10-K 1 v317307_10k.htm FORM 10-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2011

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: 0-53963

 

Neogenix Oncology, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   16-1697150
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

15010 Broschart Road, Suite 270, Rockville, MD 20850

(Address, including zip code, of principal offices)

 

Registrant’s telephone number, including area code: (301) 917-6880

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
None    

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.

Yes ¨ No x

 

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 ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨ Accelerated filer    ¨
Non-accelerated filer ¨(do not check if smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of July 9, 2012 there were 22,924,419 shares of common stock, par value $.00001 per share, outstanding. The most recent sale of our common stock occurred in August 2011 for $12.50 per share.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 
 

 

TABLE OF CONTENTS

 

      Page
PART I     1
ITEM 1. Business   1
ITEM 1A. Risk Factors   9
ITEM 1B. Unresolved staff comments   19
ITEM 2. Properties   19
ITEM 3. Legal Proceedings   19
ITEM 4. Mine Safety Disclosures    
       
PART II     20
ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   20
ITEM 6. Selected Financial Data   20
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk   28
ITEM 8. Financial Statements and Supplementary Data   28
ITEM 9 Change and Disagreements with Accountants on Accounting and Financial Disclosure   28
ITEM 9A. Controls and Procedures   28
ITEM 9B. Other Information   30
       
PART III     31
ITEM 10. Directors, Executive Officers, and Corporate Governance   31
ITEM 11. Executive Compensation   36
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   39
ITEM 13. Certain Relationships and Related Transactions, and Director Independence   40
ITEM 14. Principal Accounting Fees and Services   40
       
PART IV     41
ITEM 15. Exhibits, Financial Statement Schedules   41

 

i
 

 

PART I

 

ITEM 1. BUSINESS

 

Introduction - Our Company

 

Neogenix Oncology, Inc. (“Neogenix” or the “Company”) is a clinical stage biotherapeutic company focused on developing novel therapeutic and companion diagnostic products for detection and treatment of cancer. The Company’s initial focus includes pancreatic and colorectal cancer, but it holds a pipeline of preclinical monoclonal antibodies with specificity towards other cancers. The market for diagnostic and therapeutic products for these cancers are substantial and growing. Neogenix has not commenced its planned or principal operations and has not generated any revenues since its inception, and, as such, is considered a development stage enterprise. The products being developed will require substantial funding for further research and development, clinical testing, and regulatory approval prior to their commercialization.

 

Pipeline:

 

Our pipeline currently consists of three novel monoclonal antibodies or “mAb” product candidates targeting solid tumors. The Company has both issued and pending patent applications related to the composition and utility of these mAb’s. The Company also has a companion diagnostics strategy to develop diagnostic products to be used in conjunction with its therapeutics as well as possible stand-alone diagnostics products.

 

·The Company’s lead product candidate, NEO-101 (Ensituximab), is a monoclonal antibody that recognizes a unique variant of MUC5AC associated with pancreatic or colorectal cancer. NEO-101 (Ensituximab) is a novel Phase IIa mAb that is targeted for colorectal and pancreatic cancer indications. NEO-101 has been granted Orphan Drug Status by the FDA for the treatment of pancreatic cancer.

 

·NEO-201 is a preclinical humanized mAb that recognizes a distinct TSA and has been found in pancreatic, colorectal cancers and adenocarcinoma human tissue samples.

 

·NEO-301 is a preclinical chimeric mAb that recognizes a TSA from pancreatic and colorectal cancers and adenocarcinoma and has been shown to induce potent tumor cell killing activity in tumors.

 

 

Clinical Trials:

 

In December 2009, Neogenix initiated a Phase I clinical trial of our lead therapeutic product candidate for advanced pancreatic and colorectal cancer, referred to as “NEO-101” (formerly known as “NPC-1C”) at Johns Hopkins University Hospital and North Shore University Hospital, following approval by the United States Food and Drug Administration (the “FDA”) of our investigational new drug application (“IND”). In late 2010, Duke University Medical Center joined the Phase I clinical trial of NEO-101.

 

The primary objectives of the Phase I clinical trial were (1) to determine the safety and tolerability of escalating doses of NEO-101 monoclonal antibody therapy and (2) to assess pharmacokinetics and select immune responses to the antibody at each dose level. We completed accrual of patients in the Phase I clinical trial during the fourth quarter 2011. The Phase I trial protocol currently provides that following completion of the Phase I trial, we would continue enrollment of patients with pancreatic cancer in a Phase IIA component, subject to FDA and Institutional Review Board (“IRB”) approval.

 

1
 

 

As part of the process related to clinical trials, Neogenix is developing a companion diagnostic assay immunohistochemistry (“IHC”) test for co-development with our therapeutic candidates. This diagnostic assay will screen patients for the presence of the NEO-101 antigenic marker and the applicability of the NEO-101 treatment.


Companion Diagnostics:

 

The Company has also devoted efforts towards the research and development of diagnostic tests for the detection of pancreatic and colon cancer. The Company's diagnostic tests are expected to serve as “companion diagnostics” for its therapeutic drug and also have the potential to serve as standalone tests for the diagnosis and detection of cancer. Such independent diagnostic tests will require FDA regulatory approval.

 

Currently, the Company has demonstrated the tumor specificity of NEO-101, NEO-201 and NEO-301 monoclonal antibodies using a immunohistochemistry (IHC) diagnostic test. The NEO-101 IHC test is currently serving as a companion diagnostic to identify patients expressing the NEO-101 antigen and meeting the eligibility criteria for clinical trials with the NEO-101 therapeutic antibody.

 

During the first quarter of 2009, Conemaugh Health System began patient enrollment and collection of tissue and blood samples from patients. As of December 31, 2011, approximately 85 patients had been enrolled in this research study. Tumor tissue samples from patients in the study were tested using our research phase assays and Neogenix mAbs.

 

In 2011, Neogenix commenced an IHC collaboration agreement with San Raffaele-Pisana (“SRP”), a leading healthcare company in Rome, Italy, to study the expression of tumor-specific biomarkers using NEO-101, NEO-201, and NEO-301.  SRP has a bio-bank containing thousands of serum and tissue specimens from healthy donors and patients with various types of cancer.  Testing for the IHC testing program is currently active and it is anticipated that both parties will jointly submit the outcome of the IHC studies during 2012.

 

In 2011, Neogenix commenced an agreement with Cambridge Biomedical, Inc, based in Boston, MA., for the development of its pancreatic and colorectal cancer diagnostic serum ELISA assays. Cambridge Biomedical provides core expertise in assay optimization and validation within an FDA recognized laboratory that is CLIA certified and CAP accredited. This relationship is consistent with the Company’s revised strategy of independent validation of research protocols to meet commercial standards of performance. Neogenix retains all current and future rights to its products through this agreement.

 

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Recent Development

 

On June 29, 2012, the Company notified its shareholders that it has entered into a Letter of Intent (the “LOI”) with Precision Biologics, Inc., a corporation funded by a number of Neogenix shareholders, to investigate a potential transaction in which Precision Biologics would acquire all of the assets of Neogenix in a sale conducted through a Chapter 11 bankruptcy proceeding, subject to superior offers received during an auction period.  The proposed transaction would include the purchase by Precision Biologics of substantially all of the assets of Neogenix in a “Section 363” asset sale approved by the bankruptcy court. The consideration for the purchase would be payment to Neogenix of up to approximately $3.5 million and the issuance to the current Neogenix shareholders of five million shares of the common stock of Precision Biologics and the right for the Neogenix shareholders to purchase up to an additional five million Precision Biologic’s shares at $1.50 per share for a limited period.  The LOI is non-binding, and there can be no assurance that a definitive agreement with Precision Biologics will be entered into, or that a transaction with Precision Biologics will be completed. For additional information, please see the Company’s letter to its shareholders dated June 29, 2012, filed as an exhibit to the Company’s Current Report on Form 8-K filed on July 3, 2012.    

 

Business Strategy

 

Company Core Operational Focus:

·Parallel companion diagnostic and drug development strategies in order to develop affordable and targeted therapies. The Company hopes to enable physicians to deliver patients with a tailored treatment strategy.
·Focused translation of our early pipeline towards advancement into the clinic and achieving regulatory standards as required for our companion diagnostic and therapeutic products.
·Expand collaborations and external partnerships to advance key programs and clinical trials.
·Operational efficiency and alignment to maximize use of cash.
·Targeted market segments that represent a high unmet medical need and favorable reimbursement guidance.
·Financing strategies that meet Company compliance standards.

 

Company Highlights:

Business developments

·The Company has advanced trials with its lead compound, NEO-101 and completed patient enrollment for Phase 1 during fourth quarter 2011.
·The Company has established high specificity for its IHC based Companion Diagnostic test.
·The Company  initiated cGMP manufacture of the second lot of NEO-101 drug product (NEO-102)
·The Company has maintained an open IND with Johns Hopkins, Duke Medical Center and North Shore Hospital.

Operational developments

·The Company has aligned its intellectual property portfolio and claims to advance and support commercialization goals. The patent portfolio consists of a number of granted patents and pending applications which claim novel antibodies, fragments that target antigens, and both therapeutic and diagnostic methods of use.
·The Company has reduced operating expenses through operational alignment and focus on key commercial goals.
·The Company has successfully formulated an accounting model to support the completion of its 2011 financial statements. This model was reviewed and accepted by the OCA (Office of Chief Accountant at the SEC) and the Company Auditors and was adopted for the September 30, 2011 Form 10Q.

Legal and regulatory developments

·The Company has been subject to an informal inquiry from the SEC which has resulted in unbudgeted legal and advisory costs. We are voluntarily providing the SEC with requested information.
·The Company has been provided for notice of allowance for certain of its pending international intellectual property claims.

Awards and rankings

·The Company was selected for the Windhover industry review panels at “Top 10 Projects to Watch in Oncology 2011”
·The Company was selected and among the first 11 companies during 2011 to receive investments as a result of the Montgomery County Biotech Investment Tax Credit Program.

 

Company History and Proprietary Library of Tumor Antigens:

 

Neogenix was incorporated in Maryland in December 2003 to build on the work of our founder, Dr. Myron Arlen, who began working in the field of oncology thirty years earlier. In the 1970s and 1980s, Dr. Ariel Hollinshead, along with her collaborators, isolated a variety of TAAs from numerous cancer patients’ tumors. Neogenix holds exclusive rights to a unique discovery platform consisting of a library of vaccines that include a variety of tumor associated antigens, or “TAAs.” Some of these TAAs were administered to cancer patients in Phase I, II and III clinical trials conducted in the United States during the late 1970s and early 1980s, referred to here as the “Early Clinical Trials.” Data from the Early Clinical Trials suggested anti-tumor responses and prolonged survival for cancer patients. This TAA library is owned by Neogenix and serves as a unique platform for pipeline expansion.

 

Scientific, Medical and Industry Background

 

Relevant Cancer Facts

 

Cancer therapeutics currently represents the largest pharmaceutical category with respect to global sales, and estimated to be approximately $74 billion during 2012. Specifically, targeted cancer therapeutics, particularly monoclonal antibodies representing 50% of the targeted therapies, have become mainstays of cancer treatment due to the favorable efficacy and tolerability profiles relative to traditional chemotherapeutics. The current worldwide market for targeted cancer therapeutics is approximately $33 billion per year and is expected to grow to more than $57 billion by 2016, representing a five-year CAGR of 12%. Colorectal cancer treatment is an approximately $8 billion market in the U.S. with an annual incidence rate of approximately 141,000. Pancreatic cancer treatment is an approximately $2 billion market in the U.S. with an annual incidence rate of approximately 44,000 [Global Business Insights, 2010].

 

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Worldwide, one in eight deaths is linked to cancer, and cancer treatment represents a growing component of overall medical costs. The National Institutes for Health estimated the overall cost of cancer in 2010 at $263.8 billion: $102.8 billion for direct medical costs (total of all health expenditures); $20.9 billion for indirect morbidity costs (costs of lost productivity due to illness); and $140.1 billion for indirect mortality costs (costs of lost productivity due to premature death). Costs also are likely to increase at the individual patient level as new, more advanced, and more expensive treatments are adopted as standards of care.

  

Cell Line Production and Manufacturing

 

Neogenix manufactured its first lot of cGMP drug product NEO-101 through a contract manufacturer (Goodwin Biosciences).   Neogenix currently relies on contract manufacturers to produce monoclonal antibodies used for our clinical studies. Neogenix plans to continue to rely upon contract manufacturers to manufacture our antibody- product candidates. Neogenix currently relies on a small number of manufacturers for such production. Although Neogenix believes that there are other manufacturers that can satisfy our clinical study requirements, if a contract manufacturer provides us with insufficient or faulty antibody supply or we are forced to identify and establish new relationships with contract manufacturers, we may suffer significant delay or additional material costs.

  

Neogenix completed its Services Agreement (the “Selexis NEO-101 Agreement”) with Selexis SA (“Selexis”) for the development of a high-expression production cell line expressing our NEO-101 antibody. Selexis has completed the work under the Selexis NEO-101 Agreement. In December 2010, the Company exercised its option to enter into a commercial license agreement with Selexis to commercialize the Selexis-developed high performance NEO-101 cell line (“Neo-102”), the terms of which were negotiated prior to the initiation of the research project. The commercial license agreement includes a non-exclusive license to the Company of all Selexis intellectual property rights in the higher expression NEO-102 cell lines developed by Selexis, with a right to sublicense as needed, based on reaching certain milestone payments.  

 

Neogenix completed its August 2010 service agreement with Catalent Pharma Solutions LLC (“Catalent”) for the development of two high-expression production cell lines expressing our NEO-201 and NEO-301 antibodies. We have the right to obtain access to cell lines developed by Catalent upon execution of a sale and license agreement and upon initiation of our cGMP program for NEO201.

 

In 2010, Neogenix entered into a contract manufacturing relationship with Cytovance Biologics, for cGMP production of NEO-101 (“NEO-102”). Subsequently, in 2011 this agreement was modified and renegotiated the scope to enhance efficiency and manage costs. The manufacture of NEO-102 was fully implemented during 3rd and 4th Quarter 2011 and release of the drug product is expected to be completed during 3rd Quarter of 2012, unless there are unplanned manufacturing or regulatory challenges. We must show that the new manufacturer’s product is comparable to the previous manufacturer’s product. If the products are not comparable, the FDA may require us to postpone planned trials while we perform additional studies including preclinical safety toxicology and possibly a new Phase I trial. The use of more efficient cell lines and associated modifications in manufacturing protocols are not unusual and typically done to reduce the cost of cGMP drug manufacturing but such changes require the completion of adequate bridging studies. The Company will work with Cytovance and its regulatory advisors to complete required FDA documents and responses for approved use of NEO 102 in clinical trials.

 

Regulatory Matters

 

The FDA and other federal, state, local, and foreign governmental authorities, extensively regulate, among other things, the research and development, clinical testing, manufacture, record keeping, quality control, safety, effectiveness, packaging, labeling, storage, distribution, advertising and promotion of therapeutic products and medical devices, including products intended for clinical diagnostic purposes. Failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market.

 

In the United States, the FDA regulates medical device and drug products under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and its implementing regulations, and regulates biologic products under the Public Health Service Act, or PHS Act, and its implementing regulations.

 

4
 

 

For purposes of NDA or BLA submission and approval, human clinical trials are typically conducted in the following phases, which may overlap:

 

  ·

Phase I – Studies are initially conducted in a limited population to test the product candidate for safety, dosage tolerance, absorption, metabolism, distribution and excretion in healthy humans or in patients, such as cancer patients.

 

  ·

Phase II – Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, to determine preliminary efficacy of the product for specific targeted indications and to determine dosage tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. In some cases, a sponsor may decide to run what is referred to as a “Phase IIb” evaluation, which is a second, confirmatory Phase II clinical trial that could, if positive and accepted by the FDA, serve as a pivotal trial in the approval of a product candidate.

 

  ·

Phase III – These are commonly referred to as pivotal studies. Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficiency with statistical significance, and to further test for safety in an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites.

 

  · Phase IV – In some cases, FDA may condition approval of an NDA/BLA for a product candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA/BLA approval. Such post-approval trials are typically referred to as Phase IV studies.

 

New Drug Applications and Biologic Licensing Applications:

 

Results of product development, pre-clinical studies and clinical trials, as well as detailed information about the manufacturing process, quality control methods and product composition, among other things, are submitted to the FDA as part of the NDA or BLA seeking approval to market and commercially distribute the product on the basis of a determination that the product is safe and effective for its intended use. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA reviews all NDAs before it accepts them for filing. It may request additional information before it accepts an NDA or BLA for filing.

  

Orphan Drug Designation and Exclusivity:

 

The FDA grants “orphan drug” designation to drugs intended to treat a rare disease or condition, which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. If the FDA grants orphan drug designation, which it may reject, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Orphan drug designation does not convey an advantage in, or shorten the duration of, the review and approval process. If a product with an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to seven years of orphan drug exclusivity, meaning that the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity (superior efficacy, safety, or a major contribution to patient care). Orphan drug designation does not prevent competitors from developing or marketing different drugs for that indication.  We have obtained orphan drug designation for our first clinical stage product (NEO-101).

 

Under EU medicine laws, the criteria for designating a product as an “orphan medicine” are similar but somewhat different from those in the United States. A drug is designated as an orphan drug if the sponsor can establish that the drug is intended for a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union or is unlikely to be profitable, and if there is no approved satisfactory treatment or if the drug would be a significant benefit to those persons with the condition. Orphan medicines are entitled to 10 years of marketing exclusivity, except under certain limited circumstances comparable to U.S. law. During this period of marketing exclusivity, no “similar” product, whether or not supported by full safety and efficacy data, will be approved unless a second applicant can establish that its product is safer, more effective or otherwise clinically superior. This period may be reduced to six years if the conditions that originally justified orphan designation change or the sponsor makes excessive profits. Neogenix intends to pursue orphan drug status outside the U.S. upon establishing the cost of undergoing such process.

 

Intellectual Property

 

Neogenix is focused on building its patent portfolio related to antibody-based cancer therapies and diagnostics. Neogenix is executing an aggressive international filing strategy to secure an exclusive position in key markets, including markets which are expected to have high growth potential in the next 10 years (e.g, China and India).  Neogenix has secured patent protection on some of our products through to at least the year 2022, and the terms of our U.S. patents may be extended under the provisions of 35 U.S.C. §156.

 

5
 

 

Neogenix’s first patent, U.S. Patent No. 7,314,622, encompasses the novel molecular aspects of NEO-101, as well as chimeric and labeled derivatives of NEO-101. This patent expires on April 14, 2026. U.S. Patent No. 7,763,720 issued in July 2010, expanding the coverage of NEO-101 to the genes encoding it. This patent expires on August 20, 2026. Moreover, Neogenix is pursuing patents to NEO-101 in relevant foreign jurisdictions (e.g, Europe, Japan, Canada, Australia) with claims drawn to therapeutic and diagnostic uses for NEO-101. Neogenix recently filed provisional patent applications with claims relating to an antigen of NEO-101 and claims relating to the antigen bound by NEO-101.  This provisional patent application will be converted into utility and foreign patent filings that will expire in 2031.

 

Our patent portfolio includes U.S. Patent No. RE39,760 obtained from the IBS acquisition and related to an antibody against colon cancer. The reissued patent expires on November 18, 2014. Recently, one of these IBS patent applications, European Patent No. 1 411 962, was granted including claims drawn to a NEO- 301 antibody and methods of diagnosing and treating pancreatic cancer using this antibody. This patent expires on March 15, 2022.

 

Neogenix has one U.S. patent (U.S. Patent No. 7,829,678) and ten pending patent applications in., U.S., Canada, and Europe Each of these applications has foreign counterparts allowing us to pursue patent protection overseas. U.S. Patent No. 7,829,678 covers the NEO-201 antibody which may be useful for treatment or diagnosis of pancreatic or colorectal cancer.  This patent expires on November 7, 2028. Neogenix recently filed a provisional patent application relating to the NEO-201 antigen and methods of use related to the target. This provisional patent application will be converted into utility and foreign patent filings that will expire in 2031.

 

Competition

 

Tables 66: Sales of leading players in the global cancer market ($m), 2010

 

Company  Sales 2010 ($m)   Growth 2009-10
(%)
   Market share
2010 (%)
   CAGR 2006-10
(%)
 
                 
Roche   20,598    5.6    38.2    12.0 
                     
Novartis   6,283    14.4    11.6    17.7 
                     
AstraZeneca   3,930    -12.0    7.3    -1.8 
                     
Sanofi-Aventis   3,486    -16.0    6.5    -6.5 
                     
Eli Lilly   3,428    8.4    6.4    14.1 
                     
Pfizer   2,138    10.7    4.0    5.1 
                     
Johnson & Johnson   2,029    17.1    3.8    21.4 
                     
Takeda   1,939    1.1    3.6    7.5 
                     
Bristol-Myers Squibb   1,791    2.4    3.3    5.9 
                     
Merck & Co   1,350    0.0    2.5    10.4 
                     
Top 10 total   46,972    5.9    87.1    9.4 
                     
Others   6,969    -0.5    12.9    19.7 
                     
Grand total   53,941    5.1    100.0    10.5 
                     
Source: PharmaVitae      BUSINESS INSIGHTS 

  

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The above table reflects the leading companies participating in the global cancer market (Business Insights). There are many other smaller biotechnology companies that have developed and are working on developing mouse, chimeric, and humanized antibodies or other types of drugs for treating cancers and could be competitive with the Neogenix drug candidates. Competitors with greater resources, disruptive technologies and successful clinical trials may succeed in commercializing products that could have an adverse impact on the competitive profile of our drug candidates. In addition we may also be adversely impacted by the timing and market conditions at the time of our product approval, performance and efficacy of our product, pricing and availability of our products, sales and distribution capabilities, reimbursement challenges, patient response to the method and frequency of delivery, available funding and resources and ability to hire and retain talent.

 

Location and Facilities

 

We have locations in Great Neck, NY and Rockville, Maryland.  See “Item 2 - Properties.”

