
)
|
|
(375,000
|
)
|
Stock-based
compensation
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
169,180
|
|
|
---
|
|
|
169,180
|
|
Options
issued for consulting Services
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
2,732
|
|
|
---
|
|
|
2,732
|
|
Compensation
costs related to restricted
stock
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
58,741
|
|
|
---
|
|
|
58,741
|
|
Balances,
September 30, 2007
|
|
|
10,000,000
|
|
$
|
100,000
|
|
|
2,586,377
|
|
$
|
25,864
|
|
$
|
274,900,500
|
|
$
|
(258,295,308
|
)
|
$
|
16,731,056
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
SYNVISTA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(13,529,454
|
)
|
$
|
(16,740,705
|
)
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
169,180
|
|
|
34,652
|
|
Options
issued for consulting services
|
|
|
2,732
|
|
|
7,666
|
|
Compensation
costs related to restricted stock
|
|
|
58,741
|
|
|
9,941
|
|
Non-cash
interest expense
|
|
|
164,384
|
|
|
---
|
|
In-process,
research and development
|
|
|
---
|
|
|
11,379,348
|
|
Amortization
of debt discount
|
|
|
6,000,000
|
|
|
---
|
|
Amortization
of deferred financing costs
|
|
|
466,413
|
|
|
---
|
|
Depreciation
and amortization
|
|
|
7,567
|
|
|
37,945
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
(36,386
|
)
|
|
(496,576
|
)
|
Other
assets
|
|
|
66,867
|
|
|
(529,264
|
)
|
Accounts
payable and accrued expenses
|
|
|
331,391
|
|
|
(161,739
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(6,298,565
|
)
|
|
(6,458,732
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(13,548
|
)
|
|
---
|
|
Other
assets
|
|
|
---
|
|
|
(1,621,929
|
)
|
Payments
for securities purchased under the Oxis license agreement
|
|
|
(400,000
|
)
|
|
---
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(413,548
|
)
|
|
(1,621,929
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from debt financing
|
|
|
6,000,000
|
|
|
---
|
|
Proceeds
from issuance of common stock
|
|
|
---
|
|
|
3,806,026
|
|
Proceeds
from issuance of preferred stock
|
|
|
18,835,616
|
|
|
---
|
|
Payments
for private placement costs
|
|
|
(1,837,954
|
)
|
|
---
|
|
Payments
for debt financing costs
|
|
|
(466,413
|
)
|
|
---
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
22,531,249
|
|
|
3,806,026
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
15,819,136
|
|
|
(4,274,635
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
1,478,780
|
|
|
6,582,958
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
17,297,916
|
|
$
|
2,308,323
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Common
stock and other equity consideration issued as
|
|
|
|
|
|
|
|
a
result of the merger
|
|
$
|
---
|
|
$
|
9,035,058
|
|
Warrants
issued and embedded conversion feature associated
|
|
|
|
|
|
|
|
with
debt financing
|
|
$
|
6,000,000
|
|
$
|
---
|
|
Beneficial
conversion feature and allocation to warrants on
|
|
|
|
|
|
|
|
convertible
series B preferred stock
|
|
$
|
13,616,625
|
|
$
|
---
|
|
Deemed
dividends to Series B preferred stockholders on
|
|
|
|
|
|
|
|
beneficial
conversion
|
|
$
|
1,244,993
|
|
$
|
---
|
|
Series
B stock dividends payable
|
|
$
|
375,000
|
|
$
|
---
|
|
Preferred
stock issued pursuant to conversion of debt and accrued
|
|
|
|
|
|
|
|
interest
|
|
$
|
6,164,384
|
|
$
|
---
|
|
Fair
value of warrants issued to placement agents for private
|
|
|
|
|
|
|
|
placements
|
|
$
|
1,619,256
|
|
$
|
---
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
SYNVISTA
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - Significant Accounting Policies
Basis
of Presentation
On
July
20, 2007, the stockholders of Alteon Inc. approved changing the name of the
company from Alteon Inc. to Synvista Therapeutics, Inc. (“the Company”).
The name change became effective on July 25, 2007.
On
July
20, 2007, the Company’s stockholders approved an amendment to its certificate of
incorporation to, among other things, effect a reverse stock split of the
Company’s common stock. On July 25, 2007, a 1:50 reverse stock split of the
Company’s common stock became effective. Accordingly, all share, warrant, option
and per share information for all periods presented reflect the reverse stock
split.
The
accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America
for
complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring adjustments) considered necessary for
a
fair presentation have been included. Operating results for the nine months
ended September 30, 2007 are not necessarily indicative of the results that
may
be expected for the year ending December 31, 2007. For further information,
refer to the consolidated financial statements and footnotes thereto included
in
the Company's Annual Report on Form 10-K and Form 10-K/A for the year ended
December 31, 2006, as filed with the Securities and Exchange Commission. The
December 31, 2006 balance sheet is derived from the audited balance sheet
included in the Company’s Form 10-K for the fiscal year ended December 31, 2006,
as amended.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts
of
Synvista Therapeutics, Inc. and its wholly owned subsidiary, HaptoGuard, Inc.
All inter-company accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain
prior period balances have been reclassified to conform to the current
presentation.
Adoption
of New Accounting Pronouncements
Effective
January 1, 2007, the Company adopted Financial
Accounting Standards Board (“FASB”)
Interpretation
48 (“FIN
48”), “Accounting
for Uncertainty in Income Taxes — an interpretation of FASB Statement
No. 109.”
The
interpretation contains a two-step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS No. 109,
“Accounting
for Income Taxes.”
The
first step is to evaluate the tax position for recognition by determining if
the
weight of available evidence indicates that it is more likely than not that
the
position will be sustained on audit, including resolution of related appeals
or
litigation processes, if any. The second step is to measure the tax benefit
as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement.
The
Company has sustained losses since inception which has generally resulted in
a
zero percent effective tax rate; hence the Company has not incurred any interest
or penalties. The Company’s policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of tax expense. At
December 31, 2006, the Company had an $82.2 million deferred tax asset
which was fully offset by a valuation allowance due to its history of losses.
In
addition, the Company has net operating loss carryfowards (“NOLs”) that may be
subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The Company is currently evaluating whether there are any changes in ownership
that would limit the future use of its NOLs. The Company’s final evaluation of
its tax positions taken in open tax years and ownership change limitations
may
result in a reduction of NOLs available for use in future years and the related
fully reserved deferred tax asset. However, given the Company’s history of
losses, the Company does not expect the result of this evaluation will have
a
material impact on its condensed consolidated financial statements.
New
Accounting Pronouncements
In
June
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 07-3, “Accounting for Advance Payments for Goods or Services to be Received
for Use in Future Research and Development Activities”. (“EITF 07-3”), EITF 07-3
provides clarification surrounding the accounting for nonrefundable research
and
development advance payments, whereby such payments should be recorded as an
asset when the advance payment is made and recognized as an expense when the
research and development activities are performed. EITF 07-3 is effective for
interim and annual reporting periods beginning after December 15, 2007. We
are
currently evaluating the impact that adopting this EITF will have on our
consolidated financial statements.
Note
2 - Liquidity
The
Company has devoted substantially all of its resources to research, drug
discovery and development programs. To date, it has not generated any revenues
from the sale of products and does not expect to generate any such revenues
for
a number of years, if at all. As a result, the
Company has incurred net losses since inception, has an accumulated deficit
of
$258,295,308 as of September 30, 2007, and expects to incur net losses,
potentially greater than losses in prior years, for a number of
years.
The
Company has financed its operations through proceeds from the sale of common
and
preferred equity securities, debt securities, revenue from former collaborative
relationships, reimbursement of certain of its research and development expenses
by collaborative partners, investment income earned on cash and cash equivalent
balances and short-term investments and the sale of a portion of the Company’s
New Jersey state net operating loss carryforwards and research and development
tax credit carryforwards.
In
April
2007, the Company entered into a Series B Preferred Stock and Warrant Purchase
Agreement with institutional investors who purchased on
July
25, 2007, $25,000,000 of newly created Series B Preferred Stock and warrants
to
purchase shares of Series B Preferred Stock. The issuance of $25,000,000 of
the
Company’s Series B Preferred Stock includes the conversion of $6,000,000 of
previously issued convertible promissory notes plus all accrued and unpaid
interest thereon, which were cancelled upon the closing of the financing (See
Note 4 - Convertible Notes Payable). The closing of this financing was subject
to the satisfaction of various conditions, including stockholder approval (See
Note 5 -- Series B Preferred Stock and Warrant Purchase Agreement).
As
of
September 30, 2007, the Company had working capital of $15,879,553, including
$17,297,916 of cash and cash equivalents. The Company’s net cash used in
operating activities for the nine months ended September 30, 2007 was
$6,298,565. The Company expects
to have sufficient cash and cash equivalents to satisfy its working capital
requirements through the end of the fourth quarter of 2008.
The
amount and timing of the Company’s future capital requirements will depend on
numerous factors, including the number and characteristics of product candidates
that the Company pursues, the timing, scope and results of preclinical tests
and
clinical studies conducted by or on behalf of the Company, the status and
timelines of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the ability to complete strategic
collaborations and the availability of third-party funding, if any.
Dividends
on shares of Series B Preferred Stock are payable in cash or in shares of
Preferred stock for a period of five years from the Series B Original Issue
Date, at the option of the holders of a majority of the outstanding Series
B
Preferred Stock.
Selling
securities to satisfy its capital requirements may have the effect of materially
diluting the current holders of the Company’s outstanding stock. The Company may
also seek additional funding through corporate collaborations and other
financing vehicles. There can be no assurances that such funding will be
available at all or on terms acceptable to the Company. If funds are obtained
through arrangements with collaborative partners or others, the Company may
be
required to relinquish rights to its technologies or product candidates and
alter its plans for the development of its product candidates.
Note
3 - Stock-Based Compensation
The
Company estimates
the
fair value of option awards made under its equity compensation plans on the
date
of grant based on the Black-Scholes option pricing model. The Company estimates
expected volatility for this purpose based on the historical volatility of
its
common stock price. The expected term of options granted represents the period
of time that options granted are expected to be outstanding. The Company
estimated the expected term of stock options using historical exercise and
employee forfeiture patterns.
The
following table shows the weighted average assumptions the Company used to
develop the fair value estimates for the determination of the compensation
charges for the nine months ended September 30:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
115
|
%
|
|
139
|
%
|
Dividend
yield
|
|
|
-
|
|
|
-
|
|
Expected
term (in years)
|
|
|
5.90
|
|
|
6.11
|
|
Risk-free
interest rate
|
|
|
4.25
|
%
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
Options
granted to consultants and other non-employees are accounted for in accordance
with EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." Accordingly, such options are recorded at fair value at the
date of grant and subsequently adjusted to fair value at the end of each
reporting period until such options vest, and the fair value of the
options, as adjusted, is charged to consulting expense over the related
vesting period. For the nine months ended September 30, 2007, the Company
recognized research and development consulting expenses of $2,732.
For
the
three and nine month periods ended September 30, 2007, the Company recognized
share-based employee compensation cost of approximately $84,618 and $169,180,
respectively, and $34,652 for the three and nine month periods ended September
30, 2006, in accordance with SFAS 123(R), “Share-Based Payment,” which was
recorded as general and administrative and research and development expense.
This expense related to the granting of stock options to employees, directors
and officers on or after January 1, 2006. None of this expense resulted from
the
grants of stock options prior to January 1, 2006. The Company recognized
compensation expense related to these stock options, taking into consideration
a
forfeiture rate of approximately 3.7% based on historical experience, on a
straight-line basis over the vesting period. The Company did not capitalize
any
share-based compensation cost.
As
of
September 30, 2007, the total compensation cost related to non-vested option
awards not yet recognized is $347,417. The weighted-average period over which
this cost is expected to be recognized is approximately 1.40 years.
A
summary
of the status of the Company’s stock options outstanding as of September 30,
2007 and changes during the nine months then ended is presented below:
|
|
Shares
|
|
Weighted
average exercise price
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
215,804
|
|
$
|
62.25
|
|
|
|
|
|
|
|
Granted
|
|
|
70,000
|
|
$
|
4.17
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(10,364
|
)
|
$
|
120.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
275,440
|
|
$
|
45.32
|
|
|
5.05
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
171,228
|
|
$
|
69.67
|
|
|
3.93
|
|
$
|
-
|
|
An
amendment to the Company’s 2005 Stock Plan was approved at the Company’s annual
meeting of stockholders in July 2007 that increased the number of shares of
common stock reserved for issuance under the 2005 Stock Plan from 10,000,000
(200,000
following the implementation of the reverse stock split) shares
to
63,000,000 (1,260,000 following the implementation of the reverse stock split)
shares. The reverse stock split, which was also approved by the stockholders
of
the Company at the annual shareholder meeting on July 20, 2007, was implemented
at a ratio of 1:50 and became effective on July 25, 2007.
Restricted
Stock
The
Company recognized compensation cost of $6,226 and $58,741 for the three and
nine months ended September 30, 2007, which was recorded as general and
administrative expense, as a result of the granting of 19,200 shares of
restricted stock in 2006, of which 6,400 were forfeited and 8,532 were vested
through September 30, 2007.
A
summary
of the status of the Company’s nonvested shares of restricted stock as of
September 30, 2007 and changes during the nine months ended September 30, 2007,
is presented below:
Nonvested
at
|
|
Shares
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
January
1, 2007
|
|
|
16,000
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Vested
|
|
|
8,532
|
|
|
7.50
|
|
Forfeited
|
|
|
3,200
|
|
|
7.50
|
|
|
|
|
|
|
|
|
|
Nonvested
at
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
4,268
|
|
$
|
7.50
|
|
As
of
September 30, 2007, there was $19,264 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted. That cost
is
expected to be recognized over a weighted-average period of 1.8 years. The
total
fair value of shares vested during the nine months ended September 30, 2007
was
$63,990. Of the 8,532 shares of restricted stock that vested, the vesting of
4,268 shares had been accelerated by the Board of Directors.
Note
4 - Convertible Notes Payable
On
June
1, 2007, the Company entered into an omnibus amendment (the “Omnibus Amendment”)
with the holders of the Company’s Senior Secured Convertible Promissory Notes,
dated January 11, 2007 (the “Notes”). The Omnibus Amendment amended the
following documents: (i) the Note and Warrant Purchase Agreement, dated January
11, 2007 (the “Note Purchase Agreement”), (ii) the Notes, and (iii) the warrants
issued to the holders of the Notes, each dated January 11, 2007 (the
“Warrants”). Pursuant to the Omnibus Amendment, the Note Purchase Agreement was
amended to provide for the issuance of an additional $3,000,000 of indebtedness
by the Company. In order to provide for such additional indebtedness, the Notes,
in the original principal amount of $3,000,000, were cancelled and replaced
with
amended and restated senior convertible promissory notes in an aggregate
principal amount of $6,000,000 (the “New Notes”). Each New Note accrued interest
at a rate of 8% per annum. The New Notes increased certain penalties contained
in the Notes if the proposed preferred stock financing transaction between
the
Company and the holders of the Notes was not closed by July 31, 2007, as
follows: the Company would have been obligated to pay to the holders of the
New
Notes a $6,000,000 penalty in addition to the outstanding principal and interest
that would become due under the New Notes on July 31, 2007, and the Company
would have been obligated to pay the holders 30% of any amount received by
the
Company from financing, sale or licensing transactions completed prior to June
30, 2009, subject to a cap of $8,000,000.
On
July
20, 2007, at the Company’s annual meeting of stockholders, stockholders of the
Company approved the
issuance of shares of the Company’s Series B Preferred Stock. The Series B
Preferred Stock accrues dividends at a rate of 8.0% per year for a period of
five years from the date on which the shares of Series B Preferred Stock were
issued. Pursuant to the terms of the Note Purchase Agreement, upon the closing
of the financing on July 25, 2007, as more fully discussed in Note 5 - Series
B
Preferred Stock and Warrant Purchase Agreement, the New Notes plus accrued
and
unpaid interest thereon were converted into shares of the Company’s Series B
Preferred stock and thereafter were cancelled.
In
connection with the Note Purchase Agreement, the Company also issued to the
holders of the Notes (the “Buyers”) warrants to purchase 514,689 shares of the
Company’s Common Stock, which were exercisable for a period of five years
commencing on January 11, 2007 at an exercise price of $0.01 per share. These
Common Stock Warrants expired upon the closing of the sale of the Company’s
Series B Preferred Stock.