 

Personnel

 

As of December 31, 2011, we had 14 full time employees. Our core leadership team brings a combination of clinical development, general management and corporate/business development experience within the therapeutic, life sciences and diagnostics sectors. In addition, we have expanded our external advisory team to include sector experts to advise management on scientific and business issues as needed. This strategy has resulted in the creation of a high quality team and significantly reduced operating costs. As of April 30, 2012, we have 10 full time employees.

 

Executive Officers

 

The executive officers of our company as of December 31, 2011 were as follows

 

Name Age Position
     
Philip Arlen, MD 48 President and Chief Executive Officer
Myron Arlen, MD 80 Director of Medical Affairs
Andy Bristol, Ph.D. 47 SVP Research and Development
Albine Martin, Ph.D. 52 Chief Operating Officer and Acting Chief Accounting Officer
Robert Washington 51 Vice President Business Development

 

Our Chief Executive Officer is the son of our Chairman of the Board.  Otherwise, there are no family relationships among members of our management or our board of directors.

 

Philip M. Arlen, MD: Dr. Arlen became the Company’s CEO in March 2010, having served as President and Chief Medical Officer since July 2008. Prior to 2008, Dr. Arlen spent 11 years at the National Cancer Institute (NCI), USA, most recently as the Director of the Clinical Research Group for the Laboratory of Tumor Immunology and Oncology. At the NCI, Dr. Arlen focused on the development of a programmatic approach to vaccine clinical trials conducted at the NCI as well as at numerous other Cancer Centers throughout the U.S. During his tenure at the NCI, Dr. Arlen was the Principal Investigator and/or Associate Investigator on numerous clinical trials involving the use of cancer vaccines and other immunostimulatory molecules.

 

Dr. Arlen remains on the clinical staff at both the NCI Clinical Center as well as the National Naval Medical Center. He has authored or co-authored over 100 peer-reviewed manuscripts in internationally known scientific and medical journals. Dr. Arlen received an NIH Award of Merit for major contributions to the field of cancer immunotherapy in 2003. He is a board certified medical oncologist and received his BA from Emory University and his MD from Medical College of Georgia, School of Medicine.

 

Albine Martin, Ph.D: Dr. Martin became the Company’s COO in February 2011 and has over 20 years of diversified portfolio management and corporate development experience within the biotechnology, diagnostics and life sciences sector. Prior to joining Neogenix, Dr. Martin’s tenure included 3 public companies. Most recently, she served as the Vice President at Compugen (CGEN), a drug and diagnostic product candidate company, where she led the commercialization and licensing of novel products, launched a new revenue model and managed diagnostic and therapeutic strategic alliances.

 

During her tenure at Life Technologies, Inc. (LIFE), Dr. Martin served as Senior Business Director and held a number of leadership positions for commercialization of life science consumable products. As Business Director for Cell and Gene Therapy, she also worked with FDA/CBER to develop guidance for ancillary products. As the first senior employee at startup Digene Diagnostics, she was responsible for development and marketing of the company's initial revenue generating product portfolio and market launch of the HPV diagnostic tests. Dr. Martin holds a BS in Chemistry from Trinity College and a PhD from the University of Maryland. In addition, she served as a post doctoral Staff Fellow at the National Institutes of Health and is a graduate of the Program of Leadership and Strategy in Pharmaceuticals and Biotech at the Harvard Business School.

 

7
 

 

Andrew Bristol, Ph.D: Dr. Bristol served as Senior Vice-President of Research & Development and lead the company’s discovery and product development efforts. Prior to Neogenix Oncology, Dr. Bristol was Deputy Director of Immunology at GTI-Novartis, and has additional industry experience at Genetics Institute. Dr. Bristol received his BA in Molecular Biology from UC Berkeley, his PhD in Biochemistry from Tufts University, and performed post-doctoral research at the NIH. Dr. Bristol has more than 20 years of experience in cancer research with special emphasis in monoclonal antibodies, tumor immunology and cancer vaccines.

 

Robert Washington: Mr. Washington has more than 19 years of experience in pharmaceuticals and biotechnology with Ortho McNeil and Amgen. He has served in several commercial positions including his most recent as Corporate Accounts/National Accounts Executive with responsibilities for more than $550 million in revenue while at Amgen. With his strong background in oncology, he has served as Director of Business Development for Neogenix and previously as a company Director. He was a standout athlete at Penn State and was inducted into the Beaver County Hall of Fame in 2008.

 

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ITEM 1A. RISK FACTORS

 

In addition to the other information contained in this Form 10-K, prospective investors should consider carefully the following risk factors before investing in our securities. If any of the following risks actually occurs, our business, financial condition or results of operations could be adversely affected.

 

RISKS RELATED TO OUR BUSINESS

 

If we do not raise additional capital we will not be able to continue operations.

 

To date, we have financed our operations principally through offerings of securities intended to be exempt from the registration requirements of the Securities Act. We do not have available cash or cash flow to meet our anticipated working capital needs. We will require substantial additional funds in order to meet such needs, and we are investigating potential sources of funding. There can be no assurance that any such additional funding will be available to us. As a result, management believes that there is substantial doubt about the Company’s ability to continue as a going concern. To date, we have been unable to identify potential investors or a source of potential equity investment. If additional funds are raised by issuing equity securities, such securities will likely be sold at a significantly reduced purchase price from the most recent offering, further dilution to existing stockholders may result, and future investors may be granted rights superior to those of existing stockholders. If adequate funds are not available, the Company will not be able to continue operations.  We are currently evaluating potential strategic alternatives, including bankruptcy and a sale of assets.

 

Certain shares of our common stock were sold through finders who were paid fees in spite of not being licensed as broker dealers.

 

The Company has concluded that finders’ fees were paid to certain individuals who were not registered as broker-dealers or otherwise licensed under applicable state law. Accordingly, it is possible that at least some investors who purchased shares of common stock in transactions in which finders’ fees were paid may have the right to rescind their purchases of shares, depending on applicable federal and state laws and subject to applicable defenses, if any. In addition, the Company may be subject to additional liability under state and/or federal laws in connection with the use of unlicensed broker-dealers. If the Company is forced to rescind a significant number of share purchases and/or pay substantial damages, it will impact the ability of the Company to continue operations; therefore management believes that there is substantial doubt about the Company’s ability to continue as a going concern.

 

We are a development stage company with a history of operating losses and have not achieved revenues to date.

 

We are a development stage company formed in 2003 and have a limited operating history. To date we have engaged only in research and development activities. Accordingly, we are subject to all of the risks inherent in the establishment of a new business enterprise.

 

Since inception, we have generated no revenues from product sales. As of December 31, 2011, we had a deficit accumulated during the development stage of approximately $115.5 million. We expect to incur additional losses as our research, development, clinical trial, manufacturing and marketing programs expand. The extent of future losses and the time required to achieve profitability is highly uncertain. There can be no assurance that we will ever achieve a profitable level of operations or that profitability, if achieved, can be sustained on an ongoing basis.

 

We have no products available for sale and if at all.

 

Our potential products are in the early stages of development and the products we have under development, and any future product candidates, will require significant R&D efforts to establish safety and efficacy, including extensive clinical testing, non-clinical (animal and laboratory) testing and regulatory approval prior to commercial sale. Our therapeutic products will be subject to more extensive testing and regulatory requirements, and therefore, we do not expect to have a therapeutic product ready for sale until at least 2015 or possibly not all.  We cannot assure you that we will successfully complete our product development efforts, the manufacturing of our product candidates, that we will obtain required regulatory approvals in a timely manner, if at all, that we will be able to manufacture our product candidates at an acceptable cost and with acceptable quality or that we can successfully market any approved products.

 

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Development of our products will involve a lengthy and complex process.

 

Our product candidates are currently a development stage company and will require additional research and development, manufacturing, extensive clinical testing and regulatory approval prior to any commercial sales. We cannot predict if or when any of our products under development will be commercialized. We must complete clinical trials in the United States to demonstrate the safety and efficacy of our proposed products, prior to obtaining FDA approval. We cannot predict with any certainty the amount of time necessary to obtain regulatory approvals that our clinical trials will be successful, or that FDA approval will be obtained. In addition, delays in obtaining necessary regulatory approvals of any proposed product could have an adverse effect on the product’s potential commercial success and on our business, prospects and financial condition. It is also possible that a product may be found to be ineffective or unsafe due to conditions or facts which arise after development has been completed and regulatory approvals have been obtained. In this event we may be required to discontinue any sales or withdraw such product from the market.

  

Any failure by our collaborative partners and other third-parties on which we rely to grow our cell lines and manufacture our products may delay or impair our ability to test, develop and eventually commercialize our products.

 

We rely on a small number of strategic partners for product manufacturing, critical services, clinical trials and product validation for our business. Any disruption in these collaborations could be detrimental and lead to an inability to commercialize our products.

 

The cost of compliance with the internal controls over financial reporting requirements of the Sarbanes-Oxley Act of 2002 could be significant.

 

Effective internal controls are necessary for us to provide reliable financial reports, to limit the risk of fraud and to operate successfully as a public reporting company.   The cost to maintain compliance with these standards could become a burden that we cannot afford to continue to comply with. Management’s initial assessment of internal control over financial reporting included deficiencies in our internal controls. This could have an adverse effect on our business, financial position and results of operations. In addition, it could cause our investors to lose confidence in the accuracy and completeness of our financial reports.

 

If we are unable to successfully compete in the field defined by therapeutics and drug development, our business, product development and financial condition would be materially adversely affected.

 

We are engaged in the intensely competitive field of drug development . A number of companies are seeking to develop products that may compete directly or indirectly with our own. Competition from these companies and others is expected to increase. Many of these competitors have substantially greater capital, and greater experience in the development, manufacturing, marketing and distribution of products than us. Our competitors may succeed in developing technologies and products that are more effective than those of our company, and such companies may be more successful than us in developing, manufacturing, gaining regulatory approval for and marketing their products. There can be no assurance that products, if any, resulting from our development efforts will obtain regulatory approval in the United States or elsewhere more rapidly than competitors’ products, or at all. Our inability to compete effectively against competitors could have a material adverse effect on our business, financial condition and results of operations.

 

If we are unable to keep up with technological changes in our industry our products may not become commercially viable.

 

No assurance can be given that unforeseen problems will not develop with the technologies used by us or that commercially feasible products or services will ultimately be developed by us.

 

Our success will depend upon our ability to secure patents for our products and protect our trade secrets.

 

Our success will depend, in part, on our ability to obtain patents and protect trade secrets. However, there can be no assurance that any additional patents will be issued as a result of such patent applications or that issued patents will provide us with significant protection against competitors. There can be no assurance that our patents will be held valid if subsequently challenged. Moreover, there can be no assurance that any patents issued to or licensed by us will not be infringed or that third parties have not or will not independently develop either the same or similar technology. Similarly, no assurance can be given that other parties will not be issued patents which will prevent, limit or interfere with one or more of our products, or will require licensing and the payment of significant fees or royalties by us to such third parties in order to enable us to conduct our business. Any of these occurrences could have a material adverse effect on our business, financial condition and results of operations. Even if we are successful in obtaining patent protection, there can be no assurance that one or more competing products will not be developed and marketed or that any such patents will provide competitive advantages for our products.

 

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We also rely upon unpatented proprietary technology, know-how and trade secrets. We seek to protect our trade secrets and proprietary know-how, in part, through confidentiality agreements with employees, consultants and advisors, and we seek to require any corporate sponsor with which we enter into a collaborative research and development agreement to do so as well. No assurance can be given that these confidentiality agreements will not be violated, that we will have adequate remedies for any breach, that others will not independently develop or otherwise acquire substantially equivalent proprietary technology and trade secrets or disclose such technology or that we can meaningfully protect our rights in trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Any disclosure of such information could have a material adverse effect on our business, financial condition and results of operations. In addition, others may hold or receive patents that contain claims that may cover products developed by us.

 

Protecting our intellectual property could expose us to costly litigation.

 

Litigation, which could result in substantial cost to and diversion of effort by us, may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us, to defend ourselves against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Patent litigation is costly and time consuming, and we may not have sufficient resources to pursue such litigation. We may have to alter our products or processes, pay licensing fees, defend an infringement action or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to us. If we do not obtain a license under such patents, are found liable for infringement or are not able to have such patents declared invalid, we may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from using products requiring such licenses.

 

We may incur material cost increases as a result of product liability claims that may be brought against us.

 

Our business will expose us to potential liability risks that are inherent in the testing, manufacturing and marketing of medical products. There can be no assurance that we will be able to obtain and maintain adequate insurance coverage at acceptable cost, if at all. There can be no assurance that the level or breadth of insurance coverage maintained by us will be adequate to fully cover potential claims. As of December 31, 2011, our level of products liability insurance coverage is $5,000,000 in the aggregate, and excludes damages for product recalls. No assurance can be given that we will be able to maintain or increase this level of products liability insurance coverage. A successful claim or series of claims brought against us in excess of our insurance coverage, and the effect of any product liability litigation upon the reputation and marketability of our products, together with the diversion of the attention of our key personnel, could have a material adverse effect on our business, financial condition and results of operations.

  

We are dependent on key personnel and scientific consultants and the loss of these key personnel and consultants could have a material adverse effect on our business, including our research and development objectives.

 

Because of the specialized nature of our business, our success will depend, in large part, on our ability to attract and retain highly qualified personnel. Failure to attract, or the subsequent loss of, key scientists and other executive officers would be detrimental to us and would impede the achievement of our development objectives. The competition for experienced management personnel amongst the numerous biotechnology, pharmaceutical and healthcare companies, universities and nonprofit research institutions is intense, and there can be no assurance that we will be able to attract and retain qualified personnel necessary for the development of our business

  

We are subject to extensive government regulation in jurisdictions around the globe in which we expect to do business. Regulations imposed by the FDA and similar agencies in other countries can significantly increase our costs.

 

The FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of pharmaceutical and diagnostic products through lengthy and detailed pre-clinical, laboratory, manufacturing and clinical testing requirements and other costly and time-consuming procedures to establish their safety and efficacy. The approval process is expensive, time-consuming, uncertain and subject to unanticipated delays. Satisfaction of the requirements typically takes a significant number of years and can vary substantially or never be achieved based upon the type, complexity and novelty of the product. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our ability to generate significant revenues from commercial sales. There can be no assurance as to when or whether we, independently or with any collaborative partners, might first submit a product application for FDA or other regulatory review, and there can be no assurance that FDA or other regulatory approvals for any product candidates developed by us will be granted on a timely basis or at all. The effect of government regulation may be to delay marketing of our potential products for a considerable or indefinite period of time, impose costly procedural requirements upon our activities and furnish a competitive advantage to larger companies or companies more experienced in regulatory affairs. In addition, product approvals, if obtained, could be withdrawn for failure to comply with regulatory requirements or the occurrence of unforeseen clinical or other problems following initial marketing.

 

As with many biotechnology and pharmaceutical companies, we are subject to numerous costly and diverse environmental, laboratory animal and safety laws, rules, policies and regulations. Any violation of these regulations could materially adversely affect our business, financial condition and results of operations.

 

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We plan to rely upon third-party partners for the manufacture of any products we develop. If such partnerships are unsuccessful, we could be prevented from commercializing our products on a timely or profitable basis.

 

We have not invested in the development of internal manufacturing, marketing or sales capabilities. We currently, and plan to continue to, rely on contracted third parties and/or pharmaceutical partners for the manufacture of products in accordance with cGMP as prescribed by the FDA and other regulatory authorities and to produce adequate supplies to meet future development and commercial requirements. If we are unable to retain third-party manufacturing on commercially acceptable terms or if third-party manufacturers are unable to manufacture products in accordance with cGMP or to produce adequate supplies, our ability to advance our products will be adversely affected, and the submission of products for final regulatory approval and initiation of marketing would be delayed. This, in turn, may prevent us from commercializing our product candidates as planned, on a timely basis or on a profitable basis, which may have a material adverse effect on our business, financial condition and results of operations.

 

In order for our business to succeed, products we develop must achieve market acceptance with the medical community and third-party payors.

 

The commercial success of the products we may develop, when and if approved for marketing by the FDA and corresponding foreign agencies, will depend on their acceptance by the medical community and third-party payors as clinically useful, cost-effective and safe. Market acceptance, and thus sales of our product candidates, will depend on several factors, including clinical effectiveness, the degree to which our product offers an improvement versus current therapies, safety, price, ease of administration, and the rate of adoption of new cancer treatment and diagnostic options. Market acceptance will also depend on our ability to establish our products as a new standard of care in appropriate treatment guidelines, and that of our strategic partners to educate the medical community and third-party payors about their benefits. We cannot be certain that our product candidates will gain market acceptance. If our products do not achieve market acceptance, we may not generate sufficient revenues to achieve or maintain profitability.

 

We may pursue acquisition opportunities and strategic alliances, which may subject us to considerable business and financial risk.

 

We may pursue acquisitions of companies, assets or complementary technologies or strategic alliances in the future. Acquisitions and strategic alliances may expose us to business and financial risks that include, but are not limited to:

 

  · diverting management’s attention;
     
  · incurring additional indebtedness;
     
  · dilution of our common stock due to issuances of additional equity securities;
     
  · assuming additional liabilities;
     
  · incurring significant additional capital expenditures, transaction and operating expenses;
     
  · failing to integrate the operations of an acquired business into our own, including personnel, technologies and corporate cultures;
     
  · failing to achieve operating and financial synergies anticipated to result from the acquisitions and strategic alliances; and
     
  · failing to retain key personnel of, vendors to and customers of the acquired businesses.

 

If we are unable to successfully address the risks associated with acquisitions and strategic alliances, or if we encounter unforeseen expenses, difficulties, complications or delays frequently encountered in connection with the integration of acquired entities and participation in strategic alliances and the expansion of operations, our growth may be impaired, we may fail to achieve anticipated synergies and we may be required to focus resources on integration and other activities rather than on our primary business.

 

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Conducting clinical trials is a lengthy, costly and uncertain process that may not demonstrate that our product candidates are safe or effective, or result in regulatory approval.

 

To receive regulatory approval for the commercial sale of NEO-101 or any other product candidates, we must successfully complete adequate and well controlled clinical trials demonstrating, with substantial evidence, the efficacy and safety of our product candidates in the indications being studied. Clinical testing is expensive, takes many years to complete and has an uncertain outcome. Clinical failure can occur at any stage of the testing. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing. In addition, the results of our clinical trials may show that our product candidates may cause undesirable side effects, which could interrupt, delay or halt clinical trials, resulting in the denial of regulatory approval by the FDA and other regulatory authorities.

  

Although we have initiated clinical studies for NEO-101 in patients with advanced pancreatic and colorectal cancer, we cannot be certain if or when we will initiate or complete additional testing, including required registration trials. The results of preclinical or earlier stage clinical trials do not necessarily predict safety or efficacy in humans. Furthermore, we cannot guarantee that our clinical trial designs are adequate to satisfy regulatory requirements for proof of safety and efficacy necessary for approval of our products.

 

Clinical trial data may reveal new safety concerns that may require additional clinical trials to, among other things, assess and possibly reduce the risk. Clinical trials that successfully meet their efficacy endpoints may nonetheless require additional clinical trials for regulatory approval. If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, particularly for our NEO-101 product candidate, we may be delayed in obtaining, or may not be able to obtain, marketing approval for these product candidates. In addition, we may not be able to obtain approval for indications that are as broad as we intended.

 

Delays in the commencement, enrollment and successful completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.

 

Although for planning purposes we project the commencement, continuation and completion of our clinical trials, delays in the commencement, enrollment and completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials for NEO-101 or our other potential product candidates will begin on time or be completed on schedule, if at all. Clinical trials may not be commenced, may be delayed or may be unsuccessful for a variety of reasons, including:

 

  · we may not reach agreements on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
     
  · we may be unable to engage a sufficient number of adequate trial sites because many candidate sites are already engaged in other clinical trial programs for the same indication as our product candidates;
     
  · we may not recruit and enroll patients to participate in clinical trials due, among other things, to small numbers of patients in the target population, changing standards of medical care, failure to meet enrollment criteria and competition from other clinical trial programs for patients with the same indication as our product candidates;
     
  · patients who do not meet enrollment criteria may be erroneously enrolled in our clinical trials, which may negatively impact our clinical data and/or result in unforeseen patient safety issues;
     
  · we may be unable to maintain sites that we have engaged if such sites are required to withdraw from a clinical trial or become ineligible to participate in clinical studies for contractual, legal or medical reasons;
     
  · we may not retain patients who have initiated a clinical trial due, among other things, to patients’ tendencies to withdraw due to inability to comply with the treatment protocol, perceived lack of efficacy, personal issues, side effects from the therapy or unavailability for further follow-up; and
     
  · we may not secure adequate funding to continue or complete our clinical trials.

 

Successful completion of a clinical trial requires clinical sites to store, handle, document and administer the product candidate appropriately and to perform outcome assessments according to the trial’s protocol. Any site’s failure to handle the clinical trial material properly, to follow the protocol or to perform the outcome assessments appropriately could result in contamination or inactivation of the clinical trial material or could generate incomplete or potentially misleading data that might call the trial results into question. If any of these events were to occur, we may have to repeat all or a portion of the clinical trial.

 

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If we experience delays in the commencement, enrollment or successful completion of our clinical trials, or if our clinical trials fail, we would experience significant increases in costs and we may not obtain regulatory approval in a timely manner, if at all.

 

All of our products in development require regulatory review and approval prior to commercialization. Any delay in the regulatory review or approval of any of our products in development will harm our business.

 

All of our products in development require regulatory review and approval prior to commercialization. Any delays in the regulatory review or approval of our products in development would delay market launch, increase our cash requirements and result in additional operating losses.

 

The process of obtaining FDA and other required regulatory approvals, including foreign approvals, takes many years and varies substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We may not be able to maintain our proposed schedules for the submission of any NDA, BLA, 510(k) or PMA in the United States or any marketing approval application or other foreign applications for any of our products.

 

We may seek fast track designation, priority review or accelerated approval for our product candidates, which are FDA programs intended to facilitate the development of and expedite the review of drugs intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. We cannot predict whether any of our product candidates will obtain a fast track, priority review or accelerated approval designation, or the ultimate impact, if any, of the fast track, priority review or accelerated approval process on the timing or likelihood of FDA approval of any of our product candidates.

Furthermore, if we receive accelerated approval of one of our product candidates based on a surrogate endpoint and fail to timely demonstrate statistically significant benefit under a clinical endpoint post-approval, we will be required to withdraw our product from the market.

 

If we submit any NDA or PMA, including any amended NDA or PMA, to the FDA seeking marketing approval for any of our products, the FDA must decide whether to either accept or reject the submission for filing. We cannot be certain that any of these submissions will be accepted for filing and reviewed by the FDA, or that our marketing approval application submissions to any other regulatory authorities will be accepted for filing and reviewed by those authorities. We cannot be certain that we will be able to respond to any regulatory requests during the review period in a timely manner without delaying potential regulatory action. We also cannot be certain that any of our products will receive favorable recommendation from any FDA advisory committee or foreign regulatory bodies or be approved for marketing by the FDA or foreign regulatory authorities.

 

In addition, delays in approvals or rejections of marketing applications may be based upon many factors, including regulatory requests for additional analyses, reports, data and/or studies, regulatory questions regarding data and results, changes in regulatory policy during the period of product development and/or the emergence of new information regarding our products or other products. Approvals may not be granted on a timely basis, if at all, and if granted may not cover all of the indications for which we may seek approval. Also, an approval might contain significant limitations in the form of warnings, precautions or contraindications.

 

We are presently developing a diagnostic test for patient selection for NEO-101, and such test may not be accurate or useful for the intended purposes, and may itself require regulatory approval.

 

We are presently developing a diagnostic test for patient selection for NEO-101 (NEO-102) clinical trials. If we cannot develop a test that we can successfully use to identify the appropriate patients expressing the NEO-101 antigen, the clinical development and regulatory approval of NEO-101 could be significantly delayed. We believe such a test will require its own regulatory approval and delays or failure to obtain such regulatory approval would delay or prevent us from commercializing our product.

 

We have no experience manufacturing large clinical-scale or commercial-scale pharmaceutical products and have no manufacturing facility. As a result, we are dependent on numerous third parties for the manufacture of our product candidates and our supply chain, and if we experience problems with any of these suppliers the manufacturing of our products could be delayed.

 

We do not own or operate manufacturing facilities for clinical or commercial manufacture of our product candidates, which includes the drug substance and the finished drug product. We currently outsource all manufacturing and packaging of our pre-clinical and clinical product candidates to third parties. In addition, we do not currently have any agreements with third-party manufacturers for the long-term commercial supply of many of our product candidates. The manufacturers, therefore, could discontinue the manufacture or supply of our products at any time. Our inability to obtain adequate supply could delay or otherwise adversely affect the clinical development of our product candidates.

 

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We may be unable to enter into agreements for future clinical or commercial supply of our product candidates with third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, the various manufacturers of each product candidate will likely be single source suppliers to us for a significant period of time. We may not be able to establish additional sources of supply for our products prior to commercialization.

 

The manufacturers of our product candidates are also subject to various licensing and regulatory requirements. Our manufacturers are subject to the licensing requirements of the FDA, and state and foreign regulatory authorities. Our manufacturers’ facilities are subject to inspection by the FDA, and state and foreign regulatory authorities. Failure to obtain or maintain these licenses or to meet the inspection criteria of these agencies would disrupt our manufacturing processes and adversely affect our ongoing clinical trials and our business and future prospects, results of operations, financial condition and cash flow. Any failure by our manufacturers to follow or document their adherence to cGMP regulations or satisfy other manufacturing and product release regulatory requirements may lead to significant delays in the availability of products for commercial use or clinical study, may result in the termination of or hold on a clinical study, or may delay or prevent filing or approval of marketing applications for our products. Failure to comply with applicable regulations could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, criminal prosecutions and damage of product during storage or shipment, any of which could harm our business. Failure by any of our suppliers to comply with applicable regulations or inability or unwillingness to supply on the part of any of these suppliers may result in long delays and interruptions to our manufacturing capacity while we seek to secure and qualify another supplier who meets all applicable regulatory requirements.

 

Any of these factors could cause the delay or suspension of initiation or completion of our clinical trials, regulatory submissions, required approvals or commercialization of our products, could cause us to incur higher costs in connection with the manufacture of our product candidates and could prevent us from commercializing our product candidates successfully. Furthermore, if our third-party manufacturers fail to deliver the required commercial quantities of our finished product, if and when it is approved for marketing, on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and we would lose potential revenue.

 

Even if our product candidates receive regulatory approval, they will be subject to ongoing regulatory requirements and may face regulatory and enforcement action.

 

Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Given the number of recent high-profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk management programs which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials and restrictions on direct-to-consumer advertising. For example, any labeling approved for NEO-101 or any other product candidates may include a restriction on the term of its use, or it may not include one or more of our intended indications.

  

Our product candidates, if approved for commercial use, will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record keeping and submission of safety and other post-market information on the product. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, the regulatory agency may impose restrictions on that product or us, including correcting promotional literature or requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, such as cGMPs, a regulatory agency may:

 

  · issue warning letters;
     
  · require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
     
  · impose civil or criminal penalties;
     
  · suspend regulatory approval;
     
  · suspend any ongoing clinical trials;

 

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  · refuse to approve pending applications or supplements to approved applications filed by us;
     
  · impose restrictions on operations, including costly new manufacturing requirements; or
     
  · seize or detain products or require a product recall.

 

Even if our product candidates receive regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.

 

In order to market and commercialize any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. For example, European regulatory authorities generally require a trial comparing the efficacy of the new drug to an existing drug prior to granting approval. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval processes in other countries include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects regarding FDA approval in the United States. Such effects include the risks that our product candidates may not be approved for all indications requested, which would limit the uses for which our products may be marketed and have an adverse effect on product sales and potential royalties, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.

 

RISKS RELATED TO OUR COMMON STOCK

 

Certain shares of our common stock were sold through finders who were paid fees in spite of not being licensed as broker-dealers.

 

The Company has concluded that finders’ fees were paid to certain individuals who were not registered as broker-dealers or otherwise licensed under applicable state law. Accordingly, it is possible that at least some investors who purchased shares of common stock in transactions in which finders’ fees were paid may have the right to rescind their purchases of shares, depending on applicable federal and state laws and subject to applicable defenses, if any. In addition, the Company may be subject to additional liability under state and/or federal laws in connection with the use of unlicensed broker-dealers. If the Company is forced to rescind a significant number of share purchases and/or pay substantial damages, it will impact the ability of the Company to continue operations; therefore management believes that there is substantial doubt about the Company’s ability to continue as a going concern.

 

There is currently no trading market for our securities and only a limited trading market may develop.

 

No market, public or private, for our common stock is in existence at this time and there can be no assurance that a market for our common stock will develop in the future. Accordingly, investors in our securities cannot be expected to be readily liquid. We are not currently applying for listing or quotation on any national securities exchange or other market. While our shares may be quoted on the OTC Bulletin Board or another market in the future, there can be no assurance that an active trading market for our common stock will develop or, if it does develop, that it will be maintained. Accordingly, no assurance can be given that a holder of common stock will be able to sell those shares in the future or as to the price at which any such sale would occur.

 

Our trading market will also be limited by contractual transfer restrictions placed upon our outstanding shares of common stock.

 

The shares of our common stock that we sell in private placements are subject to transfer restrictions under subscription agreements, including a right of first refusal by Neogenix. Subject to limited exceptions, under the terms of the right of first refusal a stockholder who intends to sell, assign, transfer or otherwise dispose of our common stock must first provide us with a written notice of such intention, the offer terms, and the opportunity to purchase our common stock from the selling stockholder. If we do not accept the proposed offer, the selling stockholder may sell or otherwise dispose of the common stock subject to the condition that any proposed transferee agree to be bound by the terms of the subscription agreement, including the restrictions on transfer discussed here.  A substantial number of our outstanding shares of common stock are subject to those transfer restrictions. As a result, a trading market in our securities, should it develop, may be extremely limited and no assurance can be given that a holder of common stock will be able to sell their shares in the future or at favorable prices. This contractual restriction will cease to apply upon a registered public offering of our common stock under the Securities Act. No assurance can be given that such a registered public offering will occur.

 

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There is no public market for our securities and no such market may ever develop.

 

There presently is no public market for our securities, and we do not presently anticipate that a public market will develop.  Furthermore, even if a public market were to develop, investors will still be subject to restrictions on transfer, including restrictions under the Securities Act or any other applicable securities laws.  The offering price of all of our shares of common stock sold in private placements has been determined by us arbitrarily, and not based on any generally accepted method for valuing securities.  There has been no independent determination of the fair market value of our securities, nor does the sales price represent a capitalized projection of our earnings, assets or similar criteria.  The offering price may not be any indication of the value of the shares of our common stock or the value of our business.  No assurance can be given that any shares of common stock, if transferable, could be sold for the offering price or for any other amount.

 

If a trading market for our common stock develops, our stock price is likely to be volatile.

 

There is generally significant volatility in the market prices and limited liquidity of securities of early stage companies, and particularly of early stage biotechnology companies. Contributing to this volatility are various events that can affect our stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or actions; market acceptance of our products; litigation involving our company or our industry; developments or disputes concerning our patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of our securities; fluctuations in our financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions. If a market for our common stock develops, any of these events could cause rapid changes in the price of our common stock.

 

We do not expect to pay any dividends for the foreseeable future.

 

We have never declared or paid any cash dividends on our capital stock. We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our business, and we do not intend to declare or pay any cash dividends in the foreseeable future.

 

Our outstanding common stock is subject to dilution.

 

We may finance our future operations or future acquisitions in whole or in part through the issuance of common stock or securities convertible into or exercisable for common stock. In addition, we may use our common stock or securities exercisable for common stock as a means of attracting or retaining employees, consultants and management for our business. If we use our common stock for these purposes, our existing stockholders will experience dilution in the voting power of their common stock and the price of our common stock and earnings per share could be negatively impacted. Further, as of December 31, 2011 we had outstanding stock options and we reserve the right to offer, from time to time in our discretion, equity participation in our company to key employees, consultants and directors in order to obtain or retain the services of such persons. Any such subsequent issue of shares of capital stock in our company may have the effect of further diluting the value of the stock owned by our shareholders.

 

Our controlling shareholders may exercise significant control over us.

 

Our former Chairman of the Board, Myron Arlen, together with our Chief Executive Officer Philip Arlen and certain other family members of Myron Arlen, controlled in the aggregate approximately 28.08% of our issued and outstanding common stock as of December 31, 2011.  They also held options and warrants to acquire 720,000 shares of our common stock as of that date. As a result, these stockholders will be able to exercise significant control over matters requiring stockholder approval, including, without limitation, the election of directors. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company, and may adversely affect the price of our stock should a trading market develop. 

 

Future sales by shareholders, or the perception that such sales may occur, may depress the price of our common stock.

 

The sale or availability for sale of substantial amounts of our shares in the public market, including shares issuable upon conversion of outstanding options and warrants, or the perception that such sales could occur, could adversely affect the market price of our common stock and also could impair our ability to raise capital through future offerings of our shares. As of December 31, 2011, we had approximately 22,924,000 outstanding shares of common stock and approximately 16,147,000 shares of common stock issuable upon exercise of outstanding stock options and warrants.

 

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We will likely be subject to the “penny stock” regulations if a market for our common stock develops, which may reduce the value of our common stock.

 

Although no market currently exists for our common stock, if a market develops, certain SEC rules governing the trading of “penny stocks” will likely be applicable to sales of our common stock. SEC regulations generally define “penny stock” to be any equity security that has a market price, as defined, of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Because our common stock does not qualify for inclusion on a national securities exchange, it will likely be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transactions prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to the broker-dealer and the registered representative or underwriter, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As such, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may affect the ability of investors to sell such securities in the secondary market.

 

We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stock.

 

Our certificate of incorporation and by-laws include provisions, such as an advance notice bylaw provision and our three classes of directors, which are intended to enhance the likelihood of continuity and stability in the composition of our board of directors. These provisions may make it more difficult to remove directors and management or could have the effect of delaying, deferring or preventing a future takeover or a change in control, unless the takeover or change-in-control is approved by our board of directors, even though the transaction might offer our stockholders an opportunity to sell their shares at a price above the current market price. As a result, these provisions may adversely affect the price of our common stock.

 

Maryland law also contains provisions that could have the effect of delaying, deferring or preventing a future takeover or a change in control. Subject to limited exceptions, the Maryland Business Combination Act generally prohibits, corporations from being involved in any “business combination” with any “interested shareholder” for a period of five years following the most recent date on which the interested shareholder became an interested shareholder. Business combination is defined to cover a variety of transactions, including a merger, consolidation, share exchange, asset transfer or issuance or reclassification of equity securities. An interested shareholder is defined generally as a person who is the beneficial owner of 10% or more of the voting power of our outstanding voting stock, or who is an affiliate or associate of ours and was the beneficial owner, directly or indirectly, of 10% percent or more of the voting power of the then outstanding stock of our company at any time within the two-year period immediately prior to the date in question.

 

The Maryland Control Share Acquisition Act applies to acquisitions of “control shares,” which, subject to certain exceptions, are shares the acquisition of which entitle the holder to exercise or direct the exercise of the voting power of shares of our stock in the election of directors within any of the following ranges of voting power: (a) one-tenth or more, but less than one-third of all voting power; (b) one-third or more, but less than a majority of all voting power; or (c) a majority or more of all voting power. Control shares have limited voting rights.

 

The Maryland Unsolicited Takeover Act permits a Maryland corporation that is public and meets certain other requirements to add certain anti-takeover provisions to its charter without a stockholder vote. These include (i) permitting removal of directors by stockholders for cause only, (ii) requiring a two-thirds majority vote of stockholders to remove a director for cause, (iii) providing that that only the board of directors can fix the number of directors, (iv) providing that in the event of a vacancy on the board caused by an increase in the size of the board or the death, resignation or removal of a director, the vacancy can be filled only by the remaining directors, and (v) providing that special meetings of stockholders may be called only upon the request of stockholders holding a majority of the outstanding votes to be cast at the meeting. This Act also expressly approves of stockholders’ rights plans, often referred to as poison pills, grants authority to directors alone to set the terms and conditions of and issue rights, options, and warrants under such a plan, and limits the power of directors elected after a plan has been adopted, for a period of up to 180 days after they become directors, to vote to redeem, modify or terminate the rights under the plan.

 

Although these provisions do not preclude a takeover, they may have the effect of discouraging a future takeover attempt which would not be approved by our board of directors, but pursuant to which stockholders might have an opportunity to sell their shares at a price above the then current market price. In addition, such provisions could potentially adversely affect the market price of our common stock.

 

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ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

This Item has been omitted based on Neogenix’s status as a “smaller reporting company.”

  

ITEM 2. PROPERTIES

 

We maintain our offices and laboratories at 445 Northern Boulevard, Suite 24, Great Neck, NY 11021, pursuant to a lease that expires in May 2017.  Our monthly rent under this original lease for this facility is $16,386, with annual increases effective in May of each year, increasing to $19,169 per month for the final year of the lease term. During, May 2012 this lease was renegotiated with a partial give back of space and resulting in a decrease of monthly rent which is now $ 9,644 per month and increasing to $11,733 per month for the final three months of the lease term.

 

We lease 10,882 square feet in a building located in Rockville, Maryland that we use for management research and development activities. In February 2012, we were required to begin making monthly rent payments of $19,950 per month with scheduled 3% annual increases through May 2018. In June 2012, we signed an agreement with the landlord to terminate this lease, effective July 10, 2012. Please see Item 3 for details on the legal proceedings related to this location. 

 

ITEM 3. LEGAL PROCEEDINGS

  

In May 2012, the Company’s former General Counsel, Daniel J. Scher, filed a civil action against the Company in the Supreme Court of Kings County, New York (Index No. 9943/12) (the New York state trial court in Brooklyn) alleging claims arising from his prior employment with the Company, including breach of contract, conversion and wage payment violation, and seeking $600,000 in compensatory damages and $100,000 in liquidated damages. The Company denies any and all liability and wrongdoing, and intends to defend the action vigorously.

 

In April 2012, the Company received a complaint filed by ARE-Maryland No. 25, LLC (“ARE”), the landlord of the Company’s Maryland facility. The complaint is for past due rent for April and May 2012, and was filed in the Circuit Court for Montgomery County, Maryland (Civil Action No. V362046). ARE is seeking damages in the amount of approximately $227,000. On June 27, 2012, the Company executed an agreement to terminate the lease with ARE, effective July 10, 2012, in consideration for payment by the Company of a termination fee in the amount of $53,000, ARE agreed to dismiss the pending litigation, subject to the receipt of the termination fee and the Company surrendering the premises by July 10, 2012.

  

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

There is currently no public market for our common stock. Our common stock is not listed on any securities exchange or inter-dealer quotation system at the present time. We are not certain whether a trading market will develop for our common stock, or if it develops whether the trading market will be sustained. Investors in our common stock must be prepared to bear the entire economic risk of an investment in our common stock for an indefinite period of time.

 

Holders 

As of July 9, 2012 there were 22,924,419 shares of common stock outstanding and approximately 942 stockholders of record.

 

Dividends

 

We have not paid dividends on our common stock during the last two fiscal years and we do not anticipate the payments of dividends in the near future. Our board of directors exercise discretion over the payment of dividends and it is the current intention to retain all earnings, if any, for use in business operations.

 

Issuer Purchases of Equity Incentives

 

No equity securities were repurchased by us during 2011.

 

ITEM 6. SELECTED FINANCIAL DATA

 

This Item has been omitted based on Neogenix’s status as a “smaller reporting company.”

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our audited financial statements and related notes for the fiscal years ended December 31, 2011 and 2010 included in this Form 10-K.

  

Certain factors affecting forward-looking statements

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements regarding Neogenix in this document that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “intends,” “anticipates,” “estimates,” “believes” or “plans” or comparable terminology, are forward-looking statements based on current expectations about future events, which we have derived from information currently available to us. These forward-looking statements involve known and unknown risks and uncertainties that may cause our results to be materially different from results implied by such forward-looking statements. These risks and uncertainties include, in no particular order, whether we will be able to:

 

  · raise additional capital to allow us to continue operations;
     
  · avoid rescission and other liabilities arising from the use of unlicensed broker-dealers in connection with the sale of shares of our common stock;
     
  · achieve a profitable level of operations or, if achieved, sustain profitability on an ongoing basis;
     
  · successfully complete our product development efforts, obtain required regulatory approvals in a timely manner, manufacture our product candidates at an acceptable cost and with acceptable quality or market any approved products;
     
  · obtain additional funding when needed or on terms reasonable or acceptable to us;

 

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  · obtain FDA and other regulatory approvals for our product candidates on a timely basis;
     
  · continue our relationship with our collaborative partners and other third-parties, including Cytovance  and Catalent Pharma Solutions LLC, on which we rely to adequately produce and test our cell lines;
     
  · compete with companies in the medical technology field with substantially greater capital and other resources or greater experience in the manufacturing, marketing and distribution of products than us;
     
  · develop commercially feasible products and services that remain competitive in light of the technological changes in our industry;
     
  · secure patents for our products and protect our trade secrets;
     
  · avoid costly patent litigation and product liability claims;
     
  · rely on contracted third parties and/or pharmaceutical partners for the manufacture of products in accordance with cGMP as prescribed by the FDA and other regulatory authorities and produce adequate supplies to meet future development and commercial requirements;
     
  · achieve market acceptance for our products with the medical community and third-party payors;
     
  · successfully execute our business strategies, including evaluating and, where appropriate, entering into potential acquisitions of companies, assets or complementary technologies or strategic alliances; and
     
  · successfully complete adequate and well-controlled clinical trials demonstrating, with substantial evidence, the efficacy and safety of our product candidates in the indications being studied.

 

There are a number of additional important factors that could cause actual events or our actual results to differ materially from those indicated by such forward-looking statements, including, without limitation, the factors set forth in Item 1A, “Risk Factors” contained elsewhere in this report, and any subsequent periodic or current reports filed by us with the Securities and Exchange Commission (the “SEC”).

 

In addition, any forward-looking statements represent our expectations only as of the day we filed this Annual Report with the SEC and should not be relied upon as representing our expectations as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations change.

 

Overview

 

 Neogenix Oncology, Inc. (“Neogenix” or the “Company”) is a clinical stage biotherapeutic company focused on developing novel therapeutic and companion diagnostic products for detection and treatment of cancer . The initial focus includes pancreatic and colorectal cancer but the pipeline shows specificity towards other cancers. The markets for diagnostic and therapeutic products for these cancers are substantial and growing.

 

Neogenix has not commenced its planned or principal operations and has not generated any revenues since its inception, and as such is considered a development stage enterprise. The products being developed will require substantial funding to further research and development, clinical testing, and regulatory approval prior to their commercialization.

 

We have generated no revenues since inception through December 31, 2011. We did have other income from interest on various financial instruments and a grant. We have funded our business principally with the net proceeds from sales of our common stock in private placement transactions.

 

We have never been profitable and, as of December 31, 2011, we have an accumulated deficit of approximately $115.5 million (including non-cash stock based compensation). We have incurred net losses of approximately $19.0 and $19.1 million in the years ended December 31, 2011 and 2010, respectively (including non-cash equity expense). We expect to incur significant and increasing operating losses for the next few years as we advance our products from discovery through preclinical studies to clinical trials and seek to fund our operations through public or private equity or debt financings or other sources, such as strategic partnerships and product licensing agreements. We will need additional financing to support our operating activities. Adequate additional funding may not be available to us on acceptable terms, or at all.  The Company will need to raise significant additional capital through the sale of the Company’s common stock in order to sustain the operations of the Company.  Subsequent to December 31, 2011, the Company has not raised any capital through the sale of its common stock. The Company is currently evaluating potential strategic alternatives, including bankruptcy.

 

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Critical accounting policies and estimates

 

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates.

 

At this stage of our development, we believe that the assumptions, judgments and estimates involved in the accounting for stock based compensation have the greatest potential impact on our consolidated financial statements at this time. This area is a key component of our results of operations and is based on complex rules which require us to make judgments and estimates, so we consider this to be a critical accounting policy.