The
Company determined the initial carrying value of the New Notes by a two-step
allocation process: first to the associated Warrants and second, to an embedded
conversion option. First, the Company allocated the proceeds from the sale
of
the New Notes between the New Notes and the Warrants based upon their relative
fair values, which resulted in recording a discount on the New Notes. The value
of the Warrants was computed using the Black-Scholes option pricing model.
Second, in accordance with EITF No. 00-27, “Application of Issue 98-5 to Certain
Convertible Instruments”, after allocating the Note proceeds as described above,
the Company calculated the embedded conversion price and used it to measure
the
intrinsic value of the embedded conversion option. Since the conversion price
was less than the fair value of the Company’s common stock at the closing date,
an embedded conversion option was recorded as paid-in capital.
All
of
the proceeds were allocated to the Warrants and embedded beneficial conversion
feature. This amount was being amortized as additional (non-cash) interest
expense with a corresponding increase to the New Notes over the term of the
New
Notes. The fair value of the beneficial conversion feature and the warrants
substantially exceeded the face value of the New Notes.
During
the nine month period ended September 30, 2007, the Company recorded $6,000,000
of non-cash interest expense related to the accretion of these New
Notes.
Contemporaneously
with the execution and delivery of the Note Purchase Agreement and the issuance
by the Company to the Buyers of the Notes and the Warrants, the Parties executed
(i) a Security and Guaranty Agreement (the “Security Agreement”), pursuant to
which the Company and its wholly owned subsidiary HaptoGuard agreed to provide
to the Buyers a first priority security interest in certain Collateral (as
this
term is defined in the Security Agreement) to secure the Company’s obligations
under the Agreement and the New Notes, and (ii) an Intellectual Property
Security Agreement (“Intellectual Property Security Agreement”), pursuant to
which the Company and HaptoGuard agreed to provide to the Buyer a first priority
security interest in certain IP Collateral (as this term is defined in the
Intellectual Property Security Agreements) to collateralize the Company’s
obligations under the Agreement and the New Notes. The
Security Agreement and the security interest in certain Collateral terminated
upon the conversion of the New Notes.
NOTE
5 - Series B Preferred Stock and Warrant Purchase
Agreement
On
April
5, 2007, the Company entered into a Series B Preferred Stock and Warrant
Purchase Agreement (the “Series B Agreement”) with institutional investors (the
“Buyers”). Pursuant to the terms and subject to the conditions contained in the
Series B Agreement, the Company agreed to issue and sell to the Buyers, and
the
Buyers agreed to purchase from the Company $25,000,000 of our newly created
Series B Preferred Stock, $0.01 par value per share and warrants to purchase
shares of the Company’s Series B Preferred Stock.
On
June
1, 2007 the Company entered into Amendment No. 1 to the Series B Preferred
Stock
and Warrant Purchase Agreement (“Amendment No. 1 to the SPA”) by the Company and
the Buyers, which amends the Series B Agreement. Pursuant to Amendment No.
1 to
the SPA, the per share price at which the Series B Preferred Stock of the
Company will be sold in the proposed preferred stock financing, was fixed at
a
price of $0.05 (prior to the reverse stock split) per share. Prior to entering
into Amendment No. 1 to the SPA, the price per share at which the Series B
Preferred Stock of the Company was sold in the financing was to be within a
range between $0.05 and $0.075 (each prior to the implementation of the reverse
stock split) and was to be determined following the requisite shareholder vote
regarding the financing and the reverse stock split, as set forth in the Series
B Agreement.
On
July
20, 2007, at the Company’s annual meeting of stockholders, stockholders of the
Company approved the
issuance of securities pursuant to the Series B Agreement. At the closing of
the
financing on July 25, 2007, the Company issued 10,000,000 shares of its Series
B
Preferred Stock and warrants to purchase 2,500,000 shares of Series B Preferred
Stock to the Buyers. The Series B Preferred Stock accrues dividends at a rate
of
8.0% per year on the original issue price of $2.50 per share for a period of
five years from the date on which the shares of Series B Preferred Stock were
issued. The warrants are exercisable for a period of five years commencing
on
July 25, 2007 at an exercise price of $2.50 per share.
On
July
25, 2007, upon
the
closing of the financing, the Notes, in an aggregate principal amount of
$6,000,000, plus all accrued but unpaid interest thereon, were automatically
converted pursuant to their terms into that number of shares of Series B
Preferred Stock equal to the principal plus all accrued but unpaid interest
on
the New Notes divided by the price per share at which the Series B Preferred
Stock was sold, and thereafter the New Notes were cancelled and are of no
further force or effect, and the warrants to purchase an aggregate of 514,689
shares of the Company’s common stock that were issued to the purchasers in such
financing terminated and are of no further force or effect.
On
the
date of issuance, the Company adjusted its balance sheet to reduce the value
of
the Series B Convertible Preferred Stock by $9,445,299 and the warrants by
$4,171,326 and will increase additional paid-in capital by $13,616,625 ratably
over a 24-month period. The Company used the Black Scholes model to value the
Series B warrants. For purposes of calculating the fair value of the warrants
the Company used a risk free rate of return of 4.88% and a volatility percentage
of 114%. In accordance with EITF 98-5 and EITF 00-27 the intrinsic value of
the
beneficial conversion feature is considered a deemed dividend to the preferred
shareholders and is amortized over a period of the security’s earliest
conversion date. Pursuant to Amendment No.1 to the Registration Rights
Agreement, the Company will register the securities at various times over a
two
year period for resale by the investors, which is when the preferred stock
will
be convertible. To amortize the beneficial conversion feature the Company
reduced the retained earnings account and increased the Series B Preferred
Convertible Stock for the amount of the deemed dividend.
In
July 2007, the Company increased its number of authorized shares to
315,000,000, of which 300,000,000 is $0.001 par value Common Stock and
15,000,000 is $0.001 par value Preferred Stock. Series B Preferred Stock
dividends are payable annually in cash or in shares of preferred stock at a
rate
of 8% of the Series B Original Issue Price of $2.50 for each share of Series
B
preferred stock for five years from the Original Issue Date of July 25, 2007.
Each holder of the Series B Preferred Stock shall be entitled to vote one-half
the number of whole shares of common stock into which the shares of Series
B
Preferred Stock held by the holder are convertible as of the record date for
any
meeting of Company stockholders.
The
Series B Preferred Stock is
subject to a mandatory conversion based on a Triggering Event. At such time
when
(A) (i) the thirty (30) day prior trailing average Closing Price of the Common
Stock for the entire six months preceding such time is equal to at least the
Series B Original Issue Price, and (ii) one and one half (1.5) years have
elapsed after the Company has had declared effective by the Securities and
Exchange Commission and continuously maintained for such one and one half (1.5)
year period the effectiveness of a shelf registration statement providing for
the resale of all of the Common Stock underlying the Series B Preferred Stock
and those certain warrants issued in connection with the Series B Preferred
Stock under the Series B Purchase Agreement, an equivalent of $7,500,000
(measured as of the Series B Original Issue Date) of the Series B Preferred
Stock shall (a) automatically be converted into shares of Common Stock, at
the
then effective Series B Conversion Price (determined to be $0.05), and
(b) such shares may not be reissued by the Company, or (B) (i) the thirty
(30) day prior trailing average Closing Price of the Common Stock for the entire
six (6) months preceding such time is equal to at least two (2) times the Series
B Original Issue Price, and (ii) one and one half (1.5) years have elapsed
after
the Company has had declared effective by the Securities and Exchange Commission
and continuously maintained for such one and one half (1.5) year period the
effectiveness of a shelf registration statement providing for the resale of
all
of the Common Stock underlying the Series B Preferred Stock and those certain
warrants issued in connection with the Series B Preferred Stock, the remainder
of the outstanding Series B Preferred Stock shall (a) automatically be converted
into shares of Common Stock, at the then effective Series B Conversion
Price.
The
Company engaged Rodman & Renshaw, LLC (“Rodman and Renshaw”) as placement
agent for the Company for the offering. For its services, the Company paid
Rodman & Renshaw a cash commission of $1,312,187 and issued a warrant to
Rodman and Renshaw to purchase 600,000 shares of the Company’s common stock with
an exercise price of $2.50 per share. The warrant issued is exercisable
immediately and will expire on July 25, 2012. The Company used the Black Scholes
model to value the common stock warrants. For purposes of calculating the fair
value of the warrants the Company used a risk free rate of 4.88% and a
volatility percentage of 114%. The fair value of the warrants using the Black
Scholes model is $1,619,256.