  

Stock Based Compensation.  We account for stock based compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Stock Compensation. Stock based compensation for stock options is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. We use the Black-Scholes model to value option awards. We recognize compensation cost on a straight-line basis over the requisite service period.

 

Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates, and expected terms. Since our stock is not traded on a public exchange, and there is limited historical data on the price of our shares, we have identified several similar entities from which to estimate our expected volatility. The expected volatility rates are estimated based on historical and implied volatilities of these companies’ common stock. The risk-free interest rates are based on the U.S. Treasury securities constant maturity rate that corresponds to the expected life. The expected life represents the average time that options that vest are expected to be outstanding based on the vesting provisions and our historical exercise, cancellation and expiration patterns. We estimate pre-vesting forfeitures when recognizing stock-based compensation expense based on historical rates and forward-looking factors.

 

Research and Development.  We enter into agreements with third parties for research and development activities that may be fixed fee or fee for service contracts. As of each balance sheet date, we review purchase commitments and accrue expenses based on factors such as estimates of work performed, costs incurred and other events. Accrued research costs are subject to revisions as projects progress to completion. Revisions are recorded in the period in which the facts that give rise to the revision become known. There is significant judgment involved in estimating the progress of research and development activities. Additionally, a significant portion of our research and development expense has been the result of the issuance of stock options to employees in exchange for services. As noted under “Stock Based Compensation” above, the valuation of stock options issued for services requires significant judgment and the amounts recorded could differ materially if different assumptions were used. Our estimated accrued expenses related to research and development activities are subject to change and may be revised based on more current information that may become known in future periods. Such amounts could differ materially if different assumptions were used.

 

 SEC Inquiry and stock rescission contingency

 

In October 2011, the Company received a letter of inquiry from the Philadelphia Regional Office of the Securities and Exchange Commission (“SEC”). The letter requested the Company to provide certain information relating to payments made to third parties (referred to as “finders’ fees”) in connection with the sales of the Company’s common stock. The Company responded to this inquiry and continues to provide information relating to these finders’ fee arrangements as requested by the SEC. The Company has concluded that finders’ fees were paid to individuals and entities whom the Company has not been able to confirm were registered as broker-dealers or otherwise properly licensed under applicable state law to participate in the sale of the Company’s securities on a compensated basis. Accordingly, it is possible that at least some investors who purchased shares of common stock in transactions in which finders’ fees were paid may have the right to rescind their purchases of those shares, depending on applicable federal and state laws and subject to applicable defenses, if any. The laws regarding rescission rights are complex and vary from state to state. Additionally, significant information regarding the finder and the actions of the finder is required in determining whether there is a probability that rescission rights exist.

 

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The Company has historically paid finder fees to parties based on a percentage of cash collected from the sale of its common stock and included information on the finder fees in its offering documents and in its annual and quarterly filings with the SEC. It is the current and expected future practice of the Company, if it wishes to retain third parties to assist in fundraising, to engage exclusively with licensed broker dealers and pay finder fees in accordance with its agreements with such licensed broker dealers. Any commitment to pay finder fees will continue to be disclosed in the private placement memorandum used in such financings.

 

The Company has assessed the potential for rescission liability in accordance with the provisions of Accounting Standards Codification (“ASC”) 450-20, Loss Contingencies. Under ASC 450-20, the Company is required to perform a probability assessment of the potential liability for rescission rights. Based on the information currently available to the Company, management has determined that it is reasonably possible that certain shareholders may have rescission rights related to common stock purchased for which finders’ fees were paid. Management believes the range of potential liability for rescission by investors as of July 10, 2012 is approximately $0 to $31 million. As of July 10, 2012, the Company had received communications from shareholders making requests or claims for rescission of investments in the Company's common stock of approximately $1.4 million. To the knowledge of the Company, no litigation against the Company has been initiated with respect to rescission of any shareholder’s investment. Because the Company has not concluded that the liability for rescission is probable, no accrual has been made in the financial statements as of December 31, 2011. Management does not currently know when it will be able to reasonably determine the length of time investors who may have rescission rights will continue to have those rights. In the future, a liability will be recorded if and when the Company concludes that (a) it is probable that certain shareholders have valid rescission rights and that those shareholders will exercise those rescission rights and (b) the amount of such liability can be reasonably estimated. If and when the Company determines that the conditions in the preceding sentences exist, the Company will accrue for such liability, and reduce stockholders’ equity for the amount related to the proceeds received from the original sale of the shares. Any liability in excess of the original proceeds received from the sale of the shares (e.g. interest or other fees or assessments) will be treated as an expense in the statement of operations in accordance with ASC 450-20.

 

The Company will make a probability assessment and estimate of the potential liability for rescission as of each reporting date in the future.

 

Results of Operations

 

Fiscal Year Ended December 31, 2011 Compared to Fiscal Year Ended December 31, 2010

 

Revenue:

 

To date, we have not generated any revenue from product sales or operations. We earn income from interest on funds invested in bank certificates of deposit. Interest income for the year ended December 31, 2011 was approximately $191,000, compared against approximately $267,000 for the year ended December 31, 2010. The decrease in interest income resulted from a lower average balance of cash and redemption of certificates of deposit to reduce credit line balances during 2011 compared to 2010.  Other income, net totaled approximately $463,000 and $241,000, respectively, for the years ended December 31, 2011 and 2010, and consisted primarily of U.S. government research grants totaling approximately $489,000 and $244,000, respectively.

 

In the future, we may generate revenue from a single source or a combination of product sales, license fees, milestone and other payments or royalties resulting from third party licensing or product distribution agreements under our intellectual property rights. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially and adversely affected. We will need to generate significant revenues to achieve profitability and we may never do so.

 

General and Administrative Expenses:

 

Management has made significant efforts to reduce cash outflows for general and administrative expenses in the areas of executive compensation, refocused business strategies and overall reduction in staff and associated costs. Cash-based General and Administrative expenses consist of salaries and related expenses for personnel in administration, finance, business development and human resources functions and legal expenses which represent a significant component Consulting fees include audit fees; accounting consulting fees and associated expenses. A significant component of general and administrative expense also relates to noncash stock-based compensation and common stock and warrants issued for investment banking services. The following table compares cash-based general and administrative expenses with noncash general and administrative expenses for 2011 and 2010.

 

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   2011   2010 
           
Cash-based general and administrative expenses  $5,180,000   $7,438,000 
Stock-based compensation expense   6,258,000    4,721,000 
Common stock and warrants issued for consulting services   873,000    - 
Depreciation and amortization expense   132,000    124,000 
           
   $12,443,000   $12,283,000 

 

The reduction in cash-based G&A expenses of approximately $2.3 million consisted of reductions of approximately $1.1 million in employee compensation due to staff reductions and decreases in overall management compensation and an additional $1.2 million reduction in operational overheads which include careful cash conservation including, but not limited to, travel associated expenses, realignment of employee benefits, termination or reduction of non strategic consulting agreements. Despite the reduction in G&A we still incurred higher than budgeted legal expenses during the 4th quarter of 2011 due to the unforeseen SEC inquiry and actions required to develop our accounting model, work with the OCA and complete our financial statements. The Company also accelerated payments towards the credit line which was fully paid off in 2012.

 

The overall increase in G&A stock-based compensation expense of approximately $1.5 million was caused by approximately $1.6 million in stock-based compensation expense recognized during 2011 in accordance with U.S. GAAP due to the return of 1.8 million stock options by two executives and approximately $2.1 million in expense from the extension of the expiration date of certain options during 2011. This was offset by lower expense from the regular vesting of stock options during 2011 due to options becoming fully vested and no additional options being granted during 2011. Common stock and warrants issued for consulting services consisted of a warrant with a fair value of approximately $823,000 with an exercise price of $13.75 and common stock with a fair value of approximately $50,000 issued to a consultant for assistance raising capital.

 

Research and Development Expenses:

 

Research and development expense consists of costs incurred in connection with the development and validation of our monoclonal antibodies. These expenses include:

 

  · employee-related expenses, which include salaries and benefits;
     
  · expenses incurred under agreements with contract research organizations, consultants and investigative sites that conduct our clinical trials and a substantial portion of our preclinical studies;
     
  · the cost of acquiring and manufacturing clinical trial materials;
     
  · facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and depreciation of fixed assets;
     
  · license fees for any milestone payments related to licensed products and technology;
     
  · stock-based compensation expense to employees and non-employees involved in any research and development related activities; and
     
  · costs associated with regulatory approvals.

 

For the year ended December 31, 2011, research and development cash based expenses reduced by approximately $753,000. The total expense was approximately $7.26 million, compared to approximately $7.3 million for the year ended December 31, 2010. A significant component of research and development expense relates to noncash stock-based compensation which increased by approximately $700,000. The following table compares cash-based research and development expenses with noncash research and development expenses for 2011 and 2010.

 

   2011   2010 
           
Cash-based research and development expenses  $4,587,000   $5,322,000 
Stock-based compensation expense   2,515,000    1,802,000 
Depreciation and amortization expense   159,000    152,000 
           
   $7,261,000   $7,276,000 

 

During 2011, we focused our goals to advance research programs towards commercial objectives. Resources within R&D were allocated as follows:

·Completion of Phase I clinical trials for our first product candidate, NEO-101;

 

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·Independent assay validations with CLIA standards;
·Manufacture of NEO- 102 drug product for Phase 2 clinical trials;
·Expanded NEO-101, 201 and 301 studies in animal models; and
·Advancement of NEO- 201 for future human trials

 

This focus and realignment of resources resulted in decrease of personnel costs and associated overheads . In addition,we improved efficiency by renegotiating key contracts with suppliers and entering into partnerships for validation of our antibodies. This refocus resulted in reduction of overall cash-based research and development expenses of approximately $735,000. The lower employee and associated supply costs of approximately $1.3 million were redirected to finance the manufacture of NEO-102 which was approximately $1.5 million during 2011 and to support the increased clinical trial costs totaling approximately $664,000 relating to work for completion of Phase I clinical trials.

 

The increase in R&D stock-based compensation expense of approximately $713,000 was due to approximately $1.1 million in stock-based compensation expense recognized as a result of the extension of the expiration dates of certain stock options during 2011; this was offset by lower expense from the regular vesting of stock options during 2011 caused by options becoming fully vested and no additional options being granted during 2011. These extensions occurred during January 2011.

 

Material cash flows resulting from product revenue or royalty payments from this project are not anticipated to occur until the completion of FDA approved clinical trials and approval by regulatory authorities. We do however anticipate that favorable outcome of clinical trials data could serve as a basis for structuring potential co-development or collaboration agreements with biotechnology or pharmaceutical firms which may provide incremental funding for the Company.

 

There can be no assurance that we will be able to complete development, clinical trials and FDA approval within our anticipated schedule. Unforeseen challenges could create delays. Such delays could result in additional costs beyond what we have budgeted and could cause difficulty raising additional capital. Without adequate capital from investors, we will not be able to complete development and clinical trials of NEO-101. We also do not know if the FDA will require additional testing for our NEO-102 in order to substitute this as our second generation manufactured product for replacement of NEO101.

 

 Net loss and net loss per share:

 

For the year ended December 31, 2011, our net loss per share on a weighted average basic and fully diluted basis was $.84 per share. These figures compare to a net loss per share on a weighted average basic and fully diluted basis of $.86 per share for the year ended December 31, 2010.

 

2011 Quarterly Results

 

   Three Months Ended 
   March 31, 2011   June 30, 2011   September 30, 2011   December 31, 2011 
                 
Revenue  $-   $-   $-   $- 
Research and development   2,475,000    2,195,000    1,219,000    1,371,000 
General and administrative   4,381,000    3,973,000    2,067,000    2,023,000 
Loss from operations   (6,856,000)   (6,168,000)   (3,286,000)   (3,394,000)
Other income (expense)   555,000    66,000    52,000    (19,000)
Net loss  $(6,301,000)  $(6,102,000)  $(3,234,000)  $(3,413,000)
                     
Stock-based compensation expense included in net loss  $4,284,000   $2,562,000   $980,000   $947,000 
Warrants and common stock issued to consultants included in net loss   -    146,000    436,000    291,000 
Total non-cash expense included in net loss  $4,284,000   $2,708,000   $1,416,000   $1,238,000 

 

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The quarterly results of 2011 reflect continued progress by management to contain costs through focused execution of key objectives. These cost savings are realized through progressive reductions in salaries and compensation, travel costs, and refocused R&D activities. There has been an accelerated investment towards clinical trials, manufacture of second generation NEO-101 (NEO 102) and funding of external validation of our biomarker programs. Fourth quarter general and administrative expenses included unusually high legal and consulting costs due to response to an informal inquiry by the SEC and the resulting need to redefine an accounting model for financial reporting. Fourth quarter research and development expense included certain higher expenditures related to payments to clinical sites to complete Phase I clinical trials and approximately $1.5million to continue cGMP manufacture and testing of the second generation drug product for Phase IIa clinical trials. These elevated levels of R&D costs continued through the first quarter of 2012 and manufacturing is expected to conclude by the second quarter 2012. We may have to incur additional costs for assay validation and testing of NEO-102 for regulatory approval for use in human trials

 

Liquidity and Capital Resources

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses since inception totaling approximately $115.5 million as of December 31, 2011 and had negative cash flows from operating activities totaling approximately $8.4 million for the year ended December 31, 2011. The Company also had a contingency from a potential stock rescission that may result in liabilities estimated between $0 and $31 million as of December 31, 2011. The Company expects continued net losses and negative cash flows from operating activities for the foreseeable future. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

Management is working to raise additional capital through the sale of debt or equity securities to fund the continued operations of the Company. The Company is also evaluating potential strategic alternatives including bankruptcy and a sale of assets.

 

There can be no assurance that the Company will be successful in its efforts to raise cash through the sale of debt or equity securities. If the Company is not able to obtain sufficient financing, it will not be able to continue the development of its products.

 

Our primary cash requirements are to fund our research and development and clinical programs, obtain regulatory approvals, prosecute, defend and enforce any patent claims and other intellectual property rights, fund general and administrative expenses and meet our contractual obligations.

 

Our cash requirements could change materially as a result of our research and development and clinical programs, licensing activities or other corporate developments.

 

We have incurred operating losses since our inception and historically have financed our operations principally with the net proceeds from sales of our common stock in private placement transactions. During 2011, we sold 228,101 shares of our common stock at $12.50 per share to accredited investors. During 2010, we sold 820,298 shares of our common stock at $12.50 per share to accredited investors. During 2011 and 2010, these private placements resulted in aggregate net proceeds of approximately $2.7 million and $9.6 million, respectively, after deducting finders’ fees and transaction expenses.  Since our inception, we have raised approximately $51.6 million, net of finder’s fees and transactions costs from the sale of our common stock.

 

In October 2010, the Company received a U.S. government grant under the Qualifying Therapeutic Discovery Project (“QTDP”) Program totaling $244,479.  In order to qualify for the QTDP grants, the project must have the potential to develop new treatments that address “unmet medical needs” or chronic and acute diseases; reduce long-term health care costs; represent a significant advance in finding a cure for cancer; advance U.S. competitiveness in the fields of life, biological, and medical sciences; or create or sustain well-paying jobs, either directly or indirectly.  The QTDP was created by Congress in March 2010 as part of the Patient Protection and Affordable Care Act and provides a tax credit or a grant equal to 50% of eligible costs and expenses for tax years 2009 and 2010.  The grant of $244,479 was recorded as other income on the statement of operations for the year ended December 31, 2010.  The Company was awarded two additional QTDP grants, totaling $488,958, and received payment for them in January 2011.

 

As of December 31, 2011, the Company had a $2,000,000 line of credit with a commercial bank, which was secured against a certificate of deposit in the same amount and bore interest at 6.5%. As of December 31, 2011, the Company had a balance of $750,000 outstanding on the line of credit. On March 12, 2012, the line of credit was paid off and closed.

 

As of December 31, 2011, we had cash and cash equivalents and certificates of deposit of approximately $5.3 million, of which approximately $3 million are cash and cash equivalents and approximately $2.3 million are certificates of deposit with a commercial bank, which we can access immediately, if necessary, at minimal cost to us. We anticipate that we will need to raise additional capital through the sale of debt or equity securities to fund our operations through December 31, 2012. There can be no assurance that we will be successful in our efforts to raise capital. If we are not able to obtain financing through the sale of our debt or equity securities, we will not be able to continue the development of our products.

 

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The amount of funds that we will need and the timing of any such investment will be determined by many factors, some of which are beyond our control. These factors include, but are not limited to:

 

  · potential rescission and other liabilities arising from the use of unlicensed broker-dealers in connection with the sale of shares of our common stock;
     
  · the results of our Phase I clinical trial of our lead therapeutic product candidate and our clinical study of a diagnostic product;
     
  · our ability to successfully develop, obtain regulatory approval for, introduce, market and sell new products;
     
  · economic conditions in the U.S. capital and other markets in which we will seek to secure additional investment;
     
  · the level of our general and administrative expenses and research and development expenses;
     
  · the extent to which we enter into, maintain and derive revenue from licensing agreements;
     
  · the level of our expenses associated with the audit of our financial statements or with compliance with other corporate governance and regulatory developments or initiatives; and
     
  · regulatory changes and technological developments in our markets.

 

General market conditions or other factors may not support capital raising transactions. If we are unable to obtain sufficient additional funds on a timely basis, we may need to delay, scale back or eliminate certain of our research and development programs or license to third parties products or technologies that we would otherwise undertake or retain ourselves, and there could be a material adverse effect on our financial condition or results of operations.

 

We expect to continue to experience net operating losses for the foreseeable future. Historically, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate raising additional capital within the next twelve months from investors for working capital as well as to fund our research and development programs, although we can provide no assurance whether additional funds will be available on terms acceptable to us, if at all.

 

Operating Activities

 

At December 31, 2011, we had working capital of approximately $2.0 million, as compared to approximately $2.8 million at December 31, 2010.

 

Net cash used in operating activities for the year ended 2011 was approximately $8.4 million, compared to approximately $13.6 million in 2010. As a development stage company, we continue to incur significant net losses as research and development activities progress. Our cash used in operating activities for the year ended 2011 consisted mainly of our net loss of approximately $19.0 million, offset by non-cash stock-based compensation costs of approximately $8.8 million, a decrease in prepaid expenses of approximately $569,000 and a derivative liability totaling approximately $753,000. The decrease in prepaid expenses is due primarily to timing of payments. The derivative liability is due to a warrant issued to a consultant for services.

 

Until we obtain regulatory approval for our cancer diagnostic products, we expect to continue to incur growing negative cash flows from operating activities.

 

Investing Activities

 

Net cash provided by investing activities for the year ended December 31, 2011 was approximately $5.5 million, compared to net cash used in investing activities of approximately $493,000 for the same period in 2010, mainly a result of the sale of restricted certificates of deposit that were required as collateral for our lines of credit and sales of certificates of deposit based on levels of cash and cash equivalents at the time.

 

Financing Activities

 

Net cash provided by financing activities for the year ended December 31, 2011 was approximately $2.6 million, compared to approximately $10.6 million for 2010, which represents cash collected on the sale of common stock. The decrease was primarily a result of lower proceeds from the sale of common stock.

 

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Off-Balance Sheet Arrangements

 

The following summarizes our contractual obligations as of December 31, 2011:

 

Contractual obligations   Payments due by period (1)  
                               
      Total       Less
than 1
year
      1-3 years       3-5 years       More
than 6
years
 
Operating Lease Obligations (2)   $ 2,763,000     $ 378,000     $ 921,000     $ 986,000     $ 478,000  

 

(1) Payments are included in the period in which they are contractually required to be made. Actual payments may be made prior to the contractually required date.

(2) Represents our commitments associated with operating leases and includes contracts that expire in various years through 2015. Payments due reflect cash to be paid for rent.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

This Item has been omitted based on Neogenix’s status as a “smaller reporting company.”

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See the Consolidated Financial Statements and Schedules listed in the accompanying “Index to Financial Statements and Schedules.”

 

ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

There are not and have not been any disagreements between our company and our accountants on any matter of accounting principles, practices or financial statement disclosure.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Operating Officer (“COO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in Securities Exchange Act (“Exchange Act”) Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and COO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and COO concluded that as of December 31, 2011, our disclosure controls and procedures were not effective. As disclosed in Note K [8] to the financial statements, we have a contingency relating to a potential rescission for common stock sold in previous periods. We were also unable to assess and calculate the potential liability in a timely manner in order to be able to file our December 31, 2011 Form 10-K within the time period specified in the SEC’s rules and forms.  There has been no change in our internal controls over financial reporting during the quarter ended December 31, 2011 that has materially affected or is reasonably likely to affect our internal control over financial reporting.

 

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Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

 

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

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 company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Our management, with the participation of the Chief Executive Officer and Chief Operating Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, with the participation of the Chief Executive Officer and Chief Accounting Officer, concluded that we did not maintain effective internal control over financial reporting, as of December 31, 2011 based on the following material weaknesses identified in our internal control over financial reporting as of December 31, 2011:

 

·We did not maintain effective controls over the evaluation of contingencies. Specifically, as of December 31, 2011, the Company was unable to evaluate the probability and potential liability of a potential rescission obligation relating to previous sales of the Company’s common stock. Subsequent to year-end, management engaged accounting consultants to assist management with the evaluation of this contingency. The Company also made informal inquiries with the Office of the Chief Accountant regarding the evaluation and accounting for this contingency. Management believes that the contingency relating to the potential stock rescission obligation is accounted for correctly in the accompanying financial statements.

 

·We did not maintain effective controls relating to corporate credit cards. Specifically, controls requiring support for purchases and approval of all credit card expenditures were not consistently followed. Subsequent to year-end, management cancelled all corporate credit cards except for two. All credit card charges will require receipts to support the purchase and approval by another executive member of management. Credit card statements will be reconciled to receipts by accounting personnel on a monthly basis.

 

·We did not maintain effective procedures and controls surrounding electronic backup systems of critical financial data. Specifically, critical financial data was not stored in a secure off-site location and tests of restorations of backups were not performed. Subsequent to year-end, the Company engaged a third-party expert to evaluate their backup procedures and is implementing an offsite backup program and a periodic test of restoration of backups of critical financial data.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

This disclosure is not required by companies in their first year of reporting management’s assessment of internal control over financial reporting.

 

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ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

A listing of our executive officers and their biographies are included under the caption “Executive Officers” under Item 1 of this Form 10-K. Information about our directors is summarized below.

 

The following is a summary of our board of directors as of December 31, 2011.

 

Name   Age
James Feldman   62
Myron Arlen, M.D.   80
Lynn Krominga   62
Timothy P. Shriver, PhD   52
Barry Gause, M.D.   61
J. Douglas Holladay   65
Philip Arlen, M.D.   48
Dennis Green   49
Stan Archibald   66

 

Class I directors – Terms expiring in 2014

 

Myron Arlen, MD is the principal founder of Neogenix and served as Chairman of our Board of Directors and Director of Medical Affairs. Dr. Arlen resigned as Chairman of our Board of Directors and Director of Medical Affairs in January 2012. He recently also served as our Chief Executive Officer from 2003 until March 2010. Dr. Arlen was trained as a cancer surgeon at Memorial Sloan-Kettering where he remained on staff for 20 years involved in the surgery of advanced cancer problems and the immunotherapeutic approaches to managing the patients. Dr. Arlen established the Surgical Oncology Division at North Shore University Hospital, and formed a practice group (North Shore Surgical Oncology Associates). He has written two major textbooks and published over 80 journal articles related to cancer treatment. In the 1990s, Dr. Arlen helped to found another biotechnology company, International Bio-Immune Systems, Inc. of which he was part of management until 2003. Dr. Arlen is the father of Dr. Philip Arlen, our Chief Executive Officer and a director. He has been a Neogenix director since 2003.

 

Qualifications: As principal founder, Chairman and Director of Medical Affairs of the Company, Dr. Arlen has substantial executive experience in the biotechnology industry. Combined with his decades as an oncologist and cancer surgeon, this experience enables Dr. Arlen to provide the Company with a special perspective on the medical aspects of the Company and effective leadership in the conduct of its business, its interface with the scientific and medical community and its research and development. He brings a deep understanding of the medical and scientific issues related to the product candidates and diseases addressed by the Company. Dr. Arlen has extensive personal relationships with leading oncologists and scientists and was formerly the Chief Executive Officer of another biotechnology company, International Bio-Immune Systems, Inc.

 

Lynn Krominga is an attorney and business executive. Since 1999, Ms. Krominga has been a consultant to private equity and venture capital firms and to start-up and early stage technology companies and served as chief executive officer of Fashion Wire Daily, Inc. in 2002. From 1981 to 1999, Ms. Krominga held various senior executive and legal positions at Revlon, including President, Licensing Division, and General Counsel. Prior to that, Ms. Krominga was an attorney at American Express Company and at Cleary, Gottlieb, Steen & Hamilton. Ms. Krominga currently serves on the board of directors of Sunrise Senior Living, Inc., which files reports pursuant to the Exchange Act. From March through November 2008, Ms. Krominga served as Chairman of the Board of Sunrise Senior Living, and was appointed Lead Director thereafter (when the former CEO assumed the position of chair), and both such roles include voting membership on all board committees. Since October 2006, Ms. Krominga has served on the board of directors of Avis Budget Group, Inc. which files reports pursuant to the Exchange Act, and is a member of our Audit Committee and Governance and Nominating committee. She has been a Neogenix director since 2010.

 

Qualifications: Ms. Krominga’s extensive corporate management and director experience in public and private companies, broad legal experience, including extensive knowledge of corporate governance and regulatory issues, and international business experience enable Ms. Krominga to provide effective leadership and guidance to the Company as it grows and becomes a public reporting company.

 

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Timothy P. Shriver, PhD serves as Chairman and CEO of Special Olympics, where he has held executive positions since 1996. He received his BA from Yale University, his master’s degree from The Catholic University of America, and his Ph.D. in education from the University of Connecticut. He was instrumental in establishing the Social Development Project at the public schools in New Haven, Connecticut and also established the Collaborative for Academic, Social and Emotional Learning at the University of Illinois at Chicago. Mr. Shriver is a director of WPP Group, a leading marketing and communications services company. Mr. Shriver is Chairman of our Communications Committee and also serves on our Governance and Nominating Committee. He has been a Neogenix director since 2007.

 

Qualifications: As Chairman and CEO of the Special Olympics, Mr. Shriver has substantial operational experience in a world renowned international organization. He has also served as a director of an international marketing and communications company. This experience enables Mr. Shriver to bring insights and leadership into the growth of the Company, its operations, its interface with the public and its international aspects.

 

Class II directors – Terms expiring in 2012

 

James Feldman serves as the Chairman of the Board of Directors of Neogenix and has served as an Instructor in Law at the University of Pennsylvania Law School since January 2009 and is an attorney in Washington, DC specializing in Supreme Court litigation. Mr. Feldman was an Assistant to the Solicitor General of the United States from 1989 to 2006, with responsibility for representing the government, where he argued 46 cases in the U.S. Supreme Court. He served as a Law Clerk for United States Court of Appeals Judge Skelly Wright and Supreme Court Justice William Brennan, and part of the Iran-Contra Independent Counsel team. He serves on the Boards of the Shakespeare Theatre Company and the Washington National Opera. He received a BA from the University of Pennsylvania, an MA in philosophy from Columbia University and graduated from Harvard Law School magna cum laude, where he was President of the Harvard Law Review. Mr. Feldman serves as Chairman of our Audit Committee and also serves on our Compensation Committee. He has been a Neogenix director since 2009.

 

Qualifications: Mr. Feldman has served as a distinguished lawyer at high levels in the U.S. government and in academia. He has experience with boards of directors in the nonprofit sector and brings a legal background knowledge and experience to the Board. Mr. Feldman has been a stockholder of the Company for many years prior to his becoming a director. He also was a principal owner, President, and CEO of Van Allen Inc., a leading wholesaler/manufacturer in the fashion jewelry and accessories industry from 1971-1991.

 

Barry Gause, M.D. has served since September 2008 as the Chief Medical Officer and since November 2006 as the Director of the Clinical Research Directorate at SAIC-Frederick, Inc. Prior to assuming his position at SAIC-Frederick, Dr. Gause served for over twenty years at the National Cancer Institute. Dr. Gause received his Doctor of Medicine degree from Michigan State University’s College of Human Medicine in 1976. He trained in Internal Medicine and Pediatrics at Emory University in Atlanta Georgia followed by a four year fellowship in Medical Oncology at the National Cancer Institute. After completing his postdoctoral training, Dr. Gause was a faculty member at the Howard University Cancer Center where he attained the position of Chief of Medical Oncology. Dr. Gause serves on our Audit Committee and our Compensation Committee. He has been a Neogenix director since 2009.

 

Qualifications: Dr. Gause has over thirty years of experience in oncology, clinical trials, and clinical research in the public and private sectors. He has served in executive and management positions in prominent institutions relating to cancer and its treatment. Dr. Gause brings this independent scientific and medical perspective, insights and experience to the Board.

 

J. Douglas Holladay has served as a general partner in Park Avenue Equity Partners, LP since 2000. He also currently serves and Chief Executive Officer and Chairman of PathNorth, Inc. (since 2006) and The Buxton Initiative, Inc. (since 2003), both non-profit corporations. In addition, Mr. Holladay previously served on the board of directors of Sunrise Senior Living, Inc. and served on the board of CNL Hotels & Resorts, Inc. from 2003 to 2008. Mr. Holladay served as founding President of One to One Mentoring Partnership, an initiative of the New York financial community to address urban youth challenges. Mr. Holladay has held senior positions in both the State Department and the White House, and was appointed to the rank of Special Ambassador, charged to coordinate major aspects of the U.S. public response to the challenges posed by South Africa prior to the release of Nelson Mandela. He holds an AB from the University of North Carolina, an MA from Princeton Theological Seminary and a M.Litt. from Oxford University, and has been an adjunct professor at the University of Virginia. Mr. Holladay is Chairman of our Governance and Nominating Committee. He has been a Neogenix director since 2009.

 

Qualifications: Mr. Holladay’s qualifications include management and finance experience and public service at high levels within the U.S. government. This broad business exposure and experience enables Mr. Holladay to provide effective leadership and guidance to the Company as it grows and becomes a public reporting company.

 

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Class III directors – Terms expiring in 2013

 

Philip Arlen, MD serves in the positions of Chief Executive Officer, President, Chief Medical Officer and is a Director. Before becoming our Chief Executive Officer in March 2010, Dr. Arlen served as our President and Chief Medical Officer since July 2008. Prior to 2008, Dr. Arlen spent the past 11 years at the National Cancer Institute, USA, most recently as the Director of the Clinical Research Group for the Laboratory of Tumor Immunology and Oncology. At the NCI, Dr. Arlen focused on the development of a programmatic approach to vaccine clinical trials conducted at the NCI as well as at numerous other Cancer Centers throughout the US. During his tenure at the NCI, Dr. Arlen was the Principal Investigator and/or Associate Investigator on numerous clinical trials involving the use of cancer vaccines and other immunostimulatory molecules. Dr. Arlen remains on the clinical staff at both the NCI Clinical Center as well as the Walter Reed National Military Medical Center. He has authored or co-authored over 100 peer reviewed manuscripts in internationally known scientific and medical journals. Dr. Arlen received an NIH Award of Merit for major contributions to the field of cancer immunotherapy in 2003. He is a board certified medical oncologist and received his BA from Emory University and his MD from Medical College of Georgia, School of Medicine. Dr. Arlen is the son of Dr. Myron Arlen, our Chairman and Director of Medical Affairs. He has been a Neogenix director since 2008.

 

Qualifications: Dr. Arlen serves as our Chief Executive Officer. His experience as an oncologist and director of clinical research at the National Cancer Institute, combined with his executive experience at the Company, first as President and Chief Medical Officer and now as Chief Executive Officer, provides expertise in the biotechnology industry, oncology and clinical trials, all of which are central to the Company’s mission and current projects. Dr. Arlen has extensive relationships among leading clinicians, scientists, academic institutions and industry.

 

Dennis Greene is currently President of Business Operations for the Washington Redskins. Mr. Greene joined the Redskins in 2001 as a Senior Vice President. Prior to joining the Redskins organization, Mr. Greene headed business units and sales and marketing for several fortune 500 companies and top worldwide consulting and advertising agencies, including Carter Wallace, Schering Plough, Astra Zeneca, Ventiv Health, Snyder Communications, and Havas. Mr. Greene serves as a board member of dick clark productions (DCP). He received a BS from Southern Illinois University in 1984, and completed various executive management and graduate courses. He was a Neogenix director from 2009 until this year. Mr. Greene resigned from the board of directors of the Company on July 2, 2012.

 

Qualifications: As President of Business Operations for the Washington Redskins, and in his former executive positions at several Fortune 500, consulting and advertising companies, Mr. Greene has broad and deep business experience in the operations of multi-national companies in a variety of industries, including pharmaceuticals. Mr. Greene’s experience afforded him leadership and guidance regarding a host of business issues faced by the Company as it moves towards commercial development of products.

 

Stan Archibald is the managing director and a principal at Hydrocarbon Exchange Corporation, a natural gas merchant wholesaler and a manager and principal of Texas Enery Midstream, LLC, which developed and owns Mansfield Pipeline in Tarrant County, Texas. Mr. Archibald resigned as a member of the board of directors in February 2012.

 

Qualifications: Mr. Archibald has significant experience financing and growing businesses. Mr. Archibald’s background and experience allow him to provide guidance to the Company on a variety of issues of great importance to the Company.

 

CORPORATE GOVERNANCE

 

Role of the Board of Directors

 

Our Board of Directors plays an active role in overseeing management and representing the interests of shareholders. Directors are expected to attend Board meetings and the meetings of committees on which they serve. Directors are also frequently in communication with management between formal meetings. During the fiscal year ended December 31, 2011, the Board met a total of 11 times. All directors attended at least 75% of the total Board and committee meetings to which they were assigned in the fiscal year ended December 31, 2011.  It is the Company’s policy that all directors attend our annual meeting of stockholders.

 

Board Leadership Structure

 

Pursuant to our Charter of our Board of Directors, the Company does not have a policy on whether the offices of Chairman of the Board and Chief Executive Officer (“CEO”) should be separate. Currently, the roles of our Chairman and CEO are split, which the Board believes best serves the interest of the Company and its shareholders at this time. In addition, Board oversight is enhanced by the fact that all of the Board’s key committees – Audit, Compensation, and Governance and Nominating – are comprised entirely of independent directors.

 

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The Board’s Role in Risk Oversight

 

The Board executes its oversight responsibility for risk management directly and through its Committees, as follows:

 

·The Audit Committee has primary responsibility for discussing polices with management and our independent auditor, as appropriate, with respect to risk oversight, including the Corporation’s major business and financial risk exposures, and providing the Board with advice and recommendations regarding the ongoing development of risk oversight and management policies that set out the roles and respective accountabilities of the Board, the Committee, management and the internal audit function. The policies cover the areas of risk oversight, compliance and control, and assessment of effectiveness. The Audit Committee’s meeting agenda include discussions of individual risk areas throughout the year.
·The Board’s other committees, which are the Governance and Nominating Committee and the Compensation Committee, oversee risks associated with their respective areas of responsibility. For example, the Governance and Nominating Committee considers risks associated with related persons transactions and corporate succession plans, and the Compensation Committee reviews risks associated with our compensation policies and practices relating to our executive officers.
·The Board also considers risks relating to our strategic plan, in part by receiving regular reports from the heads of our principal business and corporate functions that include discussions of the risks and exposures involved in their respective areas of responsibility. These reports are provided in connection with regular Board meetings and are discussed, as necessary, at Board meetings.

 

Standard of Conduct and Ethics

 

We are committed to ethical behavior in all that we do. Our Code of Business Conduct and Ethics applies to all of our directors, officers and employees. It sets forth our policies and expectations on a number of topics, including our commitment to promoting a fair workplace, avoiding conflicts of interest, compliance with laws (including insider trading laws), appropriate relations with government officials and employees, and compliance with accounting principles.

 

Our Code of Business Conduct and Ethics is posted on our website at http://neogenix.com/corporate.html. Printed copies of the Code of Business Conduct and Ethics may be obtained by shareholders, without charge, by contacting Corporate Secretary, Neogenix Oncology, Inc., 445 Northern Boulevard, Suite 24, Great Neck, NY 11021. We intend to make any required disclosures regarding any amendments of our Standard of Conduct and Ethics or waivers granted to any of our directors or executive officers on our website at www.neogenix.com.

 

Identifying and Evaluating Nominees for Directors

 

The Governance and Nominating Committee recommended to the Board the slate of directors to serve as management’s nominees for election by the shareholders at the annual meeting. Incumbent directors standing for reelection are evaluated by the Governance and Nominating Committee in accordance with the committee’s charter, which includes reviewing the incumbent’s capability, availability to serve, independence and other relevant factors. The process for identifying and evaluating candidates to be nominated to the Board starts with an evaluation of a candidate by the Chairman of the Committee, followed by the Committee in its entirety. Director candidates may also be identified by shareholders. In evaluating such nominations, the Governance and Nominating Committee seeks to achieve a balance of knowledge, experience, and capability on the Board of Directors. Furthermore, any member of the Board of Directors shall meet the following criteria:

 

·unquestioned personal integrity and ethical values;
·committed to promoting the long-term value of the Company;
·have a history of demonstrating achievement in one of more fields of business, government, community, scientific, or educational, and possess objective business judgment and expertise;
·an understanding of issues affecting publicly traded companies; and
·have sufficient time to devote to Board activities.

 

Additionally, the Governance and Nominating Committee reviews the Board’s size, structure, composition and functioning, to ensure an appropriate blend and balance of diverse skills and experience. Diversity may encompass a candidate’s gender, race, national origin, educational and professional experiences, expertise and specialized or unique technical backgrounds and/or other tangible or intangible aspects of the candidate’s qualifications in relation to the qualifications of the then current board members and other potential candidates. The Governance and Nominating Committee does not have a formal policy specifying how diversity should be applied in identifying or evaluating director candidates, and diversity is but one of many factors the Governance and Nominating Committee may consider.

 

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Director Independence

 

Our Board has reviewed the relationships concerning independence of each director on the basis of the definition of “independent” contained in the Nasdaq Marketplace Rules.

 

In accordance with that review, our Board has made a subjective determination as to each independent director that no relationships exist that, in our Board’s opinion, would interfere with his exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the Board reviewed and discussed information provided by the directors and by management with regard to each director’s business and personal activities as they may relate to our business and our management.

 

Our Board of Directors currently consists of seven directors. Six of our directors, Ms. Krominga and Messrs. Feldman, Gause, Holladay, Archibald, and Shriver are considered independent under the definition of independence used by the Nasdaq Capital Market in accordance with Nasdaq Marketplace Rule 4350. The Board has also determined that the members of each Committee of the Board are independent under the listing standards of the Nasdaq Marketplace Rules.  In determining the independence of the directors, the Board considered the relationships described under “Related Person Transactions,” which it determined were immaterial to the individual’s independence.

 

COMMITTEES OF THE BOARD OF DIRECTORS

 

Committees

 

Our Board of Directors has three standing Committees: Audit, Compensation, and Governance and Nominating Committee. The charter for each of our committees can be found at www.neogenix.com/corporate.html.

 

The following table provides a summary of the membership of each of the Committees of the Board of Directors as of December 31, 2011.

 

Name   Audit   Compensation   Governance and Nominating Committee
Mr. Feldman   Chair   X    
Mr. Gause   X   X    
Mr. Greene       Chair    
Mr. Holladay           Chair
Ms. Krominga   X       X
Mr. Archibald            
Mr. Shriver           X

 

The Audit Committee

 

The Audit Committee of the Board of Directors assists the Board in its oversight of the Company’s corporate accounting and financial reporting process; the Company’s process to manage business and financial risk; the Company’s compliance with legal and regulatory requirements; the independent auditor’s qualifications and independence; and the performance of the Company’s internal audit function and independent auditor. The Audit Committee is governed by a Board-approved charter stating its responsibilities. The Committee’s responsibilities include:

 

·overseeing management's conduct of the Company's financial reporting process and systems of internal accounting and financial controls;
·overseeing the independence and performance of the Company's independent auditors and audits of the financial statements of the Company;
·providing an avenue of communication among the outside auditors, management and the Board;
·maintaining compliance with the Audit Committee requirements of Rule 10A-3 under the Securities Exchange Act of 1934;
·overseeing compliance with legal and regulatory requirements; and
·overseeing and reviewing related party transactions.

 

For additional information regarding the Audit Committee’s duties and responsibilities, please refer to the Audit Committee’s charter, which is available on the Company’s web site.

 

Each of the members of the Audit Committee is independent within the meaning of the listing standards of Nasdaq Marketplace Rules and applicable SEC regulations. The Audit Committee met 2 times during the fiscal year ended December 31, 2011.

 

35
 

 

As required under the Sarbanes-Oxley Act of 2002, the Audit Committee has in place procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

The Compensation Committee

 

The Compensation Committee of the Board of Directors oversees and advises the Board on the adoption of policies that govern the Company’s compensation and benefit programs. Each of the members of the Compensation Committee is an independent director within the meaning of the Nasdaq Marketplace Rules, a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. During the fiscal year ended December 31, 2011, the Compensation Committee met one time.

 

The Compensation Committee reviews the effectiveness of the Company’s executive compensation programs, including reviewing and approving goals and objectives for the Company’s executives. The Compensation Committee is responsible for evaluating and setting the compensation for our Chief Executive Officer, Philip Arlen. Dr. Arlen is responsible for evaluating and recommending to the Compensation Committee the amount of compensation of our other executive officers. The Compensation Committee reviews such recommendations from Dr. Arlen and has the authority to approve or revise such recommendations. The Compensation Committee has not retained the services of a compensation consultant in setting the form or amount of compensation the Company pays to its executives. The functions of the Committee are further described in its charter, which can be found on our website.

 

The Governance and Nominating Committee

 

The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to corporate governance. The Governance and Nominating Committee is governed by a Board-approved charter detailing its responsibilities. The Committee assists the Board by selecting and recommending Board nominees and making recommendations concerning the composition of Board committees. The Governance and Nominating Committee met one time during the fiscal year ended December 31, 2011. Each of the members of the Committee is an independent director within the meaning of the Nasdaq Marketplace Rules. The functions of the Committee are further described in its charter, which can be found on our website.

 

All disclosure items relating to executive officers and significant employees are listed under item 11 herein.

 

ITEM 11. EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION

 

The table below sets forth the compensation earned by the top three compensated employees, including the CEO for the fiscal years ended December 31, 2011 and 2010. These individuals are collectively referred to as our named executive officers.

 

2011 Summary Compensation Table

 

Name and Principal Position  Year   Salary   Bonus   Option
Awards(1)
   All Other
Compensation (2)
   Total 
(a)  (b)   (c)   (d)   (f)   (i)   (j) 
Dr. Philip Arlen   2011   $438,849   $0   $0   $30,649   $469,498 
Chief Executive Officer,  President and Chief Medical Officer (3)   2010   $436,154   $215,000   $0   $36,424   $687,578 
                               
Dr. Myron Arlen*   2011   $335,350   $0   $0   $28,020   $363,370 
Director of Medical Affairs (4)   2010   $436,154   $215,000   $0   $34,393   $685,547 
                               
Dr. Andy Bristol* (5)   2011   $250,000   $0   $0   $10,582   $260,582 
Senior VP of  R&D   2010   $214,192   $50,000   $856,000   $10,364   $1,130,556 
                               
Dr. Albine Martin   2011   $221,502   $0   $0   $11,667   $233,169 
Chief Operating Officer   2010    -NA                     
                               
Robert Washington (6)   2011   $218,269   $0   $0   $25,945   $244,214 
Vice President Business
Development
   2010   $199,999   $60,000   $856,000   $28,038   $1,144,037 

*No longer employed effective January 2012

 

36
 

 

(1) The amounts in column (f) represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Andy Bristol and Robert Washington were each granted 100,000 options during 2010.

 

(2) The amounts in column (i) reflect the following items: automobile expenses, life and disability insurance premiums and the Company’s matching contribution under its 401(k) Plan.
   