The
obligations of Synvista and the Buyers to complete the Series B preferred stock
financing were subject to the satisfaction or, to the extent legally
permissible, waiver of certain conditions. The more significant conditions
included: (i) approval by the Synvista stockholders of the issuance of
securities in the Financing pursuant to the Agreement; (ii) the approval by
the
Synvista stockholders and the consummation of a reverse stock split of the
Company’s issued and outstanding common stock within a range of 1:50 to 1:100,
with the final ratio to be determined by the Board of Directors and reasonably
acceptable to the Buyers; (iii) approval by the Synvista stockholders and the
filing with the Secretary of State of the State of Delaware of Synvista’s
Amended and Restated Certificate of Incorporation; and (iv) approval by the
Synvista stockholders of an amendment to the Company’s equity incentive plan in
order to reserve up to an additional 53,000,000 (prior to the implementation
of
the reverse stock split) shares of common stock for issuance
thereunder.
In
connection with the closing of the financing, Synvista entered into an Amendment
No. 1 to the Registration Rights Agreement (“Amendment”) with the Buyers. The
Amendment amends the Registration Rights Agreement dated July 25, 2007, by
extending the schedule under which the Company is required to file registration
statements with the Securities and Exchange Commission for the resale of the
shares of common stock issuable upon conversion of the shares of Series B
Preferred Stock issued to the Buyers, as well as upon conversion of the shares
of Series B Preferred Stock underlying the warrants issued to the Buyers. The
Amendment also grants the Buyers additional piggy-back registration rights
in
the event of an underwritten public offering of the Company’s securities and
demand registration rights at the option of a majority of the Buyers. The
Amendment also relieves the Company of its obligation to pay the Buyers
liquidated damages in certain circumstances, as described in the Amendment.
Note
6 - Net Loss Per Share Applicable to Common Stockholders
Basic
net
loss per share is computed by dividing net loss applicable to common
stockholders by the weighted average number of shares outstanding during the
period. Diluted net loss per share is the same as basic net loss per share
applicable to common stockholders, since the assumed exercise of stock options
and warrants and the conversion of preferred stock would be antidilutive. The
amount of potentially dilutive shares excluded from the calculation as of
September 30, 2007 and 2006, was 3,831,348 and 663,441 shares,
respectively.
Note
7 - Bio-Rap Technologies Ltd.
On
April
1, 2007, the Company entered into an amendment of the Company’s License and
Research Agreement with Bio-Rap Technologies Ltd. (“Bio-Rap”). Among other
changes, the amendment extends to all fields the Company’s rights to sell
therapeutic and diagnostic product pursuant to the licenses granted in that
agreement.
In
addition, the amendment will result in an increase in annual research funding
provided by the Company to Bio-Rap, and in the Company making certain defined
payments to Bio-Rap over the course of the next 18 months. Other payments due
to
Bio-Rap based on the Company’s sales of diagnostic products or grant of
sublicense rights, including royalties, milestone payments and payments
attributable to sublicense revenue, are significantly reduced. The amendment
gives the Company the right to further reduce royalty payments on diagnostic
products on making a one-time payment within eight years, and to further reduce
payments resulting from sublicense revenue on making a one-time payment made
within the next five years.
Finally,
under the amendment the Company assumes all of Bio-Rap’s right and interest in a
license with ARUP Laboratories at the University of Utah (“ARUP”). ARUP will, in
the future, be a sublicensee of the Company.
Note
8 - Oxis International
On
April
2, 2007, the Company entered into an Amended and Restated Exclusive License
Agreement with Oxis International (“Oxis”) that includes a worldwide exclusive
license granted by Oxis to the Company and covering a family of orally
bioavailable organoselenium compounds that have shown anti-oxidant and
anti-inflammatory properties in clinical and preclinical studies, and which
changes certain rights and obligations under the Company’s previous agreement
with Oxis. Among other changes, the amended agreement broadens the field of
the
Company’s license to all uses of the licensed technology and eliminates the
exclusive right of Oxis to act as a supplier of licensed product to the Company.
The
amended agreement also requires that the Company make certain fixed payments
to
Oxis of up to $500,000 over the next six months, and enter into a share purchase
agreement for the purchase of $500,000 of newly issued shares of Oxis common
stock at a premium over the then current market price. In
August
2007, we acquired 2,083,333 shares of Oxis pursuant to the share purchase
agreement for $500,000, of which $100,000 premium was expensed at the date
of
the acquisition. The investment is accounted for at cost and included in other
assets as of September 30, 2007, since it is a restricted security. These
shares must be held for a period of not less than 18 months. The investment
has
been accounted for at cost and included in other assets. All other amounts
have
been paid as of September 30, 2007. The Company further commits to a minimum
investment in a development program from licensed products.
Royalty
and milestone payments are changed in the amended agreement, including the
addition of a right to reduce royalty payments to Oxis in the event a royalty
on
a licensed product is payable to a third party.
ITEM
2. Management's
Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
We
are a
product-based biopharmaceutical company engaged in the development of drugs
to
treat and prevent cardiovascular disease and diabetes. We have identified
several promising product candidates that we believe represent novel approaches
to some of the largest pharmaceutical markets.
The
Company has two lead products in Phase 2 clinical trials:
●
ALT-2074
is a glutathione peroxidase mimetic in clinical development for reducing the
morbidity and mortality of patients with diabetes following a myocardial
infarction. ALT-2074 has demonstrated potential efficacy in animal models of
heart attack and in a 20-patient clinical trial in ulcerative colitis. Our
goal
for ALT-2074 is to develop it for acute coronary syndrome and explore its
anti-atherosclerotic activity in diabetic patients at elevated risk for these
diseases. The compound has demonstrated the ability to reduce infarct size
by
approximately 85 percent in a mouse model of heart attack called ischemia
reperfusion injury. It is currently being evaluated in two clinical trials.
The
first is a Phase 2 study using ALT-2074 in diabetic patients, who tested
positive for a marker of increased cardiovascular risk (haptoglobin genotype
testing). Patients are being treated with ascending doses of ALT-2074 or placebo
for 28 days as we track inflammatory biomarkers and functional improvement
in
their reverse cholesterol transport. Results from this study are anticipated
in
the first quarter of 2008. In addition, we are conducting a Phase 2 clinical
trial in diabetic patients undergoing angioplasty to see whether ALT-2074 can
protect heart muscle that is not receiving adequate blood supply. This trial
of
60 patients could support results of the first trial. We cannot yet predict
the
end of this study and expect to provide an update before the end of the year.
●
Alagebrium
chloride or alagebrium (formerly ALT-711), is an Advanced Glycation End-product
Crosslink Breaker being developed for diastolic heart failure (“DHF”) and
diabetic nephropathy. Alagebrium has demonstrated potential efficacy in two
clinical trials in heart failure, as well as in animal models of heart failure,
nephropathy, hypertension and erectile dysfunction (“ED”). These diseases
represent rapidly growing markets of unmet medical needs, particularly common
among diabetic patients. The compound has been tested in approximately 1,000
patients, which represents a sizeable human safety database, in a number of
Phase 2 clinical studies.
The
Company is also developing a diagnostic kit to identify patients with diabetes
at increased risk for cardiovascular disease. The technology underlying this
kit
relates to the haptoglobin protein. The common variant of this protein is
associated with increased cardiovascular risk. Any successful commercialization
of such a kit could generate revenues for the Company in future years and could
help focus the development of the Company’s lead glutathione peroxide mimetic,
ALT-2074.
Future
Development Plans
Since
we
have been able to complete our Series B Preferred Stock Financing, as described
elsewhere in this quarterly report, we hope to proceed with several studies
involving ALT-2074 and alagebrium. With respect to ALT-2074, in addition
to the myocardial protection study, and the Phase II biomarker study designed
to
correlate the dose and schedule of ALT-2074 with an effect on inflammatory
biomarker levels and various components of cholesterol, we are considering
other
clinical development activities. With respect to alagebrium, we plan,
among other things, to initiate a small Phase II study to examine the impact
of
alagebrium on heart function. As previously reported, we also expect that
alagebrium will be studied in a clinical trial of patients with Type I diabetes
and microalbuminuria (protein in the urine), funded by the Juvenile Diabetes
Research Foundation.
We
continue to evaluate potential pre-clinical and clinical studies in other
therapeutic indications in which alagebrium and ALT-2074 may address significant
unmet needs. For ALT-2074, we plan to explore indications for myocardial
protection, atherosclerosis and other inflammatory diseases. For alagebrium,
in
addition to our anticipated clinical studies in heart failure, we have conducted
preclinical studies focusing on atherosclerosis; Alzheimer's disease; photoaging
of the skin; eye diseases, including age-related macular degeneration (“AMD”),
and glaucoma; and other diabetic complications, including renal diseases.
Since
our
inception in October 1986, we have devoted substantially all of our resources
to
research, drug discovery and development programs. To date, we have not
generated any revenues from the sale of products and do not expect to generate
any such revenues for a number of years, if at all. We have incurred an
accumulated deficit of $258,295,308 as of September 30, 2007, and expect to
incur net losses, potentially greater than losses in prior years, for a number
of years.
We
have
financed our operations through proceeds from public offerings of common stock,
private placements of common and preferred equity and debt securities, revenue
from former collaborative relationships, reimbursement of certain of our
research and development expenses by our collaborative partners, investment
income earned on cash and cash equivalent balances and short-term investments
and the sale of a portion of our New Jersey State net operating loss
carryforwards and research and development tax credit
carryforwards.
Our
business is subject to significant risks including, but not limited to, (1)
ability to obtain and maintain sufficient financial resources to conduct and
continue enrollment in our clinical studies of ALT-2074 and alagebrium, (2)
the
risks inherent in our research and development efforts, including clinical
trials and the length, expense and uncertainty of the process of seeking
regulatory approvals for our product candidates, (3) uncertainties associated
with obtaining and enforcing our patents and with the patent rights of others,
(4) uncertainties regarding government healthcare reforms and product pricing
and reimbursement levels, (5) technological change and competition, (6)
manufacturing uncertainties, and (7) dependence on collaborative partners and
other third parties. Even if our product candidates appear promising at an
early
stage of development, they may not reach the market for numerous reasons. These
reasons include the possibilities that the products will prove ineffective
or
unsafe during preclinical or clinical studies, will fail to receive necessary
regulatory approvals, will be difficult to manufacture on a large scale, will
be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties. These risks and others are discussed in
our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and
in
Part II of the Quarterly Report under the heading “Item 1A - Risk
Factors.”
Revenue
Recognition
Synvista’s
revenue recognition policy is consistent with the criteria set forth in Staff
Accounting Bulletin 104 - Revenue Recognition in Financial Statements (“SAB
104”) for determining when revenue is realized or realizable and earned. In
accordance with the requirements of SAB 104, the Company recognizes revenue
when
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3)
the seller’s price is fixed or determinable; and (4) collectability is
reasonably assured.
Due
to
the immaterial nature of our current licensing revenues, we recognize revenues
from non-refundable, up-front license fees as received which approximates the
straight-line basis.
Critical
Accounting Policies
As
of the
date of the filing of this quarterly report, we believe there have been no
material changes to our critical accounting policies and estimates during the
nine months ended September 30, 2007.
Results
of Operations
Three
Months ended September 30, 2007 and 2006
Total
revenues for the three months ended September 30, 2007 and 2006, were $1,000
and
$0, respectively. The amount received during the three months ended September
30, 2007 is from a royalty agreement with ARUP Laboratories which we entered
into in June 2004.
Our
total
expenses were approximately $4,561,000 for the three months ended September
30,
2007, compared to $14,115,000 for the three months ended September 30, 2006.
The
total expenses, excluding $11,379,000 of in-process research and development
in
the three months ended September 30, 2006, increased in the three months ended
September 30, 2007. The increase was a result of higher research and development
expenses and non-cash interest expense of approximately $1,364,000 relating
to
the notes we issued as part of our private financing described elsewhere in
this
Quarterly
Report.
Research
and development expenses were $2,265,000 for the three months ended September
30, 2007, as compared to $737,000 for the same period in 2006, exclusive of
$11,379,000 of in-process research and development, an increase of $1,528,000
or
207.5%. This increase was attributed to increased patent expenses, clinical
trial costs and preclinical expenses partially offset by a decrease in personnel
cost, product liability insurance and third party consulting. In the three
months ended September 30, 2007, of the total amount spent on research and
development expenses, we incurred $157,000 in patent and licensing expenses,
$78,000 in personnel and personnel-related expenses, $33,000 in third party
consulting and $41,000 in product liability insurance. In 2006, of the total
amount spent on research and development expenses, we incurred $122,000 in
patent expenses, $123,000 in personnel and personnel-related expenses, $50,000
in product liability insurance and $130,000 in third party consulting. Research
and development expenses normally include third-party expenses associated with
pre-clinical and clinical studies, manufacturing costs, including the
development and preparation of clinical supplies, personnel and
personnel-related expenses and facility expenses.
General
and administrative expenses were $894,000 for the three months ended September
30, 2007, as compared to $1,998,000 for the same period in 2006, a decrease
of
55.2%. The decrease is a result of $1,231,000 of severance cost paid in 2006
and
lower insurance costs in 2007.
Investment
income for the three months ended September 30, 2007 was $195,000, as compared
to $39,000 for the same period in 2006. The increase was a result of higher
investment balances.
Our
net
loss applicable to common stockholders was $5,986,000 for the three months
ended
September 30, 2007, compared to $14,360,000 for the same period in 2006, a
decrease of 58.3%. This decrease was a result of in-process research and
development in 2006 resulting from Synvista’s merger with HaptoGuard partially
offset in 2007 by non-cash interest expense and the accretion of Series B
Preferred Stock beneficial conversion feature relating to our private financing.
Included in the net loss applicable to common stockholders are preferred stock
dividends of $1,620,000, of which $1,245,000 relates to the accretion of the
Series B Preferred Stock beneficial conversion feature, and $284,000 for the
three months ended September 30, 2007 and 2006, respectively.
Nine
Months ended September 30, 2007 and 2006
Total
revenues for the nine months ended September 30, 2007 and 2006, were $51,066
and
$50,000, respectively. In 2007 and 2006 other income included $50,000 and
$50,000, respectively, received from a licensing agreement with Avon Products,
Inc. In 2007, $1,000 was also received under our royalty agreement with ARUP
Laboratories.
Our
total
expenses were approximately $13,838,000 for the nine months ended September
30,
2007, compared to $16,956,000 for the nine months ended September 30, 2006.
The
total expenses, excluding $11,379,000 for in-process research and development
in
the three months ended September 30, 2006, increased in the nine months ended
September 30, 2007. The increase was a result of higher research and development
expenses and non-cash interest expense of $6,000,000 relating to the notes
we
issued as part of our private financing described elsewhere in this quarterly
report.
Research
and development expenses were $4,666,000 for the nine months ended September
30,
2007, as compared to $1,769,000 for the same period in 2006, exclusive of
$11,379,000 of in-process research and development, an increase of $2,897,000,
or 163.8%. This increase was attributed to increased patent expenses, clinical
trial costs and preclinical expenses partially offset by a decrease in personnel
cost and product liability insurance. In the nine months ended September 30,
2007, of the total amount spent on research and development expenses, we
incurred $1,324,000 in patent and licensing expenses, $234,000 in personnel
and
personnel-related expenses, $137,000 in third party consulting and $104,000
in
product liability insurance. In 2006, of the total amount spent on research
and
development expenses, we incurred $209,000 in patent expenses, $472,000 in
personnel and personnel-related expenses, $214,000 in product liability
insurance and $360,000 in third party consulting. Research and development
expenses normally include third-party expenses associated with pre-clinical
and
clinical studies, manufacturing costs, including the development and preparation
of clinical supplies, personnel and personnel-related expenses and facility
expenses.
General
and administrative expenses were $2,535,000 for the nine months ended September
30, 2007, as compared to $3,807,000 for the same period in 2006, a decrease
of
33.4%. The decrease is a result of $1,231,000 of severance cost paid in 2006
and
lower personnel costs in 2007.
Investment
income for the nine months ended September 30, 2007 was $258,000, as compared
to
$165,000 for the same period in 2006. The increase was a result of higher
investment balances.
Our
net
loss applicable to common stockholders was $15,149,000 for the nine months
ended
September 30, 2007, compared to $19,393,000 for the same period in 2006, a
decrease of 21.9%. This decrease was a result of in-process research and
development in 2006 resulting from the merger with HaptoGuard partially offset
in 2007 by non-cash interest expense and the accretion of Series B preferred
stock beneficial conversion feature relating to our private financing. Included
in the net loss applicable to common stockholders are preferred stock dividends
of $1,620,000, of which $1,245,000 relates to the accretion of the Series B
Preferred Stock beneficial conversion feature, and $2,653,000 for the nine
months ended September 30, 2007 and 2006, respectively.
Liquidity
and Capital Resources
We
had
cash and cash equivalents at September 30, 2007, of $17,298,000, compared to
$1,478,780 at December 31, 2006. The increase is attributable to
$22,531,000 of net cash provided by financing activities offset by $6,299,000
used in operating activities. At September 30, 2007, we had working capital
of
$15,880,000.
We
expect to have sufficient cash and cash equivalents to satisfy our working
capital requirements through the end of the fourth quarter of 2008.
We
do not
have any approved products and currently derive cash from sales of our
securities, and interest on cash and cash equivalents. We are highly susceptible
to conditions in the global financial markets and in the pharmaceutical
industry. Positive and negative movement in those markets will continue to
pose
opportunities and challenges to us. Previous downturns in the market valuations
of biotechnology companies and of the equity markets more generally have
restricted our ability to raise additional capital on favorable
terms.
On
April
5, 2007, we entered into a Series B Preferred Stock and Warrant Purchase
Agreement (the “Agreement”) with institutional investors (the “Buyers”).
Pursuant to the terms and subject to the conditions contained in the Series
B
Agreement, on July 25, 2007, we issued and sold to the Buyers, and the Buyers
purchased from us, $25,000,000 of our newly created Series B Preferred Stock
and
warrants to purchase shares of our Series B Preferred Stock (the
“Financing”).
On
July
20, 2007, at our annual meeting of stockholders, our stockholders approved
the
issuance of securities in the Financing. At the closing of the Financing, on
July 25, 2007, we issued 10,000,000 shares of our Series B Preferred Stock
and
warrants to purchase 2,500,000 shares of Series B Preferred Stock to the Buyers.
These warrants are exercisable for a period of five years commencing on July
25,
2007 at an exercise price of $2.50 per share.
We
submitted a Plan of Compliance to the American Stock Exchange, Inc. (“AMEX”) on
November 6, 2006, outlining our operational plan and strategic objectives, and
amended our Plan of Compliance on January 3, 2007 and January 5, 2007. The
Plan
of Compliance was prepared in response to a letter received from AMEX on October
9, 2006, indicating we were below certain continued listing standards. These
standards were (i) Section 1003(a)(i) of the AMEX Company Guide, as a result
of
our stockholder’s equity of less than $2,000,000 and losses from continuing
operations and/or net losses in two out of our three most recent fiscal years;
(ii) Section 1003(a)(ii) of the AMEX Company Guide, as a result of our
shareholder’s equity of less than $4,000,000 and losses from continuing
operations and/or net losses in three out of our four most recent fiscal years;
and (iii) Section 1003(a)(iii) of the AMEX Company Guide, as a result of our
stockholder’s equity of less than $6,000,000 and losses from continuing
operations and/or net losses in our five most recent fiscal years. To date,
we
have not regained compliance with such continued listing standards, but we
are
working towards achieving that goal consistent with our Plan of Compliance.
On
September 20, 2007, we received a notice from the staff (the “Staff”) of AMEX,
that the Company has resolved the continued listing deficiencies but pursuant
to
the AMEX Company Guide, the Company’s Plan Period will remain open until we have
been able to demonstrate compliance with the continued listing standards for
two
consecutive quarters.
On
April
1, 2007, we entered into an amendment of our License and Research Agreement
with
Bio-Rap Technologies Ltd. (“Bio-Rap”). Among other changes, the amendment
extends to all fields our rights to sell therapeutic and diagnostic product
pursuant to the licenses granted in that agreement.
In
addition, the amendment will result in an increase in annual research funding
provided by us to Bio-Rap, and in our making certain defined payments to Bio-Rap
over the course of the next 18 months. Other payments due to Bio-Rap based
on
our sales of diagnostic products or grant of sublicense rights, including
royalties, milestone payments and payments attributable to sublicense revenue,
are significantly reduced. The amendment gives us the right to further reduce
royalty payments on diagnostic products on making a one time payment within
eight years, and to further reduce payments resulting from sublicense revenue
on
a one time payment made within the next five years. (See Note 7 -- Bio-Rap
Technologies).
On
April
2, 2007, we entered into an Amended and Restated Exclusive License Agreement
with Oxis International (“Oxis”) that includes a worldwide exclusive license
granted by Oxis to us and covering a family of orally bioavailable
organoselenium compounds that have shown anti-oxidant and anti-inflammatory
properties in clinical and preclinical studies, and which changes certain rights
and obligations under our previous agreement with Oxis. Among other changes,
the
amended agreement broadens the field of our license to all uses of the licensed
technology and eliminates the exclusive right of Oxis to act as a supplier
of
licensed product for us.
The
amended agreement also requires that the Company make certain fixed payments
to
Oxis of up to $500,000 over the next six months, and enter into a share purchase
agreement for the purchase of $500,000 of newly issued shares of Oxis common
stock at a premium over the then current market price. In
August
2007, we acquired 2,083,333 shares of Oxis pursuant to the share purchase
agreement for $500,000, of which $100,000 premium was expensed at the date
of
the acquisition. These
shares must be held for a period of not less than 18 months. The investment
has
been accounted for at cost and included in other assets. All other amounts
have
been paid as of September 30, 2007. The Company further commits to a minimum
investment in a development program from licensed products.
The
amount and timing of our future capital requirements will depend on numerous
factors, including the timing
of
resuming
our
research and development programs, if at all, the number and characteristics
of
product candidates that we pursue, the conduct of preclinical tests and clinical
studies, the status and timelines of regulatory submissions, the costs
associated with protecting patents and other proprietary rights, the ability
to
complete strategic collaborations and the availability of third-party funding,
if any.
Selling
securities to satisfy our capital requirements may have the effect of materially
diluting the current holders of our outstanding stock. We may also seek
additional funding through corporate collaborations and other financing
vehicles. There can be no assurances that such funding will be available at
all
or on terms acceptable to us. If funds are obtained through arrangements with
collaborative partners or others, we may be required to relinquish rights to
our
technologies or product candidates and alter our plans for the development
of
our product candidates. If we are unable to obtain the necessary funding, we
may
be forced to cease operations. There can be no assurance that the products
or
technologies that we are currently developing will result in revenues to us
or
any meaningful return on investment to our stockholders.
Current
and Future Financing Needs
The
significant operating and capital expenditures for product licensing and
development for our current product candidates and any future products,
including pre-clinical trials, FDA-approved clinical trials and manufacturing
and commercialization activities, will require significant additional funding.
Based on our current development plans for our present product candidates,
we
expect to have sufficient cash to support of these development activities over
the next 15 months. This anticipated spending includes clinical trial costs,
milestone payments, manufacturing costs as well as general corporate costs.
Our
continued operations will depend on our ability to raise additional funds
through various potential sources, such as equity and debt financing. Such
additional funds might not be available on acceptable terms, if at all, and
there can be no assurance that any additional funding that we do obtain will
be
sufficient to meet our needs in the long term. We will consider raising
additional funds through all viable means, including one or more private
placements of common stock, preferred stock or debt or a combination thereof.
We
can provide no assurances that any additional capital that we are able to obtain
will be sufficient to meet our needs, including any milestone payments.
New
Accounting Pronouncements
In
June
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 07-3, Accounting for Advance Payments for Goods or Services to be Received
for Use in Future Research and Development Activities. EITF 07-3 provides
clarification surrounding the accounting for nonrefundable research and
development advance payments, whereby such payments should be recorded as an
asset when the advance payment is made and recognized as an expense when the
research and development activities are performed. EITF 07-3 is effective for
interim and annual reporting periods beginning after December 15, 2007. We
are
currently evaluating the impact that adopting this EITF will have on our
consolidated financial statements.
Forward-Looking
Statements and Cautionary Statements
Statements
in this Form 10-Q that are not statements or descriptions of historical facts
are "forward-looking" statements under Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995, and are subject to numerous risks and uncertainties. These forward-looking
statements and other forward-looking statements made by us or our
representatives are based on a number of assumptions. The words "believe,"
"expect," "anticipate," "intend," "estimate" or other expressions, which are
predictions of or indicate future events and trends and which do not relate
to
historical matters, identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, as they involve
risks and uncertainties, and actual results could differ materially from those
currently anticipated due to a number of factors, including those set forth
in
this section and elsewhere in this Form 10-Q. These factors include, but are
not
limited to, the risks set forth below.
The
forward-looking statements represent our judgments and expectations as of the
date of this Report. We assume no obligation to update any such forward-looking
statements. See Part II, Item 1A - Risk Factors.
ITEM
3. Qualitative
and Quantitative Disclosures about Market Risk.
Our
exposure to market risk for changes in interest rates relates primarily to
our
investment in marketable securities. We do not use derivative financial
instruments in our investments. All of our investments resided in money market
accounts. Accordingly, we do not believe that there is any material market
risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this Item.
ITEM
4T. Controls
and Procedures.
a) Evaluation of
Disclosure Controls and Procedures.
Our
management has evaluated, with the participation of our Chief Executive Officer
and our principal financial and accounting officer, the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
as
of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.
Based upon that evaluation, the Chief Executive Officer and the principal
financial and accounting officer have concluded that as of the end of such
fiscal quarter, our current disclosure controls and procedures were not
effective, because of the material weakness in internal control over financial
reporting described below. We have taken, and are continuing to take, steps
to
address this weakness as described below. With the exception of such weakness,
however, the Chief Executive Officer and the principal financial and accounting
officer believe that our current disclosure controls and procedures are adequate
to ensure that information required to be disclosed in the reports we file
under
the Exchange Act is recorded, processed, summarized and reported on a timely
basis.
b) Material
Weakness and Changes in Internal Controls.
During
the review of our financial statements for the three and six-month periods
ended
June 30, 2007, our independent registered public accounting firm identified
material weaknesses regarding our internal controls over the recording of an
obligation related to the restructuring of an agreement related in part to
the
financing and an obligation to purchase an investment during the second quarter
ended June 30, 2007. As defined by the Public Company Accounting Oversight
Board
Auditing Standard No. 5, a material weakness is a deficiency or a combination
of
deficiencies, in internal control over financial reporting, such that there
is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected. Since this material
weakness was identified by our independent registered public accounting firm
in
connection with its review of our financial statements for the three and
six-month periods ended June 30, 2007, the transactions subject to these issues
have been correctly accounted for and disclosed by us and no restatement of
any
previously filed financial statements is required. However, on a going forward
basis, management will continue to evaluate our disclosure controls and
procedures concerning the recording of commitments in order to prevent the
recurrence of the circumstance that resulted in the material weakness identified
in connection with the review of the financial statements for the three and
six-month periods ended June 30, 2007.
c) Except
for the changes in controls described above, there were no changes in our
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter covered by this
Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1A. Risk Factors.
There
have been no material changes to the risk factors in our Annual Report on Form
10-K for the fiscal year ended December 31, 2006, other than as set forth
below:
Risks
Related to Our Business
The
holders of the Series B Preferred Stock are entitled to rights
and preferences that are significantly greater than the rights and preferences
of the holders of our common stock, including preferential payments upon a
liquidation, as well as a dividend and registration rights associated with
their
shares.
Holders
of the Company’s Series B Preferred Stock are entitled to a number of rights and
preferences which holders of shares of our outstanding common stock do not
and
will not have. Among these rights and preferences is a preference on liquidation
of the Company, which means that holders of the Series B Preferred Stock will
be
entitled to receive the proceeds out of any sale or liquidation of the Company
before any such proceeds are paid to holders of our common stock. In general,
if
the proceeds received upon any sale or liquidation do not exceed the total
liquidation proceeds payable to the holders of the Series B Preferred Stock,
holders of common stock would received no value for their shares upon such
a
sale or liquidation. In addition, shares of the Series B Preferred Stock accrue
dividends at a rate of 8% per year for a period of five years from the date
on
which the shares of Series B Preferred Stock were issued.
Holders
of the Series B Preferred Stock also have significant rights with respect to
certain actions that the Company may wish to take from time to time. At any
time
when any shares of Series B Preferred Stock remain outstanding, the Company
may
not, without the consent of the holders of a majority of the shares held by
holders of at least $4,000,000 (measured as of the original issue date) worth
of
Series B Preferred Stock:
|
• |
incur
debt in excess of $2,000,000;
|
|
• |
authorize
securities at a price per share less than the price per share that
the
Series B Preferred Stock has been sold under the Series B Purchase
Agreement;
|
|
• |
increase
the authorized capital of the Company;
|
|
• |
create
any new classes or series of stock with rights senior to the common
stock;
|
|
• |
issue
any shares of the Company’s Series A Preferred Stock, other than in
accordance with the Company’s shareholder rights plan;
|
|
• |
amend
any provision of the Company’s Certificate of Incorporation or Bylaws that
changes the rights of the Series B Preferred Stock;
|
|
• |
pay
or declare any dividend on any capital stock of the Company;
|
|
• |
purchase
or redeem any securities;
|
|
• |
issue
any securities to employees other than pursuant to the Plan, or increase
the number of shares of common stock reserved for issuance under
the Plan;
|
|
• |
liquidate,
dissolve or wind-up;
|
|
• |
merge
with another entity;
|
|
• |
sell
or dispose of any assets of the Company, including the sale or
license of its intellectual property;
|
|
• |
change
the number of directors;
|
|
• |
amend
any portion of the Company’s Certificate of Incorporation or Bylaws;
|
|
• |
materially
change the nature of the Company’s business;
|
|
• |
intentionally
take any action that may result in the Company’s stock no longer being
approved for quotation on the AMEX or NASDAQ, or that would cause
the
common stock of the Company to no longer be registered pursuant to
Section
12 of the Securities Exchange Act of 1934; or
|
|
• |
amend
any material agreement that has been filed with the Securities and
Exchange Commission.
|
As
a
result, the Company will not be able to take any of these actions without first
seeking and obtaining the approval of the holders of the Series B Preferred
Stock. We may not be able to obtain such approval in a timely manner or at
all,
even if we think that taking the action for which we seek approval is in the
best interests of the Company.
In
connection with the closing of the financing, Synvista entered into an Amendment
No. 1 to the Registration Rights Agreement (“Amendment”) with the Buyers. The
Amendment amends the Registration Rights Agreement dated July 25, 2007, by
extending the schedule under which the Company is required to file registration
statements with the Securities and Exchange Commission for the resale of the
shares of common stock issuable upon conversion of the shares of Series B
Preferred Stock issued to the Buyers, as well as upon conversion of the shares
of Series B Preferred Stock underlying the warrants issued to the Buyers. The
Amendment also grants the Buyers additional piggy-back registration rights
in
the event of an underwritten public offering of the Company’s securities and
demand registration rights at the option of a majority of the Buyers. The
Amendment also relieves the Company of its obligation to pay the Buyers
liquidated damages in certain circumstances, as described in the Amendment.
The
holders of the Series B Preferred Stock represent a significant voting interest
in the Company.
The
Series B Preferred Stock is convertible into common stock at any time at the
option of the holder at an initial conversion rate of 1:1, subject to adjustment
pursuant to the terms of the Series B Preferred Stock. Assuming the full
conversion of all of the shares of Series B Preferred Stock into our common
stock, and the exercise all of warrants to acquire shares of Series B Preferred
Stock which are then converted into shares of our common stock, the holders
of
the Series B Preferred Stock would represent approximately 83% of our issued
and
outstanding capital stock as of September 30, 2007. Accordingly, in the event
that all of the shares of Series B Preferred Stock were to be converted into
our
common stock, a change in control of the Company would occur. Prior to such
conversion, each holder of Series B Preferred Stock is entitled to cast the
number of votes equal to one-half of the number of whole shares of common stock
into which the shares of Series B Preferred Stock held by such holder are
convertible. Therefore, on the date of issuance of the Series B Preferred Stock,
the holders of Series B Preferred Stock held approximately 41% of the voting
power of the Company.
Failure
to remediate the material weakness in our internal controls and to achieve
and
maintain effective internal control in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business
and stock price.
During
the review of our financial statements for the three and six-month periods
ended
June 30, 2007, our independent registered public accounting firm identified
a
material weakness regarding our internal controls over the recording of an
obligation related to the restructuring of an agreement related in part to
the
financing and an obligation to purchase an investment during the second quarter
ended June 30, 2007. As defined by the Public Company Accounting Oversight
Board
Auditing Standard No. 5, a material weakness is a deficiency or a combination
of
deficiencies, in internal control over financial reporting, such that there
is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected. Since this material
weakness was identified by our independent registered public accounting firm
in
connection with its review of the financial statements in this Form 10-Q, the
transactions subject to these issues are correctly accounted for and disclosed
by us in the financial statements included in this Form 10-Q and no restatement
of any previously filed financial statements is required. However, on a going
forward basis, management will continue to evaluate our disclosure controls
and
procedures concerning the recording of commitments in order to prevent the
recurrence of the circumstance that resulted in the material weakness identified
in connection with the review of the financial statements in this Form
10-Q.
However,
we cannot currently assure you that the remedial measures that are currently
being implemented will be sufficient to result in a conclusion that our internal
controls no longer contain any material weaknesses, and that our internal
controls are effective. In addition, we cannot assure you that, even if we
are
able to achieve effective internal control over financial reporting, our
internal controls will remain effective for any period of time. The failure
to
maintain effective internal control over financial reporting could have a
material adverse effect on our business and stock price.
The
sale of a substantial number of shares of our common stock could cause the
market price of our common stock to decline and may impair our ability to raise
capital through additional offerings.
We
currently have outstanding warrants and options to purchase an aggregate of
3,831,348 shares of our common stock, including warrants to purchase 3,551,640
shares of our common stock.
Sales
of
these shares in the public market, or the perception that future sales of such
shares could occur, could have the effect of lowering the market price of our
common stock below current levels and make it more difficult for us and our
stockholders to sell our equity securities in the future.
Our
executive officers, directors and holders of more than 5% of our common stock
collectively beneficially own approximately 29% of the outstanding common stock,
which includes fully vested options to purchase common stock. In addition,
approximately 171,228 shares of common stock issuable upon exercise of vested
stock options could become available for immediate resale if such options were
exercised.
The
actual sale or the availability for sale, of shares of common stock by
stockholders could cause the market price of our common stock to decline and
could impair our ability to raise capital through an offering of additional
securities.
ITEM
4. Submission
of Matters to a Vote of Security-Holders
The
Annual Meeting of Stockholders of the Company (the “Meeting”) was held on July
20, 2007. The following matters were voted upon at the Meeting: (i) an amendment
to the Company’s 2005 Stock Plan to reserve up to an additional 53,000,000
shares (prior to the implementation of the reverse stock split) of common stock
for issuance under the Plan; (ii) the issuance of shares of the Company’s Series
B Preferred Stock, warrants to purchase Series B Preferred Stock, shares of
Series B Preferred Stock issuable upon exercise of such warrants and our common
stock issuable upon conversion of Series B Preferred Stock, each pursuant to
the
Series B Preferred Stock and Warrant Purchase Agreement, dated as of April
5,
2007, as amended on June 1, 2007; (iii) an amendment to our Amended and Restated
Certificate of Incorporation, in order to increase the authorized number of
shares of preferred stock; (iv) an amendment to our Amended and Restated
Certificate of Incorporation, in order to designate the rights and preferences
of the Series B Preferred Stock; (v) an amendment to our Amended and Restated
Certificate of Incorporation, in order to change the name of the Company from
Alteon Inc. to Synvista Therapeutics, Inc.; (vi) an amendment to our Amended
and
Restated Certificate of Incorporation, in order to change the provisions
regarding the indemnification of Directors; (vii) an amendment to our Amended
and Restated Certificate of Incorporation, in order to remove references to
retired classes of preferred stock; (viii) an amendment to our Amended and
Restated Certificate of Incorporation, in order to effect a reverse stock split
of our common stock at a ratio within the range of 1:50 to 1:100, with the
specific ratio to be determined by the Board of Directors of the Company;
(ix)
adjournment of the Annual Meeting if necessary; and
(x) to
ratify the appointment of J.H. Cohn LLP as the Company’s independent registered
public accounting firm for the fiscal year ending December 31,
2007.
The
numbers of votes reflected below are prior to the implementation of the reverse
stock split.
(i) The
number of votes cast for, against and abstaining from the proposal to approve
an
amendment to our 2005 Stock Plan to reserve up to an additional 53,000,000
shares (prior to the implementation of the reverse stock split) of common stock
for issuance under the 2005 Stock Plan, were as follows:
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
|
|
|
|
69,401,200
|
3,877,417
|
896,877
|
46,405,465
|
(ii) The
number of votes cast for, against and abstaining from the proposal the issuance
of shares of our Series B Preferred Stock, warrants to purchase Series B
Preferred Stock, shares of Series B Preferred Stock issuable upon exercise
of
such warrants and our common stock issuable upon conversion of Series B
Preferred Stock, each pursuant to the Series B Preferred Stock and Warrant
Purchase Agreement, dated as of April 5, 2007, as amended on June 1, 2007,
were
as follows:
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
|
|
|
|
70,229,000
|
2,980,118
|
966,376
|
46,405,465
|
(iii) The
number of votes cast for, against and abstaining from the proposal to amend
the
Company’s Amended and Restated Certificate of Incorporation, in order to
increase the authorized number of shares of preferred stock of the Company,
were
as follows:
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
|
|
|
|
70,207,506
|
2,809,244
|
1,158,744
|
46,405,465
|
(iv) The
number of votes cast for, against and abstaining from the proposal to amend
the
Company’s Amended and Restated Certificate of Incorporation, in order to
designate the rights and preferences of the Series B Preferred Stock, were
as
follows:
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
|
|
|
|
70,288,179
|
2,956,779
|
930,536
|
46,405,465
|
(v)
The
number of votes cast for, against and abstaing from the proposal to amend the
Company’s Amended and Restated Certificate of Incorporation, in order to change
the name of the Company from Alteon Inc. to Synvista Therapeutics, Inc., were
as
follows:
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
115,892,664
|
1,977,351
|
2,710,941
|
(vi) The
number of votes cast for, against and abstaining from the proposal to amend
the
Company’s Amended and Restated Certificate of Incorporation, in order to change
the provisions regarding the indemnification of Directors, were as
follows:
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
110,831,076
|
7,344,758
|
2,405,122
|
(vii) The
number of votes cast for, against and abstaining from the proposal to amend
the
Company’s Amended and Restated Certificate of Incorporation, in order to remove
references to retired classes of preferred stock, were as follows:
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
|
|
|
|
71,732,694
|
1,513,025
|
929,775
|
46,405,465
|
(viii)
The number of votes cast for, against and abstaining from the proposal to amend
the Company’s Amended and Restated Certificate of Incorporation, in order to
effect a reverse stock split of our common stock at a ratio within the range
of
1:50 to 1:100, with the specific ratio to be determined by the Board of
Directors of the Company, were as follows:
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
114,161,904
|
4,127,929
|
2,291,124
|
(ix)
The
number of votes cast for, against and abstaining from the proposal for the
approval of an adjournment of the Annual Meeting if necessary, were as
follows:
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
110,529,735
|
7,591,809
|
2,459,409
|
(x)
The
number of votes cast for, against and abstaining from the ratification the
appointment of J.H. Cohn LLP as the Company’s independent registered public
accounting firm for the fiscal year ending December 31, 2007, were as
follows:
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
117,049,443
|
979,702
|
2,551,812
|
ITEM
6. Exhibits.
Exhibits
See
the
“Exhibit Index” on page 28 for exhibits required to be filed with this Quarterly
Report on Form 10-Q.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
November 14, 2007
SYNVISTA
THERAPEUTICS, INC.
By:
/s/ Noah Berkowitz, M.D.,
Ph.D.
Noah
Berkowitz, M.D., Ph.D.
President
and Chief Executive Officer
(principal
executive officer)
By:
/s/ Jeffrey P.
Stein
Jeffrey
P. Stein, CPA
(principal
financial and accounting officer)
EXHIBIT
INDEX
Exhibit
|
|
No.
|
Description
of Exhibit
|
|
|
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
______________