(3) Dr. Philip Arlen was appointed our Chief Executive Officer in March 2010.  Prior to that time, he served as our President and Chief Medical Officer.
   
(4) Dr. Myron Arlen resigned as our Director of Medical Affairs and Chairmen of the Board in January 2012.
   
(5) Andy Bristol ceased employment with the Company in January 2012.

 

Overview of Executive Compensation

 

The Company’s objective is to provide each of our executive officers with a competitive total compensation package that includes base salary, the potential for a performance-based annual cash bonus, and time-based equity incentives.

 

Base Salary

 

Generally, base salaries for our named executive officers are set forth in each executive’s employment agreement and are established through negotiation with the Compensation Committee. Factors we considered in the negotiation are prior experience, qualifications, prior salary and our need for the particular qualifications of such executive. Potential increases in base salary are based on the executive’s responsibilities, performance, their overall compensation package and the compensation of comparable companies in the biotechnology industry. Our executives’ base salaries are reviewed and approved by our Compensation Committee. No executive officer sits on the compensation committee.

 

Bonus Awards

 

The Compensation Committee approves annual performance based compensation. The purpose of the annual bonus based compensation is to motivate our executive officers. Pursuant to employment agreements with each of our named executive officers target bonuses, the Compensation Committee may, in its discretion, award annual bonuses of up of 50% of a named executive officer’s base salary, which in 2010 were paid on a quarterly basis. The bonus recommendations are derived from individual and Company performance and are not based on a specific formula.

 

Stock Option Awards

 

Our Amended and Restated 2005 Stock Option Plan, which was approved by our stockholders, provides a long-term, equity-based incentive designed to encourage ownership of our shares by employees and directors of the Company to assist in the retention of such key personnel and to provide additional incentive for them to promote the success of the Company.

 

The Amended and Restated 2005 Stock Option Plan is administered by the Compensation Committee and our Board of Directors. The Compensation Committee recommends the terms and conditions of annual stock option awards for each named executive officer and these awards must be approved by the Board. On March 22, 2010, the number of options available under this plan was increased to 20,000,000.

 

Our Compensation Committee does not apply a rigid formula in allocating stock options to executives as a group or to any particular executive. Instead, our Compensation Committee exercises its judgment and discretion and considers, among other things, the role and responsibility of the executive, their performance achievements during the fiscal year, and competitive factors.

 

37
 

 

Outstanding Equity Awards at Fiscal Year-End 2011

 

  Option Awards      
Name of Executive  Option
Grant Date
   Number of
Securities
Underlying
Unexercised
Options
Exercisable
   Number of
Securities
Underlying
Unexercised
Options
Unexercisable
   Option
Exercise
Price
   Option
Expiration
Date
 
Dr. Myron Arlen 3   4-21-2007    200,000(1)     $5.00    4-21-2012  
                          
Dr. Philip Arlen 3   5-30-2008    375,000    125,000(2)  $4.00    5-30-2013 
                          
Andy Bristol   12-8-2010    25,000    75,0004  $12.50    12-8-2015 
    9-30-2009    50,000    50,0005  $8.00    9-29-2014 
   12-30-2008    56,250    18,7506  $5.00    12-30-2013 
   12-3-2007    25,000    0   $4.00    12-3-2012 

_________________________

 

1 Includes 200,000 options beneficially owned by Mr. Arlen’s spouse or daughter. Mr. Arlen disclaims beneficial ownership of such options.

 

2 125,000 options vest on each of May 30, 2010, May 30, 2011, and May 30, 2012.

 

3 During 2011, Dr. Myron Arlen returned 1,300,000 previously granted stock options to the Company and Dr. Philip Arlen returned 500,000 previously granted stock options.

 

4 25,000 options vest on each of December 8, 2012, December 8, 2013, and December 8, 2014.

 

5 25,000 options vest on each of September 30, 2012, September 30, 2013.

 

6 18,750 options vest on December 30, 2012.

 

All option awards set forth above have been awarded under our Amended and Restated 2005 Stock Option Plan. We do not currently provide stock awards to our executive officers.

 

Employment Arrangements with Named Executive Officers

 

Dr. Myron Arlen. We entered into an employment agreement with Dr. Myron Arlen on May 5, 2009, as amended effective February 19, 2010. The agreement provided that Dr. Arlen, who was our Chief Executive Officer at the time the agreement was consummated, would resign as CEO and transition to the positions of Chairman of the Board and Director of Medical Affairs by April 30, 2010. Under the terms of the employment agreement, Dr. Arlen receives an annual base salary of $450,000, which may be increased on an annual basis at the discretion of the Board. At the Board of Director’s discretion, Dr. Arlen is also eligible to receive Company stock options and an annual bonus of up to 50% of his base salary. Under the terms of the employment agreement Dr. Arlen is also entitled to an automobile allowance of up to $1,500 per month and can participate in any and all Company employee benefit plans in the same manner as other senior executives of the Company. In the event Dr. Arlen’s employment is terminated due to death or disability, we will continue to pay him or his estate an amount equal to his base salary and provide health coverage for Dr. Arlen and his beneficiaries for three months after the termination date. If we terminate Dr. Arlen’s employment without cause, he is entitled to his accrued salary, plus health benefits and an amount equal to the greater of either the base salary in effect for twelve months or the period remaining prior to April 30, 2012. Dr. Myron Arlen resigned as Chairman of the Board and Director of Medical Affairs in January 2012.

 

Dr. Philip M. Arlen. We entered into an employment agreement with Dr. Philip Arlen on May 5, 2009, as amended effective February 19, 2010. The agreement provided that Dr. Philip Arlen, who was our President and Chief Medical Officer at the time the agreement was consummated, would transition to the position of Chief Executive Officer by April 30, 2010. Under the terms of the employment agreement, Dr. Arlen receives an annual base salary of $450,000, which may be increased on an annual basis at the discretion of the Board of Directors. At the Board of Director’s discretion, Dr. Philip Arlen is also eligible to receive Company stock options and an annual bonus of up to 50% of his base salary. Under the terms of the employment agreement Dr. Philip Arlen is also entitled to an automobile allowance of up to $1,500 per month and can participate in any and all Company employee benefit plans in the same manner as other senior executives of the Company In the event Dr. Philip Arlen’s employment is terminated due to death or disability, we will continue to pay him or his estate an amount equal to his base salary and provide health coverage for Dr. Philip Arlen and his beneficiaries for three months after the termination date. If we terminate Dr. Philip Arlen’s employment without cause, he is entitled to his accrued salary, plus health benefits and an amount equal to the greater of either the base salary in effect for twelve months or the period remaining prior to April 30, 2012.

 

38
 

 

Andy Bristol. We entered into an employment agreement with Andy Bristol, our Senior Vice President of Research and Development, on April 21, 2005. The agreement had an initial term of one year plus annual automatic renewals and provided for a base salary ($250,000 for 2011) to be adjusted annually. Bristol’s employment was terminated in January 2012 and he was paid a cash severance totaling approximately $60,000 plus the payment of accrued vacation.

 

DIRECTORS’ COMPENSATION

 

2011 Director Compensation

 

Other than the reimbursement of actual and ordinary out-of-pocket expenditures, we did not compensate any of our directors for their services as directors during 2011.

  

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Security Ownership of Certain Beneficial Owners and Management. “Securities authorized for issuance under equity compensation plans.”

 

Plan category  Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
   Weighted-average
exercise price of
outstanding
options, warrants
and rights
   Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
 
   (a)   (b)   (c) 
Equity compensation plans approved by security holders   16,097,150   $5.51    3,602,250 
Equity compensation plans not approved be security holders   50,000   $1.50    - 
Total   16,147,150   $5.50    3,602,250 

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 31, 2011:

 

·each of our executive officers;
·each of our directors;
·each stockholder known by us to own beneficially more than 5% of our Common Stock; and
·all of our current directors and executive officers as a group.

 

Percentage of class beneficially owned is based on 22,924,419 shares of common stock outstanding on December 31, 2011. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Securities that may be acquired within 60 days of December 31, 2011, pursuant to the exercise of options or warrants, are deemed to be outstanding and included for the purpose of calculating a person’s percentage ownership in the table below. The address for those individuals for which an address is not otherwise indicated is Neogenix Oncology, Inc., 445 Northern Boulevard, Suite 24, Great Neck, NY 11021.

 

39
 

 

Name of Beneficial Owner

  Number of Shares
Beneficially Owned
   Percent of
Class
 
Executive Officers and Directors:          
Myron Arlen, Chairman of the Board, Director of Medical Affairs (3)   4,036,095 Common Stock    17.6 
Philip Arlen, Chief Executive Officer, President, Chief Medical Officer and Director   1,386,211 Common Stock    6.1 
James Feldman, Director (4)   1,943,500    8.5 
Andy Bristol, Senior VP of R&D          
Barry Gause, Director   100,000   * 
Dennis Greene, Former Director   100,000   * 
J. Douglas Holladay, Director   100,000   * 
Lynn Krominga, Director   50,000    * 
Timothy Shriver, Director   380,000    1.7 
Stan Archibald, Director   175,000   * 
All executive officers and directors as a group (9 persons)          

 

 

 * Represents less than 1% of our outstanding common stock.

 

(1)Includes 101,437 shares beneficially owned by Dr. Arlen’s spouse. Mr. Arlen disclaims beneficial ownership of such shares.

 

(2)Includes 921,174 shares beneficially owned by Mr. Feldman’s spouse, as trustee for various trusts, and for which Mr. Feldman disclaims beneficial ownership of such shares.

 

(3)Myron Arlen resigned as Chairman of the Board and Director of Medical Affairs in January 2012.

 

(4)James Feldman was made the Chairman of the Board of Directors in January 2012.

  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, RELATED PERSON TRANSACTIONS AND INDEMNIFICATION

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten percent beneficial owners were complied with during the fiscal year ended December 31, 2010.

 

Related Person Transactions

 

Elizabeth Arlen is the daughter of Myron Arlen, the former Chairman of our Board of Directors, Director of Medical Affairs, and a stockholder, and the sister of Philip Arlen, the Chief Executive Officer, President, Chief Medical Officer, and a Director. Elizabeth Arlen provides marketing, investor relations, and computer services to the Company. For the years ended December 31, 2011 and 2010, total fees paid were approximately $50,000 and $50,000, respectively.

  

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Auditor’s Fees

 

With respect to the fiscal years ended December 31, 2011 and December 31, 2010, the aggregate fees billed by EisnerAmper LLP were as follows:

 

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   Fiscal 2011   Fiscal 2010 
           
Audit Fees  $120,000   $93,000 
Audit Related Fees   6,000    169,000 
Tax Fees   15,000    23,000 
All Other Fees   -    - 
           
TOTAL FEES  $141,000   $285,000 

  

The Audit Committee pre-approves all auditing services, and all non-audit services provided to us by EisnerAmper LLP, subject to a de minimis exception as set forth by the SEC.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements

 

The Consolidated Financial Statements listed in the accompanying Index to Financial Statements and Schedules are filed as a part of this report and incorporated herein by reference.

 

(a)(2) Financial Statement Schedule

 

None.  Financial Statement Schedules are omitted because they are not required, inapplicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

 

(b) Exhibit List          Exhibits to be listed below

 

Exhibits 10.1 through 10.9 are management contracts or compensatory plans or arrangements.

 

41
 

 

EXHIBIT INDEX

 

Exhibit

No.

  Exhibit Description
2.1 (2)   Contribution Agreement with Ariel Hollinshead, dated December 10, 2004
2.2 (2)   Amendment to Contribution Agreement with Ariel Hollinshead, dated May 26, 2006
2.3 (2)   Patent Purchase and Transfer Agreement
3.1 (1)   Amended and Restated Articles of Incorporation
3.2 (1)   Second Amended and Restated Bylaws
4.1 (1)   Specimen Common Stock Certificate
10.1 (1)   Employment Agreement dated May 5, 2009, between the registrant and Dr. Myron Arlen
10.2 (1)   Amendment to Employment Agreement between the registrant and Dr. Myron Arlen dated February 19, 2010
10.3 (1)   Employment Agreement dated May 5, 2009, between the registrant and Dr. Philip M. Arlen
10.4 (1)   Amendment to Employment Agreement between the registrant and Dr. Philip Arlen dated February 19, 2010
10.5 (1)   Employment Agreement dated May 5, 2009, between the registrant and Peter Gordon
10.6 (1)   Amendment to Employment Agreement between the registrant and Peter Gordon, dated February 19, 2010
10.7 (1)   2005 Employee, Director and Consultant Stock Option Plan, as amended
10.8 (1)   2005 Amended and Restated Stock Option Plan
10.9 (1)   Form of Non-Qualified Stock Option Agreement
10.10 (1)   Form of Incentive Stock Option Agreement
10.11 (1)   Lease by and between the registrant and Affiliated Developers, Inc., dated March 17, 2005
10.12 (1)   First modification of Lease by and between the registrant and Affiliated Developers, Inc., dated July 18, 2008
10.13 (1)   Second modification of Lease by and between the registrant and Affiliated Developers, Inc., dated January 22, 2009
10.14 (1)   Third modification of Lease by and between the registrant and Affiliated Developers, Inc., dated October 27, 2009
10.15 (1)   Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated April 28, 2004
10.16 (1)   Amendment No. 1 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated May 28, 2004
10.17 (1)   Amendment No. 2 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated June 17, 2005
10.18 (1)   Amendment No. 3 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, effective July 2, 2006
10.19 (1)   Amendment No. 4 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated May 11, 2007
10.20 (1)   Amendment No. 5 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated January 25, 2008
10.21 (1)   Amendment No. 6 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated March 21, 2008
10.22 (1)   Amendment No. 7 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, effective August 11, 2008
10.23 (1)   Amendment No. 9 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated April 30, 2009
10.24 (1)   Amendment No. 10 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated August 20, 2009
10.25 (1)   Amendment No. 10 (#2) to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated September 29, 2009
10.26 (1)   Amendment No. 11 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated January 19, 2010
10.27 (1)   Amendment No. 12 to Lease and License Agreement by and between the registrant and Maryland Economic Development Corporation, dated February 12, 2010
10.28 (1)   Services Agreement between Neogenix and Selexis SA dated August 12, 2009**
10.29 (2)   Services Agreement by and between Neogenix and Selexis SA, dated April 12, 2010**
10.30 (2)   Services Agreement by and between Selexis SA, dated April 12, 2010**
10.31 (4)   Services Agreement by and between the Company and Catalent Pharma Solutions LLC**
10.32 (5)   Commercial License Agreement between the Company and Selexis SA, dated December 6, 2010**

 

42
 

 

10.33 (15)   Lease Agreement between the Company and ARE-Maryland No. 25, LLC, dated December 17, 2010
10.34 (15)   Research Agreement between the Company and Istituto di Ricovero e Cura a Carattere Scientifico San Raffaele Pisana, dated August 31, 2010
10.35 (6)   Separation and General Release Agreement with Myron Arlen, effective as of February 1, 2012 (8-K filed on February 6, 2012)
10.36 (6)   Consulting Agreement with Myron Arlen, effective as of February 1, 2012 (8-K filed on February 6, 2012)
10.37 (7)   Separation Agreement, dated May 26, 2011, by and between Peter Gordon and Neogenix Oncology, Inc. (8-K filed on June 2, 2011)
10.38 (8)   Employment Agreement dated as of February 9, 2011 by and between Neogenix Oncology, Inc. and Albine Martin (8-K filed on February 15, 2011)
10.39 (9)   Project Plan and Quotation for GPEx® Feasibility Study of Monoclonal Antibody Candidates h16C3 and 31-1Chi – Phase A2  (10-Q filed on November 15, 2010)
31.1*   Certification by principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification by principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification by principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 (3)   Press Release, dated November 1, 2010
99.2 (10)   Letter to Shareholders, dated March 6, 2012 (8-K filed on March 6, 2012)
99.3 (11)   Letter to Shareholders, dated February 6, 2012 (8-K filed on February 6, 2012)
99.4 (12)   Letter to Shareholders dated January 11, 2012 (8-K filed on January 12, 2012)
99.5 (13)   Press Release of the Company dated January 5, 2011 (8-K filed on January 5, 2011)
99.6 (14)   Press Release of the Company dated November 1, 2010 (8-K filed on November 1, 2010)

 

(1) Incorporated by reference from an exhibit to Form 10, filed on April 30, 2010

(2) Incorporated by reference from an exhibit to an Amendment to Form 10, filed on July 16, 2010

(3) Incorporated by reference from an exhibit to the 8-K, filed on November 1, 2010

(4) Incorporated by reference from an exhibit to Form 10-Q, filed on November 15, 2010

(5) Incorporated by reference from Exhibit B to Exhibit 10.28 to the Amendment to Form 10, filed on July 16, 2010

(6) Incorporated by reference from an exhibit to the 8-K, filed on February 6, 2012

(7) Incorporated by reference from an exhibit to the 8-K, filed on June 2, 2011

(8) Incorporated by reference from an exhibit to the 8-K, filed on February 15, 2011

(9) Incorporated by reference from an exhibit to the 8-K, filed on November 15, 2010

(10) Incorporated by reference from an exhibit to the 8-K, filed on March 6, 2012

(11) Incorporated by reference from an exhibit to the 8-K, filed on February 6, 2012

(12) Incorporated by reference from an exhibit to the 8-K, filed on January 12, 2012

(13) Incorporated by reference from an exhibit to the 8-K, filed on January 5, 2012

(14) Incorporated by reference from an exhibit to the 8-K, filed on November 1, 2010

(15) Incorporated by reference from an exhibit to Form 10-K, filed on March 31, 2011

*  Filed Herewith.

**  Portions of this exhibit were redacted pursuant to a confidential treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

43
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NEOGENIX ONCOLOGY, INC.  
   
/s/ Dr. Philip Arlen  
By: Dr. Philip Arlen, Chief Executive Officer  
   
Date: July 10, 2012  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: July 10, 2012Date: July 10, 2012
/s/ Dr. Philip Arlen  
By: Dr. Philip Arlen, Chief Executive Officer and Director (Principal Executive Officer)  
Date: July 10, 2012 
   
/s/ James Feldman  
By: James Feldman, Chairman of the Board  
Date: July 10, 2012  
   
/s/ Albine Martin  
By: Albine Martin, PhD, Chief Operating Officer  
(Principal Financial and Acting Accounting Officer)  
Date: July 10, 2012  
   
/s/ Stow Walker  
By: Stow Walker, Director  
Date: July 10, 2012  
   
/s/ Dr. Barry Gause  
By: Dr. Barry Gause, Director  
Date: July 10, 2012  
   
/s/ J. Douglas Holladay  
By: J. Douglas Holladay, Director  
Date: July 10, 2012  
   
/s/ Lynn Krominga  
By: Lynn Krominga, Director  
Date: July 10, 2012  
   
/s/ Timothy P. Shriver  
By:  Timothy P. Shriver, PhD, Director  
Date: July 10, 2012  

 

44
 

  

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Contents

 

    Page
     
Financial Statements    
     
Report of Independent Registered Public Accounting Firm   1
     
Balance sheets as of December 31, 2011 and 2010   2
     
Statements of operations for the years ended December 31, 2011 and 2010 and for the period from January 1, 2004 (inception) through December 31, 2011   3
     
Statements of changes in stockholders' equity (deficit) for the years ended December 31, 2011 and 2010 and for the period from January 1, 2004 (inception) through December 31, 2011   4
     
Statements of cash flows for the years ended December 31, 2011 and 2010 and for the period from January 1, 2004 (inception) through December 31, 2011   12
     
Notes to financial statements   13

 

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Neogenix Oncology, Inc.

 

We have audited the accompanying balance sheets of Neogenix Oncology, Inc. (a development stage enterprise) (the "Company") as of December 31, 2011 and 2010, and the related statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2011 and 2010, and for the period from January 1, 2004 (inception) through December 31, 2011. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neogenix Oncology, Inc. (a development stage enterprise) as of December 31, 2011 and 2010, and the results of its operations, changes in its stockholders’ equity (deficit) and its cash flows for the years ended December 31, 2011 and 2010 and for the period from January 1, 2004 (inception) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has sustained recurring losses, has negative cash flows from operating activities and certain shareholders may have rescission rights related to common stock purchased by them for which finder fees were paid. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The financial statements do not include any adjustment that would result from the outcome of this uncertainty.

 

EisnerAmper LLP

New York, New York

July 12, 2012

 

 
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Balance Sheets

 

   As of December 31, 
   2011   2010 
         
ASSETS          
Current assets:          
Cash and cash equivalents  $2,988,610   $3,221,344 
Restricted short-term investments   -    237,670 
Short-term investments   -    26,561 
Prepaid expenses   279,307    839,377 
           
Total current assets   3,267,917    4,324,952 
           
Restricted long-term investments   2,287,100    7,427,849 
Long-term investments   -    108,155 
Property and equipment, net of accumulated depreciation of $813,717 and $553,498 for 2011 and 2010, respectively   779,833    1,022,476 
Other assets   6,776    15,452 
           
Total assets  $6,341,626   $12,898,884 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $252,209   $170,563 
Accrued expenses   245,375    315,952 
Current portion of capital lease obligations   19,427    16,106 
Lines of credit   750,000    1,001,450 
           
Total current liabilities   1,267,011    1,504,071 
           
Capital lease obligations, net of current portion   44,243    42,950 
Derivatives and other long-term liabilities   1,030,142    30,561 
           
Total liabilities   2,341,396    1,577,582 
           
Commitments and contingencies          
           
STOCKHOLDERS’ EQUITY          
Series A preferred stock; $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding          
Common stock; $0.01 par value; 200,000,000 shares authorized; 22,924,419 and 22,599,818 shares issued and outstanding at December 31, 2011 and 2010, respectively   229    226 
Additional paid-in capital   119,485,517    107,906,832 
Subscriptions receivable   -    (150,000)
Deficit accumulated during the development stage   (115,485,516)   (96,435,756)
           
Total stockholders’ equity   4,000,230    11,321,302 
           
Total liabilities and stockholders’ equity  $6,341,626   $12,898,884 

 

See the accompanying notes to the financial statements

 

2
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Operations

 

       For the Period From 
       January 1, 2004 
       (Inception) 
   Years Ended December 31,   Through December 31, 
   2011   2010   2011 
             
Revenue  $-   $-   $- 
                
Costs and expenses:               
Research and development   7,260,763    7,276,798    40,092,482 
General and administrative   12,443,423    12,282,593    76,889,307 
                
Total costs and expenses   19,704,186    19,559,391    116,981,789 
                
Loss from operations   (19,704,186)   (19,559,391)   (116,981,789)
                
Other income:               
Other income, net   392,850    240,957    633,807 
Unrealized gain on derivative liability   70,130    -    70,130 
Interest income   191,446    266,979    792,336 
                
Loss before income taxes   (19,049,760)   (19,051,455)   (115,485,516)
                
Provision for income taxes   -    -    - 
                
Net loss  $(19,049,760)  $(19,051,455)  $(115,485,516)
                
Net loss per common share – basic and diluted  $(0.84)  $(0.86)     
                
Weighted average shares outstanding – basic and diluted   22,812,000    22,055,000      

 

See the accompanying notes to the financial statements

 

3
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

 

                       Deficit     
                       Accumulated     
   Series A       Additional   During the   Total 
   Preferred Stock   Common Stock   Paid-in   Development   Stockholders’ 
   Shares   Par Value   Shares   Par Value   Capital   Stage   Equity (Deficit) 
                             
Issuance of shares to founding stockholders in January 2004 ($.00001 per share)   -   $-    9,750,000   $98   $900   $-   $998 
Issuance of shares to a founding stockholder in January 2004 in exchange for assets contributed ($0.0001 per share)   -    -    250,000    2    -    -    2 
Issuance of common stock in May 2004 ($1.00 per share)   -    -    100,000    1    99,999    -    100,000 
Issuance of common stock in July 2004 ($1.00 per share)   -    -    200,000    2    199,998    -    200,000 
Issuance of common stock in August 2004 ($1.00 per share), net of finder’s fee of $6,600   -    -    271,000    3    264,397    -    264,400 
Issuance of common stock in September 2004 ($1.00 per share), net of finder’s fee of $2,000   -    -    20,000    -    18,000    -    18,000 
Issuance of common stock in October 2004 ($1.00 per share)   -    -    25,000    -    25,000    -    25,000 
Issuance of common stock in November 2004 ($1.00 per share), net of finder’s fee of $2,500   -    -    25,000    -    22,500    -    22,500 
Issuance of common stock in December 2004 ($1.00 per share), net of finder’s fee of $1,750   -    -    67,000    1    65,249    -    65,250 
Net loss   -    -    -    -    -    (673,827)   (673,827)
                                    
Balance – December 31, 2004 (carried forward)   -    -    10,708,000    107    696,043    (673,827)   22,323 

 

See the accompanying notes to the financial statements

 

4
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

 

                   Deficit     
   Series A               Accumulated     
   Preferred Stock   Common Stock   Treasury Shares   Additional   During the   Total 
       Par       Par           Paid-in   Development   Stockholders’ 
   Shares   Value   Shares   Value   Shares   Value   Capital   Stage   Equity (Deficit) 
                                     
Balance – December 31, 2004 (brought forward)   -   $-    10,708,000   $107    -   $-   $696,043   $(673,827)  $22,323 
                                              
Issuance of common stock in January 2005 ($1.00 per share), net of finder’s fee of $11,800   -    -    625,998    6    -    -    614,192    -    614,198 
Issuance of common stock in March 2005 ($1.00 per share)   -    -    500,000    5    -    -    499,995    -    500,000 
Issuance of common stock in February 2005 ($2.00 per share), net of finder’s fee of $5,000   -    -    75,000    1    -    -    144,999    -    145,000 
Issuance of common stock in March 2005 ($2.00 per share), net of finder’s fee of $800   -    -    24,000    -    -    -    47,200    -    47,200 
Issuance of common stock in May 2005 ($2.00 per share), net of finder’s fee of $5,000   -    -    25,000    -    -    -    45,000    -    45,000 
Issuance of common stock in June 2005 ($2.00 per share), net of finder’s fee of $2,500   -    -    142,750    2    -    -    282,998    -    283,000 
Issuance of common stock in June 2005 for finder’s fee   -    -    6,375    -    -    -    (12,750)   -    (12,750)
Issuance of common stock in July 2005 ($2.00 per share), net of finder’s fee of $9,500   -    -    67,000    1    -    -    124,499    -    124,500 
Issuance of common stock in August 2005 ($2.00 per share)   -    -    12,500    -    -    -    25,000    -    25,000 
Issuance of common stock in September 2005 ($2.00 per share)   -    -    47,500    -    -    -    95,000    -    95,000 
Issuance of common stock for warrants exercised in December 2005 ($2.00 per share)   -    -    150,000    1    -    -    299,999    -    300,000 
Share-based compensation (Note J[2])   -    -    -    -    -    -    771,756    -    771,756 
Issuance of options in connection with a litigation settlement (Note K[5])   -    -    -    -    -    -    10,479    -    10,479 
Purchase of treasury stock   -    -    -    -    750,000    (750)   -    -    (750)
Offering costs on private placement memorandum   -    -    -    -    -    -    (30,000)   -    (30,000)
Net loss   -    -    -    -    -    -    -    (2,752,915)   (2,752,915)
                                              
Balance – December 31, 2005 (carried forward)   -    -    12,384,123    123    750,000    (750)   3,614,410    (3,426,742)   187,041 

 

See the accompanying notes to the financial statements

 

5
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

 

                                   Deficit     
   Series A                   Accumulated   Total 
   Preferred Stock   Common Stock   Treasury Shares       Additional   During the   Stockholders’ 
       Par       Par           Subscription   Paid-in   Development   Equity 
   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Stage   (Deficit) 
                                         
Balance – December 31, 2005 (brought forward)   -   $-    12,384,123   $123    750,000   $(750)  $-   $3,614,410   $(3,426,742)  $187,041 
                                                   
Issuance of common stock for options exercised in January 2006 ($2.00 per share)   -    -    134,000    2    -    -    -    267,998    -    268,000 
Issuance of common stock for options exercised in February 2006 ($2.00 per share)   -    -    10,000    -    -    -    -    20,000    -    20,000 
Issuance of common stock in February 2006 ($2.00 per share), net of finder’s fee of $5,000   -    -    30,000    -    -    -    -    55,000    -    55,000 
Issuance of common stock in March 2006 ($3.00 per share), net of finder’s fee of $7,500   -    -    47,500    -    -    -    -    135,000    -    135,000 
Issuance of common stock in April 2006 ($3.00 per share)   -    -    500    -    -    -    -    1,500    -    1,500 
Issuance of common stock in May 2006 ($3.00 per share), net of finder’s fees of $900   -    -    28,500    -    -    -    -    84,600    -    84,600 
Issuance of common stock in June 2006 ($3.00 per share), net of finder’s fee of $2,450   -    -    77,467    1    -    -    -    229,949    -    229,950 
Issuance of common stock in July 2006 ($3.00 per share), net of finder’s fee of $5,500   -    -    25,500    1    -    -    -    70,999    -    71,000 
Issuance of common stock in August 2006 ($3.00 per share)   -    -    25,000    -    -    -    -    75,000    -    75,000 
Issuance of common stock in September 2006 ($3.00 per share)   -    -    19,500    -    -    -    -    58,500    -    58,500 
Issuance of common stock in October 2006 ($3.00 per share)   -    -    8,333    -    -    -    -    25,000    -    25,000 
Issuance of common stock in November 2006 ($3.00 per share), net of offering costs of $36,000   -    -    75,666    1    -    -    -    190,999    -    191,000 
Issuance of common stock in December 2006 ($3.00 per share)   -    -    18,365    -    -    -    -    55,100    -    55,100 
Share-based compensation (Note J[2])   -    -    -    -    -    -    -    2,152,615    -    2,152,615 
Purchase of treasury stock in January 2006   -    -    -    -    10,000    (20,000)   -    -    -    (20,000)
Issuance of common stock through purchase of treasury stock ($2.00 per share) in January 2006   -    -    -    -    (10,000)   20,000    -    -    -    20,000 
Net increase in subscription receivable   -    -    -    -    -    -    (36,100)   -    -    (36,100)
Net loss   -    -    -    -    -    -    -    -    (4,226,169)   (4,226,169)
                                                   
Balance – December 31, 2006 (carried forward)   -    -    12,884,454    128    750,000    (750)   (36,100)   7,036,670    (7,652,911)   (652,963)

 

See the accompanying notes to the financial statements

 

6
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

 

                                   Deficit     
   Series A                   Accumulated   Total 
   Preferred Stock   Common Stock   Treasury Shares       Additional   During the   Stockholders’ 
       Par       Par           Subscription   Paid-in   Development   Equity 
   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Stage   (Deficit) 
                                         
Balance – December 31, 2006 (brought forward)   -   $-    12,884,454   $128    750,000   $(750)  $(36,100)  $7,036,670   $(7,652,911)  $(652,963)
                                                   
Issuance of common stock in January 2007 ($1.00 per share), net of finder’s fee of $20,000   -    -    200,000    2    -    -    -    179,998    -    180,000 
Issuance of common stock in January 2007 ($3.00 per share)   -    -    2,500    -    -    -    -    7,500    -    7,500 
Issuance of common stock in March 2007 ($3.00 per share), net of finder’s fee of $51,050   -    -    373,764    4    -    -    -    1,070,246    -    1,070,250 
Issuance of common stock in April 2007 ($3.00 per share), net of finder’s fee of $51,270   -    -    372,498    4    -    -    -    1,066,228    -    1,066,232 
Issuance of common stock in April 2007 ($4.00 per share)   -    -    33,125    -    -    -    -    132,500    -    132,500 
Issuance of common stock in May 2007 ($4.00 per share), net of finder’s fee of $127,470   -    -    227,096    2    -    -    -    780,912    -    780,914 
Issuance of common stock in June 2007 ($4.00 per share), net of finder’s fee of $24,500   -    -    106,750    1    -    -    -    402,499    -    402,500 
Issuance of common stock in July 2007 ($4.00 per share)   -    -    38,500    -    -    -    -    154,000    -    154,000 
Issuance of common stock in August 2007 ($4.00 per share), net of finder’s fee of $18,300   -    -    51,250    1    -    -    -    186,699    -    186,700 
Issuance of common stock in September 2007 ($4.00 per share), net of finder’s fee of $76,600   -    -    213,250    2    -    -    -    776,398    -    776,400 
Issuance of common stock in October 2007 ($4.00 per share), net of finder’s fee of $45,300   -    -    167,000    2    -    -    -    622,698    -    622,700 
Issuance of common stock in November 2007 ($4.00 per share), net of finder’s fee of $87,130   -    -    159,575    2    -    -    -    551,168    -    551,170 
Issuance of common stock in December 2007 ($4.00 per share), net of finder’s fee of $31,220   -    -    264,300    3    -    -    -    1,025,977    -    1,025,980 
Issuance of common stock in December 2007 ($2.00 per share)   -    -    25,000    -    -    -    -    50,000    -    50,000 
Issuance of common stock for options exercised in December 2007 ($0.25 per share)   -    -    13,200    -    -    -    -    3,300    -    3,300 
Share-based compensation (Note J[2])   -    -    -    -    -    -    -    5,608,902    -    5,608,902 
Offering costs on private placement memorandum   -    -    -    -    -    -    -    (30,000)        (30,000)
Net increase in subscription receivable   -    -    -    -    -    -    (201,900)   -    -    (201,900)
Net loss   -    -    -    -    -    -    -    -    (8,391,250)   (8,391,250)
                                                   
Balance – December 31, 2007 (carried forward)   -    -    15,132,262    151    750,000    (750)   (238,000)   19,625,695    (16,044,161)   3,342,935 

 

See the accompanying notes to the financial statements

 

7
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

 

                       Deficit     
   Series A                   Accumulated   Total 
   Preferred Stock   Common Stock   Treasury Shares       Additional   During the   Stockholders’ 
       Par       Par           Subscription   Paid-in   Development   Equity 
   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Stage   (Deficit) 
                                         
Balance – December 31, 2007 (brought forward)   -   $-    15,132,262   $151    750,000   $(750)  $(238,000)  $19,625,695   $(16,044,161)  $3,342,935 
                                                   
Issuance of common stock for options exercised in January 2008 ($0.25 per share)   -    -    1,069,000    11    -    -    -    267,239    -    267,250 
Issuance of common stock in January 2008 ($4.00 per share), net of finder’s fee of $73,500   -    -    343,950    3    -    -    -    1,302,297    -    1,302,300 
Issuance of common stock for options exercised in February 2008 ($0.25 per share)   -    -    390,000    4    -    -    -    97,496    -    97,500 
Issuance of common stock in February 2008 ($4.00 per share), net of finder’s fee of $15,480   -    -    74,950    1    -    -    -    284,319    -    284,320 
Issuance of common stock for options exercised in March 2008 ($0.25 per share)   -    -    21,000    -    -    -    -    5,250    -    5,250 
Issuance of common stock in March 2008 ($4.00 per share), net of finder’s fee of $17,100   -    -    63,750    1    -    -    -    237,899    -    237,900 
Issuance of common stock in April 2008 ($4.00 per share), net of finder’s fee of $95,500   -    -    265,000    3    -    -    -    964,497    -    964,500 
Issuance of common stock in May 2008 ($4.00 per share), net of finder’s fee of 122,370   -    -    394,375    4    -    -    -    1,455,126    -    1,455,130 
Issuance of common stock in June 2008 ($4.00 per share), net of finder’s fee of $12,000   -    -    36,250    -    -    -    -    133,000    -    133,000 
Issuance of common stock in June 2008 ($5.00 per share)   -    -    10,000    -    -    -    -    50,000    -    50,000 
Issuance of common stock in July 2008 ($4.00 per share)   -    -    4,250    -    -    -    -    17,000    -    17,000 
Issuance of common stock in July 2008 ($5.00 per share), net of finder’s fee of $25,500   -    -    73,500    1    -    -    -    341,999    -    342,000 
Issuance of common stock in August 2008         ($5.00 per share), net of finder’s fee of $11,200   -    -    45,000    -    -    -    -    213,800    -    213,800 
Issuance of common stock in September 2008 ($5.00 per share), net of finder’s fee of $28,360   -    -    86,100    1    -    -    -    402,139    -    402,140 
Issuance of common stock in October 2008 ($5.00 per share), net of finder’s fee of $11,550   -    -    306,100    3    -    -    -    1,518,947    -    1,518,950 
Issuance of common stock in November 2008 ($5.00 per share), net of finder’s fee of $40,800   -    -    180,000    2    -    -    -    859,198    -    859,200 
Issuance of common stock in December 2008 ($5.00 per share), net of finder’s fee of $65,870   -    -    270,750    2    -    -    -    1,286,628    -    1,286,630 
Issuance of common stock for acquisition of patents in December 2008   -    -    1,000,000    10    -    -    -    4,999,990    -    5,000,000 
Issuance of warrants for acquisition of patents in December 2008   -    -    -    -    -    -    -    3,375,286    -    3,375,286 
Share-based compensation (Note J[2])   -    -    -    -    -    -    -    8,730,433    -    8,730,433 
Offering costs on private placement memorandum   -    -    -    -    -    -    -    (45,000)   -    (45,000)
Net increase in subscription receivable                                 (21,000)             (21,000)
Net loss   -    -    -    -    -    -    -    -    (25,781,602)   (25,781,602)
                                                   
Balance – December 31, 2008 (carried forward)   -    -    19,766,237    197    750,000    (750)   (259,000)   46,123,238    (41,825,763)   4,037,922 

 

See the accompanying notes to the financial statements

 

8
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

 

                       Deficit     
   Series A                   Accumulated   Total 
   Preferred Stock   Common Stock   Treasury Shares       Additional   During the   Stockholders’ 
       Par       Par           Subscription   Paid-in   Development   Equity 
   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Stage   (Deficit) 
                                         
Balance – December 31, 2008 (brought forward)   -   $-    19,766,237   $197    750,000   $(750)  $(259,000)  $46,123,238   $(41,825,763)  $4,037,922 
                                                   
Issuance of common stock in January 2009 ($5.00 per share), net of finder's fee of $48,300   -    -    241,200    3    -    -    -    1,157,697    -    1,157,700 
Issuance of common stock in February 2009 ($5.00 per share), net of finder’s fee of $37,520   -    -    205,200    2    -    -    -    988,478    -    988,480 
Issuance of common stock in March 2009 ($5.00 per share), net of finder’s fee of $142,790   -    -    311,980    3    -    -    -    1,417,107    -    1,417,110 
Issuance of common stock in April 2009 ($5.00 per share), net of finder’s fee of $178,291   -    -    302,400    3    -    -    -    1,333,706    -    1,333,709 
Issuance of common stock in April 2009 ($4.00 per share)   -    -    3,125    -    -    -    -    12,500    -    12,500 
Issuance of common stock in May 2009($5.00 per share), net of finder’s fee of $15,525   -    -    80,972    1    -    -    -    389,334    -    389,335 
Issuance of common stock in June 2009 ($7.50 per share), net of finder’s fee of $31,675   -    -    49,333    -    -    -    -    338,325    -    338,325 
Issuance of common stock in July 2009 ($7.50 per share), net of finder’s fee of $67,500   -    -    210,120    2    -    -    -    1,508,398    -    1,508,400 
Issuance of common stock in August 2009 ($7.50 per share), net of finder’s fee of $392,123   -    -    636,977    6    -    -    -    4,385,201    -    4,385,207 
Issuance of common stock in September 2009 ($7.50 per share), net of finder’s fee of $329,959   -    -    267,026    3    -    -    -    1,672,733    -    1,672,736 
Issuance of common stock in October 2009 ($7.50 per share), net of finder’s fee of $158,420   -    -    340,368    3    -    -    -    2,394,337    -    2,394,340 
Issuance of common stock in November 2009 ($7.50 per share), net of finder’s fee of $146,902   -    -    245,705    3    -    -    -    1,695,883    -    1,695,886 
Issuance of common stock in December 2009 ($7.50 per share), net of finder’s fee of $178,005   -    -    304,777    3    -    -    -    2,107,820    -    2,107,823 
Purchase of treasury stock   -    -    -    -    500,000    (175,000)   -    -    -    (175,000)
Retirement of treasury stock   -    -    (1,250,000)   (12)   (1,250,000)   175,750    -    (175,738)   -    - 
Share-based compensation (Note J[2])   -    -    -    -    -    -    -    26,520,511    -    26,520,511 
Offering costs on private placement memorandum   -    -    -    -    -    -    -    (105,000)   -    (105,000)
Net decrease in subscription receivable   -    -    -    -    -    -    154,381    -    -    154,381 
Net loss   -    -    -    -    -    -    -    -    (35,558,538)   (35,558,538)
                                                   
Balance - December 31, 2009   -    -    21,715,420    217    -    -    (104,619)   91,764,530    (77,384,301)   14,275,827 

 

See the accompanying notes to the financial statements

 

9
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

                       Deficit     
   Series A                   Accumulated   Total 
   Preferred Stock   Common Stock   Treasury Shares       Additional   During the   Stockholders’ 
       Par       Par           Subscription   Paid-in   Development   Equity 
   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Stage   (Deficit) 
                                         
Balance – December 31, 2009 (brought forward)   -   $-    21,715,420   $217    -   $-    (104,619)  $91,764,530   $(77,384,301)  $14,275,827 
                                                   
Issuance of common stock in January 2010 ($12.50 per share), net of finder's fee of $17,000   -    -    16,000    -    -    -    -    183,000    -    183,000 
Issuance of common stock in February 2010 ($12.50 per share), net of finder’s fee of $12,750   -    -    18,000    -    -    -    -    212,250    -    212,250 
Issuance of common stock in March 2010 ($12.50 per share), net of finder’s fee of $11,156   -    -    25,500    1    -    -    -    307,593    -    307,594 
Issuance of common stock in April 2010 ($12.50 per share), net of finder’s fee of $11,688   -    -    21,000    -    -    -    -    250,812    -    250,812 
Issuance of common stock in May 2010 ($12.50 per share), net of finder’s fee of $61,413   -    -    65,800    1    -    -    -    761,086    -    761,087 
Issuance of common stock in June 2010 ($12.50 per share), net of finder’s fee of $336,860   -    -    316,080    3    -    -    -    3,614,137    -    3,614,140 
Issuance of common stock in July 2010 ($12.50 per share), net of finder’s fee of $42,545   -    -    42,600    -    -    -    -    489,955    -    489,955 
Issuance of common stock in August 2010 ($12.50 per share), net of finder’s fee of $0   -    -    6,000    -    -    -    -    75,000    -    75,000 
Issuance of common stock in September 2010 ($12.50 per share), net of finder’s fee of $9,562   -    -    19,098    -    -    -    -    229,163    -    229,163 
Issuance of common stock in December 2010 ($12.50 per share), net of finder’s fee of $259,696   -    -    290,220    3    -    -    -    3,368,051    -    3,368,054 
Exercise of stock options ($2 per share)   -    -    64,100    1    -    -    -    128,199    -    128,200 
Share-based compensation (Note J[2])   -    -    -    -    -    -    -    6,523,056    -    6,523,056 
Net increase in subscription receivable   -    -    -    -    -    -    (45,381)   -    -    (45,381)
Net loss   -    -    -    -    -    -    -    -    (19,051,455)   (19,051,455)
                                                   
Balance - December 31, 2010   -   $-    22,599,818   $226    -   $-   $(150,000)  $107,906,832   $(96,435,756)  $11,321,302 

 

See the accompanying notes to the financial statements

 

10
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Statements of Changes in Stockholders’ Equity (Deficit)

For the Period From January 1, 2004 (Inception) Through December 31, 2011

(continued)

                           Accumulated         
   Series A               Deficit       Total 
   Preferred Stock   Common Stock       Additional   During the       Stockholders’ 
                   Subscription   Paid-in   Development   Comprehensive   Equity 
   Shares   Amount   Shares   Amount   Receivable   Capital   Stage   Loss   (Deficit) 
                                     
Balance – December 31, 2010 (brought forward)   -   $-    22,599,818   $226    (150,000)  $107,906,832   $(96,435,756)       $11,321,302 
                                              
Issuance of common stock in February 2011 ($12.50 per share), net of finder's fee of $100,265   -    -    106,367    1    -    1,229,322    -         1,229,323 
Issuance of common stock in April 2011 ($12.50 per share), net of finder’s fee of $50,150   -    -    51,600    -    -    594,850    -         594,850 
Issuance of common stock in September 2011 ($12.50 per share), net of finder’s fee of $37,413   -    -    70,134    1    -    839,261    -         839,262 
Exercise of stock options ($1 per share)   -    -    92,500    1    -    92,499    -         92,500 
Share-based compensation (Note I[2])   -    -    -    -    -    8,772,753    -         8,772,753 
Common stock issued for services   -    -    4,000    -    -    50,000    -         50,000 
Net decrease in subscription receivable   -    -    -    -    150,000    -    -         150,000 
Net loss   -    -    -    -    -    -    (19,049,760)        (19,049,760)
Comprehensive loss   -    -    -    -    -    -         (19,049,760)   - 
                                              
Balance - December 31, 2011   -   $-    22,924,419   $229    -   $119,485,517   $(115,485,516)       $4,000,230 

 

See the accompanying notes to the financial statements

 

11
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

Statements of Cash Flows

 

       For the Period 
       From 
       January 1, 2004 
       (Inception) 
   Years Ended   Through 
   December 31,   December 31, 
   2011   2010   2011 
             
Cash flows from operating activities:               
Net loss  $(19,049,760)  $(19,051,455)  $(115,485,516)
Adjustments to reconcile net loss to net cash used in operating activities:               
Non-cash acquisition of in-process research and development   -    -    8,375,286 
Depreciation and amortization   291,110    276,125    894,276 
Deferred rent   140,203    21,015    170,764 
Stock-based compensation   8,822,753    6,523,056    58,857,014 
Salaries payable to founding stockholders   -    -    66,444 
Amortization of warrant liability   822,690    -    822,690 
Loss on the sale or exchange or equipment   1,000    -    1,776 
Change in fair value of derivative liability   (70,130)   -    (70,130)
Changes in:               
                
Prepaid expenses   560,070    (773,050)   (279,307)
Deferred financing costs   -    -    (14,700)
Other assets   8,676    (960)   (6,776)
Accounts payable   81,646    (359,282)   252,209 
Accrued liabilities   (70,577)   (217,021)   245,375 
Derivatives and other liabilities   106,818    -    106,818 
                
Net cash used in operating activities   (8,355,501)   (13,581,572)   (46,063,777)
                
Cash flows from investing activities:               
Proceeds from the sale of fixed assets   8,000    -    8,000 
Purchase of restricted investments   -    (220,269)   (7,665,519)
Sale of investments   134,716    179,632    - 
Sale of restricted investments   5,378,419    -    5,378,419 
Purchase of property and equipment   (34,607)   (452,809)   (1,661,025)
                
Net cash provided by (used in) investing activities   5,486,528    (493,446)   (3,940,125)
                
Cash flows from financing activities:               
Net proceeds from sale of common stock   2,813,435    9,445,674    51,596,896 
Proceeds on advances from principal founding stockholder   -    -    80,000 
Repayments on advance from principal founding stockholder   -    -    (145,444)
Deferred financing cost   -    -    (36,000)
Proceeds from exercise of stock options   92,500    128,200    882,000 
Repurchase of common stock   -    -    (195,750)
Sale of treasury stock   -    -    20,000 
Proceeds from debt   -    1,081,981    1,831,981 
Payments on long-term debt   (269,696)   (21,475)   (1,041,171)
                
Net cash provided by financing activities   2,636,239    10,634,380    52,992,512 
                
Net change in cash and cash equivalents   (232,734)   (3,440,638)   2,988,610 
                
Cash and cash equivalents at beginning of year   3,221,344    6,661,982    - 
                
Cash and cash equivalents at end of year  $2,988,610   $3,221,344   $2,988,610 

 

See the accompanying notes to the financial statements

 

12
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

Statements of Cash Flows (continued)

 

Supplemental disclosure of noncash investing activities:               
Exchange of fixed assets  $-   $-   $7,300 
                
Supplemental disclosures of non-cash investing and financing information:               
Payable settled by issuance of founding stockholders' shares at par value of $0.00001  $-   $-   $1,000 
Retirement of treasury stock  $-   $-   $175,750 
Purchase of property and equipment with capital lease  $22,860   $-   $22,860 
Change in subscriptions receivable  $-   $(45,381)  $- 
Options granted for finder's fee  $-   $-   $328,631 
Deferred financing costs  $-   $-   $14,700 

 

See the accompanying notes to the financial statements

 

13
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements

December 31, 2011 and 2010

 

Note A – The Company

 

Neogenix Oncology, Inc. ("Neogenix" or the "Company") was formed as a Maryland corporation on December 31, 2003 and had nominal activity until it commenced operations on April 1, 2004. In September 2005, the Company changed its name from Neogenix Oncology Corp. to Neogenix Oncology, Inc.

 

Neogenix is a biotechnology company focused on developing novel therapeutic and diagnostic products for the treatment of pancreatic, colon, lung, prostate and various other cancers. The Company rents a research and development facility in Rockville, Maryland and has its administrative and clinical studies offices in Great Neck, New York. The Company has not generated any revenue from inception through December 31, 2011.

 

The Company has devoted its efforts primarily towards the development of therapeutic monoclonal antibodies, targeted against pancreatic and colorectal cancer. The costs for manufacturing these therapeutic products, to meet Food and Drug Administration ("FDA") standards, and completing the pre-clinical tests, required by the FDA for therapeutics, have been expensed as incurred. Phase I clinical trials are planned for patients with advanced cancer who have failed all standard forms of therapy. The Company intends to use the FDA Fast Track approval process for its therapeutic products. The Fast Track programs are designed to facilitate the development, and expedite the review, of new drugs that are intended to treat serious or life-threatening conditions and/or demonstrate the potential to address unmet medical needs. Products showing some degree of benefit, in terms of enhancement of survival for several months without major toxicity, may receive more timely approval. However, there is no guarantee the Company will ever obtain the necessary FDA approval for their product candidates.

 

The Company has also devoted efforts towards the research and development of diagnostic tests for the detection of pancreatic and colon cancer. The Company's diagnostic tests will require FDA regulatory approval which is equivalent to a 510(k) approval process.

 

Accordingly, the Company is considered to be a development stage enterprise. Costs relating to organizational matters have been expensed as incurred. The products being developed are currently in the research and development stage. These products will require further research and development, clinical testing, and regulatory approval prior to their commercialization in the United States or abroad. All these efforts will require substantial funding.

 

Note B – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has incurred net losses since inception totaling approximately $115.5 million as of December 31, 2011 and had negative cash flows from operating activities totaling approximately $8.4 million for the year ended December 31, 2011 and approximately $46.1 million since inception. The Company expects continued net losses and negative cash flows from operating activities for the foreseeable future. The Company also has a contingency of a potential stock rescission and the liability resulting from this contingency was estimated between $0 and $31 million as of December 31, 2011. See Note K[8]. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

Management is working to raise additional capital through the sale debt or equity securities to fund the continued operations of the Company. Management is also evaluating potential strategic alternatives including bankruptcy and a sale of assets.

 

There can be no assurance that the Company will be successful in its efforts to raise cash through the sale of debt or equity securities. If the Company is not able to obtain sufficient financing, it will not be able to continue the development of its products.

 

14
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note B – Going Concern - (continued)

 

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern which assumes the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the outcome of this uncertainty.

 

Note C – Significant Accounting Policies

 

[1]Cash and cash equivalents:

 

The Company considers all highly liquid investments with an original maturity of three months or less at the date acquired to be cash equivalents.

 

[2]Investments:

 

The Company holds investments in certificates of deposit with various terms and interest rates. Certificates of deposit with a remaining term of less than one year are classified as current on the balance sheets. Those with a remaining term of greater than one year are classified as long-term on the balance sheets. Certain certificates of deposit are being held as collateral for lines of credit and letters of credit and are included in restricted certificates of deposit on the balance sheets.

 

[3]Property and equipment:

 

Property and equipment are carried at cost less accumulated depreciation and amortization which are recorded using the straight-line method over the estimated useful lives of five years. Leasehold improvements are amortized over the shorter of their estimated useful life or the term of the lease. Property and equipment used for research and development activities are capitalized if they have alternative uses. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs, and renewal costs are expensed as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and any related gain or loss on disposition is reflected in net income or loss for the year. The Company capitalizes assets with a cost in excess of $1,000 and an expected life greater than one year.

 

[4]Impairment of long-lived tangible assets

 

The Company reviews long-lived tangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows projected to be generated by the asset. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less disposal costs.

 

15
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note C – Significant Accounting Policies (continued)

 

[5]Research and development:

 

Research and development expenses include personnel and facility-related expenses, outside contracted services, manufacturing and process development costs, research costs, costs of licenses and other consulting services. Research and development expenses also consist of costs incurred for proprietary and collaborative research and development for pre-clinical sponsored research. The Company enters into agreements with third parties for research and development activities that may be fixed fee or fee for service contracts. Research and development costs are expensed as incurred.

 

As of each balance sheet date, The Company reviews purchase commitments and accrues expenses based on factors such as estimates of work performed, costs incurred and other events. Accrued research costs are subject to revisions as projects progress to completion. Revisions are recorded in the period in which the facts that give rise to the revision become known.

 

[6]Fair value of financial instruments:

 

The carrying values of the Company's cash and cash equivalents, subscriptions receivable and accounts payable (including accrued expenses) approximate their fair values based on the short-term nature of such items. The carrying values of long-term certificates of deposit and restricted certificates of deposit approximate their fair values based on applicable market interest rates.

 

[7]Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Such estimates include the selection of assumptions underlying the calculation of the fair value of options and warrants, derivative liabilities, and the useful lives of fixed assets. Actual results could differ from those estimates.

 

[8]Concentration of credit risk:

 

The Company maintains cash balances in bank accounts which are insured by the Federal Deposit Insurance Corporation for up to $250,000 in each institution. Amounts maintained at any one institution may exceed this insured limit. The Company's management believes it reduces risks by banking with major financial institutions.

 

[9]Income taxes:

 

The Company accounts for income taxes using the asset and liability method which establishes deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to the deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

16
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note C – Significant Accounting Policies (continued)

 

[9]Income taxes: (continued)

 

The Company recognizes tax benefits from uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in the financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations, and cash flows. Interest and penalties associated with income taxes are classified as income tax expense in the statements of operations.

 

[10]Stock-based compensation:

 

The Company accounts for all share-based payments, including grants of stock options, as operating expenses, based on their grant date fair values. The fair value of the Company’s stock option awards is expensed over the vesting period of the underlying stock award using the straight-line method. Stock-based compensation is included in general and administrative and research and development costs and expenses for all periods presented. No net tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained.

 

[11]Basic and diluted net loss per share:

 

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding during the year. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants. In computing diluted net loss per share for the years ended December 31, 2011 and 2010, no adjustment has been made to the weighted average outstanding common shares as the assumed exercise of outstanding options and warrants would be anti-dilutive.

 

At December 31, 2011 and 2010 potential common shares not included in calculating diluted net loss per share are as follows:

 

   2011   2010 
         
Stock options   16,147,150    19,460,900 
Warrants   1,100,000    1,000,000 
           
Total   17,247,150    20,460,900 

 

[12]Business segments and geographic information:

 

The Company operates in one business segment, which is to develop therapeutic and diagnostic products for the treatment of various cancers. Accordingly, the accompanying financial statements are reported in the aggregate, including all activities in one segment. The Company did not have any foreign operations.

 

17
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note C – Significant Accounting Policies (continued)

 

[13]Recently adopted accounting pronouncements:

 

Multiple-Deliverable Revenue Arrangements — In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force,” or ASU 2009-13. ASU 2009-13 amends existing accounting guidance for separating consideration in multiple-deliverable arrangements. ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific evidence is not available, or the estimated selling price if neither vendor-specific evidence nor third-party evidence is available. ASU 2009-13 eliminates the residual method of allocation and requires that consideration be allocated at the inception of the arrangement to all deliverables using the “relative selling price method.” The relative selling price method allocates any discount in the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price. ASU 2009-13 requires that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a stand-alone basis. The Company adopted the provisions of ASU 2009-13 effective January 1, 2011 for revenue arrangements entered into or materially modified in fiscal years beginning on or after that date. The adoption of ASU 2009-13 did not have a material effect on the Company’s financial statements.

 

Revenue Recognition Milestones — In April 2010, the FASB issued Accounting Standards Update 2010-17, “Revenue Recognition—Milestone Method (Topic 605) Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force” or ASU 2010-17. ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. For the milestone to be considered substantive, the considerations earned by achieving the milestone should meet all of the following criteria: (i) be commensurate with either the vendor’s performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone, (ii) relate solely to past performance, and (iii) be reasonable relative to all deliverables and payment terms in the arrangement. An individual milestone may not be bifurcated and an arrangement may include more than one milestone. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones. The Company adopted the provisions of ASU 2010-17 effective January 1, 2011 for milestones achieved on or after that date. The adoption of ASU 2010-17 did not have a material effect on the Company’s financial statements.

 

[14]Recent accounting pronouncements not yet adopted:

 

Fair Value MeasurementIn May 2011, the FASB issued ASU 2011-04 regarding ASC Topic 820 “Fair Value Measurement.” This ASU updates accounting guidance to clarify how to measure fair value to align the guidance surrounding Fair Value Measurement within GAAP and International Financial Reporting Standards. In addition, the ASU updates certain requirements for measuring fair value and for disclosure around fair value measurement. It does not require additional fair value measurements and the ASU was not intended to establish valuation standards or affect valuation practices outside of financial reporting. This ASU will be effective for the Company’s fiscal year beginning February 1, 2012. Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

 

18
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note C – Significant Accounting Policies (continued)

 

[14]Recent accounting pronouncements not yet adopted: (continued)

 

Other Comprehensive IncomeIn June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. This ASU amends the ASC to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the ASC in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be Certified to net income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

 

Other Comprehensive Income In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. This ASU defers the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments in ASU 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. The amendments in this update are effective at the same time as the amendments in update 2011-05 so that entities will not be required to comply with the presentation requirements in update 2011-05 that this update is deferring. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

 

Note D – Fair Value

 

Fair value is defined as an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction costs. To increase the comparability of fair value measurements, the following hierarchy prioritizes the inputs according to valuation methodologies used to measure fair value:

 

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

 

Level 3Unobservable inputs. Unobservable inputs reflect the assumptions that management develops based on available information about what market participants would use in valuing the asset or liability.

 

An asset or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. Management uses judgment in determining fair value of assets and liabilities, and Level 3 assets and liabilities involve greater judgment than Level 1 or Level 2 assets or liabilities.

 

19
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Total investments in certificates of deposit held by the Company with a fair value at December 31, 2011 and 2010 of $2,287,100 and $7,800,235, respectively, are classified as Level 1 within the fair value hierarchy. The original maturity dates of these certificates of deposit are greater than three months.

 

The fair value of derivative liabilities related to stock purchase warrants was $752,560 as of December 31, 2011 and the derivative liabilities are considered Level 3 liabilities; the Company had no Level 3 instruments at December 31, 2010. The derivative liabilities were measured at fair value using the Black-Scholes option pricing model (see Note J [3]) Management considered using a lattice model, but due to the improbability of completing a future equity financing, concluded that the use of the Black-Scholes option pricing model was appropriate. The following table reflects the change in the Company’s Level 3 assets and liabilities for the year ended December 31, 2011:

 

   Balance as           Balance as 
   of           of 
   December       Unrealized   December 
   31, 2010   Additions   Gains   31, 2011 
Derivative liabilities  $-   $822,690   $(70,130)  $752,560 

 

Note E – Certain Accounts

 

At December 31, 2011 and 2010, prepaid expenses consisted of the following:

 

   2011   2010 
         
Prepaid development  $-   $712,075 
Prepaid insurance   272,300    88,784 
Other   7,007    38,518 
           
   $279,307   $839,377 

 

At December 31, 2011 and 2010, accrued expenses consisted of the following:

 

   2011   2010 
         
Accrued legal and accounting  $92,945   $89,433 
Accrued compensation   49,448    90,904 
Accrued clinical and research and development   39,445    - 
Accrued finder’s fees   31,881    121,054 
Other   31,656    14,561 
           
   $245,375   $315,952 

 

At December 31, 2011 and 2010, derivatives and other long-term liabilities consisted of the following:

 

   2011   2010 
         
Derivative liability  $752,560   $- 
Deferred rent   170,764    30,561 
Other   106,818    - 
           
   $1,030,142   $30,561 

 

20
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note F – Property and Equipment

 

At December 31, 2011 and 2010, property and equipment consisted of the following:

 

   2011   2010 
         
Office furniture and equipment  $458,609   $497,017 
Lab equipment   876,155    872,086 
Leasehold improvements   258,786    206,871 
           
    1,593,550    1,575,974 
Less accumulated depreciation   (813,717)   (553,498)
           
   $779,833   $1,022,476 

 

Note G – Lines of Credit

 

The Company had a revolving line of credit with a financial institution. As of December 31, 2011 and 2010, the revolving line had a maximum borrowing capacity of $2,000,000, bore interest at 6.5% and matures November 2012. The line of credit is secured by a certificate of deposit for the same amount. The line of credit had an outstanding balance as of December 31, 2011 and 2010 of $750,000 and $0, respectively. On March 12, 2012, the Company closed the line of credit and redeemed its related certificate of deposit.

 

The Company had a revolving line of credit with a financial institution. As of December 31, 2010 the revolving line had a maximum borrowing capacity of $5,000,000, bore interest at 4% and matured February 2011. The line of credit was secured by certificates of deposit for the same amount. On September 12, 2011 the Company closed the line of credit and redeemed its certificates of deposit. The line of credit had an outstanding balance as of December 31, 2010 of $1,000,000.

 

The Company had a revolving line of credit with a financial institution. As of December 31, 2010, the revolving line had a maximum borrowing capacity of $225,000, bore interest at 6.5% and expired June 2011 and was not renewed. There was no balance outstanding as of December 31, 2010.

 

The Company had a revolving line of credit with a financial institution. As of December 31, 2010, the revolving line had a maximum borrowing capacity of $100,000, bore interest at 3.25%. The line of credit was secured by a certificate of deposit for the same amount and was guaranteed by a stockholder of the Company. The line of credit had an outstanding balance as of December 31, 2010 of $1,450 and was closed during 2011.

 

21
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note H – Capital Lease Obligations

 

The Company leases vehicles and office equipment under lease agreements with terms up to six years that are accounted for as capital leases. The capital lease obligation is secured by the assets being leased. Future minimum payments on capital lease obligations are as follows:

 

Year Ending    
December 31,    
     
2012  $22,132 
2013   22,679 
2014   17,311 
2015   6,573 
2016   2,740 
      
Total minimum payments   71,435 
      
Less amount representing interest   7,765 
      
    63,670 
      
Current portion   (19,427)
      
Long-term portion  $44,243 

 

Equipment under capital lease had a cost of $103,392 and accumulated amortization of $41,210 as of December 31, 2011. Amortization expense of equipment under capital lease totaled $18,392 for the year ended December 31, 2011.

 

Note I – Income Taxes

 

Significant components of the Company's net deferred income tax assets and liabilities as of December 31, 2011 and 2010 are as follows:

 

   2011   2010 
Deferred tax asset:          
Net operating loss carryforward  $19,573,697   $15,173,370 
Share-based compensation   20,189,571    18,517,819 
Acquired in-process research and development   2,661,819    2,883,952 
Other   70,836    206,854 
           
Total deferred tax asset   42,495,923    36,781,995 
Deferred tax liability:          
Property and equipment   (79,052)   (177,136)
           
Total   42,416,871    36,604,859 
Less valuation allowance   (42,416,871)   (36,604,859)
           
Total net deferred tax asset  $-   $- 

 

At December 31, 2011 and 2010, the Company had a net operating loss carryforward of approximately $49,353,000 and $38,405,000, respectively, for federal income tax purposes and $58,077,000 and $46,885,000, respectively for state income tax purposes, which may be used to offset future taxable income that begin to expire in 2023.

 

22
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note I – Income Taxes (continued)

 

Income tax benefit attributable to loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax loss from continuing operations for the years ended December 31, 2011 and 2010 as a result of the following:

 

   2011   2010 
         
Federal income taxes benefit at statutory rate  $6,476,918   $6,477,495 
State income taxes   1,133,461    1,133,562 
Non-deductible permanent differences   (22,760)   (25,866)
Stock-based compensation   (1,763,975)   (767,786)
Change in valuation allowance   (5,812,012)   (6,699,515)
Other   (11,632)   (117,890)
           
Provision for income taxes  $-   $- 

 

As defined in Section 382 of the Internal Revenue Code, the Company may have undergone, or may undergo in the future, a greater than fifty percent ownership change as a result of financing initiatives. Consequently, there may be limitations on the amount of the Company's NOLs which may be utilized to offset future taxable income in any one year.

 

The Company has provided a full valuation allowance, which increased by $5,812,012 and $6,699,515, during the years ended December 31, 2011 and 2010, respectively. Management has concluded it is more likely than not that the deferred tax asset will not be realized.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. The Company had uncertain tax positions at December 31, 2011 and 2010 of $840,000 relating to research and development credits and no increase or decrease occurred during 2011 and 2010. No additional uncertain tax positions were identified for the years ended December 31, 2011 and 2010 and there were no changes in the balances of existing uncertain tax positions.

 

Estimated interest and penalties related to the underpayment or late payment of income taxes are classified as a component of income tax provision (benefit) in the statements of operations. The Company had accrued no interest or penalties as of December 31, 2011 and 2010.

 

The Company’s tax returns filed in multiple jurisdictions are subject to audit by taxing authorities. As of December 31, 2011, years 2008 and after remain open for audit by taxing authorities.

 

23
 

 

NEOGENIX ONCOLOGY, INC.

(a development stage enterprise)

 

Notes to Financial Statements (continued)

December 31, 2011 and 2010

 

Note J – Equity Transactions and Share-Based Compensation

 

[1]Common stock: