Full Press Release Details
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Pharmaceuticals, Inc. and Luoxis Diagnostics, Inc.
Greenwood Village, Colorado
We have audited the accompanying combined balance sheets of Vyrix Pharmaceuticals, Inc. and Luoxis Diagnostics, Inc. (the combined Vyrix and Luoxis
company ) as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholder s equity, and cash flows for each of the years then ended, and for the period December 31, 2014. The combined Vyrix and Luoxis
company s management is responsible for these financial statements. 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 combined Vyrix and Luoxis company is not required to have nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included 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 combined Vyrix and Luoxis company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
The accompanying financial statements include carve-out adjustments for Vyrix Pharmaceuticals Inc. and were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the Form 8-K). The activities of Vyrix Pharmaceuticals, Inc. are a carve-out from Ampio Pharmaceuticals, Inc., its Parent, as of December 31, 2013
and for the period from January 1, 2013 through November 17, 2013. The carve-out financial statements are combined with the operations of the combined Vyrix and Luoxis company from November 18, 2013 through December 31, 2014.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Vyrix Pharmaceuticals,
Inc. and Luoxis Diagnostics, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Vyrix and Luoxis Combined Balance Sheets
| December 31, 2014 | December 31, 2013 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 160,905 | $ | 2,001,803 | ||||
| Accounts receivable | 6,906 | |||||||
| Inventory | 10,453 | |||||||
| Prepaid expenses | 35,433 | 50,000 | ||||||
| Prepaid research and development - related party (Note 8) | 121,983 | |||||||
| Deferred tax asset | 18,529 | |||||||
| Total current assets | 335,680 | 2,070,332 | ||||||
| Fixed assets, net (Note 2) | 43,476 | 71,016 | ||||||
| In-process research and development | 7,500,000 | 7,500,000 | ||||||
| Patents, net | 664,169 | 734,957 | ||||||
| Long-term portion of prepaid research and development - related party (Note 9) | 396,446 | |||||||
| Deposits | 1,998 | |||||||
| 8,606,089 | 8,305,973 | |||||||
| Total assets | $ | 8,941,769 | $ | 10,376,305 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 350,825 | $ | 315,726 | ||||
| Accrued compensation | 94,247 | |||||||
| Deferred revenue | 85,714 | 50,000 | ||||||
| Payable to Ampio | 155,013 | 205,641 | ||||||
| Notes to Ampio | 5,700,000 | 300,000 | ||||||
| Total current liabilities | 6,385,799 | 871,367 | ||||||
| Long-term deferred revenue | 468,749 | 331,250 | ||||||
| Noncurrent deferred tax liability | 629,548 | |||||||
| Total liabilities | 6,854,548 | 1,832,165 | ||||||
| Commitments and contingencies (Note 5) | ||||||||
| Stockholders equity | ||||||||
| Common Stock | 4,465 | 4,465 | ||||||
| Additional paid-in capital | 12,195,170 | 11,519,370 | ||||||
| Accumulated Deficit | (10,112,414 | ) | (2,979,695 | ) | ||||
| Total equity | 2,087,221 | 8,544,140 | ||||||
| Total liabilities and equity | $ | 8,941,769 | $ | 10,376,305 |
The accompanying notes are an integral part of these combined financial statements.
Vyrix and Luoxis Combined Statements of Operations
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| License revenue | $ | 76,787 | $ | 50,000 | ||||
| Product and service revenue | 13,060 | |||||||
| Total revenue | 89,847 | 50,000 | ||||||
| Expenses | ||||||||
| Research and development | 4,254,891 | 2,956,672 | ||||||
| Research and development - related party (Note 8) | 190,579 | 45,921 | ||||||
| General and administrative | 3,267,394 | 1,625,016 | ||||||
| Total operating expenses | 7,712,864 | 4,627,609 | ||||||
| Other (expense) income | ||||||||
| Interest (expense) income | (120,720 | ) | 537 | |||||
| Total other (expense) income | (120,720 | ) | 537 | |||||
| Net loss, before income tax | (7,743,737 | ) | (4,577,072 | ) | ||||
| Deferred income tax benefit | 611,018 | 619,727 | ||||||
| Net loss | $ | (7,132,719 | ) | $ | (3,957,345 | ) |
The accompanying notes are an integral part of these combined financial statements.
Vyrix and Luoxis Combined Statements of Stockholders Equity
| Common Stock | Parent s | Additional paid-in | Accumulated | Total Stockholders | ||||||||||||||||||||
| Shares | Amount | Equity | capital | Deficit | Equity | |||||||||||||||||||
| Balance - December 31, 2012 | $ | $ | 5,715,377 | $ | $ | $ | 5,715,377 | |||||||||||||||||
| Net loss prior to purchase of Vyrix Aquired Assets by Vyrix | (977,650 | ) | (977,650 | ) | ||||||||||||||||||||
| Contribution of parent to Luoxis and Vyrix | 2,065,629 | 2,065,629 | ||||||||||||||||||||||
| Issuance of common stock in exchange for Vyrix Aquired Assets by Vyrix | 20,000,000 | 2,000 | (6,803,356 | ) | 6,801,356 | |||||||||||||||||||
| Investment from parent in Luoxis | 71,690 | 71,690 | ||||||||||||||||||||||
| Issuance of Luoxis common stock | 19,950,000 | 1,995 | (1,995 | ) | ||||||||||||||||||||
| Issuance of common stock of Luoxis for cash net of offering costs of $985,274 (Note 6) | 4,652,500 | 465 | 3,979,825 | 3,980,290 | ||||||||||||||||||||
| Issuance of common stock of Luoxis in exchange for patents | 50,000 | 5 | 49,995 | 50,000 | ||||||||||||||||||||
| Stock-based compensation | 618,499 | 618,499 | ||||||||||||||||||||||
| Net loss | (2,979,695 | ) | (2,979,695 | ) | ||||||||||||||||||||
| Balance - December 31, 2013 | 44,652,500 | 4,465 | 11,519,370 | (2,979,695 | ) | 8,544,140 | ||||||||||||||||||
| Stock-based compensation | 675,800 | 675,800 | ||||||||||||||||||||||
| Net loss | (7,132,719 | ) | (7,132,719 | ) | ||||||||||||||||||||
| Balance - December 31, 2014 | 44,652,500 | $ | 4,465 | $ | $ | 12,195,170 | $ | (10,112,414 | ) | $ | 2,087,221 |
The accompanying notes are an integral part of these combined financial statements.
Vyrix and Luoxis Combined Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (7,132,719 | ) | $ | (3,957,345 | ) | ||
| Depreciation and amortization | 98,328 | 84,403 | ||||||
| Amortization of prepaid research and development - related party (Note 8) | 96,571 | |||||||
| Stock-based compensation expense | 675,800 | 618,499 | ||||||
| (Increase) in accounts receivable | (6,906 | ) | ||||||
| (Increase) in inventory | (10,453 | ) | ||||||
| Decrease (increase) in prepaid expenses | 14,567 | (50,000 | ) | |||||
| (Increase) in prepaid research and development - related party (Note 8) | (615,000 | ) | ||||||
| (Increase) in deferred tax asset | 18,529 | |||||||
| Increase (decrease) in accounts payable | 35,099 | (227,368 | ) | |||||
| (Decrease) increase in related party payable (Note 8) | (50,628 | ) | 205,641 | |||||
| (Decrease) deferred tax liability | (629,548 | ) | (619,728 | ) | ||||
| Increase (decrease) in deferred revenue | 173,213 | (50,000 | ) | |||||
| Increase in accrued compensation | 94,247 | |||||||
| Net cash used in operating activities | (7,238,900 | ) | (3,995,898 | ) | ||||
| Cash flows used in investing activities | ||||||||
| Purchase of fixed assets | (89,908 | ) | ||||||
| Purchase of patents | (330,000 | ) | ||||||
| Deposits | (1,998 | ) | ||||||
| Net cash used in investing activities | (1,998 | ) | (419,908 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from convertible note to Parent | 5,400,000 | 300,000 | ||||||
| Contribution of Parent | 2,137,319 | |||||||
| Proceeds from sale of Luoxis common stock (Note 6) | 4,652,500 | |||||||
| Costs related to sale of Luoxis common stock (Note 6) | (672,210 | ) | ||||||
| Net cash provided by financing activities | 5,400,000 | 6,417,609 | ||||||
| Net change in cash and cash equivalents | (1,840,898 | ) | 2,001,803 | |||||
| Cash and cash equivalents at beginning of year | 2,001,803 | |||||||
| Cash and cash equivalents at end of year | $ | 160,905 | $ | 2,001,803 | ||||
| Non-cash transactions: | ||||||||
| Issuance of Luoxis stock for patents | $ | $ | 50,000 | |||||
| Warrant compensation from Luoxis common stock offering costs (Note 6) | $ | $ | 313,064 | |||||
| Issuance of common stock in exchange for Vyrix acquired assets | $ | $ | 6,803,356 |
The accompanying notes are an integral part of these combined financial statements.
Notes to Vyrix and Luoxis Combined Financial Statements
Note 1 Business, Basis of Presentation and Merger
These financial statements represent the combined financial statements of Luoxis Diagnostics, Inc. ( Luoxis ) a 80.9% owned subsidiary of Ampio
Pharmaceuticals, Inc. ( Ampio ) and Vyrix Pharmaceuticals, Inc. ( Vyrix ) a wholly owned subsidiary of Ampio. The combined companies are called the combined Vyrix and Luoxis company.
Luoxis was incorporated in the state of Delaware on January 24, 2013 and was a wholly-owned subsidiary of Ampio. Luoxis focus is on the development
and commercialization of the Oxidation Reduction Potential ( ORP ) technology platform. The ORP technology indicates disease severity and progression across a wide range of critical and chronic illnesses. Luoxis was funded through a
private placement launched in 2013. The combined Vyrix and Luoxis company also paid Trauma Research LLC ( TRLLC ) $330,000 and 50,000 shares of Luoxis common stock valued at $50,000 were issued to the Institute for Molecular Medicine,
Inc., both related parties, for assignment of all patents previously licensed by Ampio. As a result of the 2013 private placement and the TRLLC transaction, Ampio owns 80.9% of Luoxis.
Vyrix was incorporated in the state of Delaware on November 18, 2013. Vyrix is a specialty pharmaceutical company focused on developing and
commercializing late-stage prescription drug products to improve men s health and quality of life. Vyrix s principal asset is Zertane, a repurposed drug (tramadol Hydrochloride) to treat male sexual dysfunction pertaining to premature
ejaculation ( PE ). Vyrix acquired the worldwide rights to Zertane, combination product with Zertane and an erectile dysfunction product to address co-morbid PE and erectile dysfunction ( Zertane-ED ), patents, distribution and
manufacturing contracts, and all Ampio s clinical trial and research data related to Zertane and Zertane-ED (collectively the Vyrix Acquired Assets ), from Ampio in November of 2013 in exchange for 20,000,000 shares of Vyrix common
These financial statements include the financial statements of Luoxis from January 2013 as well as the financial statements of Vyrix from its
inception in November 2013, combined with the carve-out financial statements related to the Vyrix Acquired Assets from March 23, 2011, the date Ampio originally acquired the Vyrix Acquired Assets through its merger with DMI BioSciences, Inc.
The combined Vyrix and Luoxis company referred to in these financial statements includes Luoxis,
Vyrix, and the Vyrix Acquired Assets, collectively.
Liquidity Disclosure Company Discusses Liquidity Issues but Believes Actions It Has Taken
Will Enable It to Continue as a Going Concern over the Next Year
At December 31, 2014, the combined Vyrix and Luoxis company had cash and
cash equivalents of $161,000, a working capital deficit of $6,050,000 and an accumulated deficit of $10,112,000. Additionally, as a development stage company we have not generated any material revenue to date and are not profitable, and have
incurred losses in each year since our inception.
Management has taken several actions to ensure that the Vyrix and Luoxis company will continue as a
going concern through June 30, 2016, including, obtaining a $5.0 million cash infusion from Ampio during the first half of 2015 and an additional $10 million commitment from Ampio which will be funded prior to April 15, 2016. Further, the
combined Vyrix and Luoxis company intends to file an S-1 and go out to increase their market presence and possibly obtain additional third party financing. Lastly, we have entered into numerous distribution agreements and we intent to start
generating revenue during 2015 as we generate sales of our RedoxSYS system. Management believes that these actions will enable the combined Vyrix and Luoxis company to continue as a going concern through June 30, 2016.
Note 2 Summary of Significant Accounting Policies
Principles of Combination
and Vyrix are governed by a common Board of Directors and they are both majority owned by Ampio Pharmaceuticals, Inc. Therefore, the accompanying combined financial statements include the accounts of Luoxis and Vyrix (collectively, the
combined Vyrix and Luoxis company ). All significant intercompany transactions have been eliminated in this combination.
and Cash Equivalents
The combined Vyrix and Luoxis company considers all highly liquid instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents consist primarily of money market fund investments. The combined Vyrix and Luoxis company s investment policy is to preserve principal and maintain liquidity. The combined Vyrix and Luoxis
company periodically monitors its positions with, and the credit quality of the financial institutions with which it invests. Periodically, throughout the year, the combined Vyrix and Luoxis company has maintained balances in excess of federally
Product & Service Sales
recognize revenue from product and service sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
License Agreements and Royalties
Payments received upon signing of license agreements are for the right to use the license and are deferred and amortized over the lesser of the license term or
patent life of the licensed drug. Milestone payments relate to obtaining regulatory approval in the territory, cumulative sales targets, and other projected milestones and are recognized at the time the milestone requirements are achieved. Royalties
will be recognized as revenue when earned.
Accounts receivable are recorded at their net realized value. We evaluate collectability of accounts receivable on a quarterly basis and record a valuation
allowance accordingly.
Inventories are recorded at the lower of cost or market, with cost determined on a first-in, first-out basis. We periodically review the composition of our
inventories in order to identify obsolete, slow-moving or otherwise unsaleable items. If unsaleable items are observed and there are no alternate uses for the inventory, we will record a write-down to net realizable value in the period that the
impairment is first recognized.
When future commercialization is considered probable and the future economic benefit is expected to be realized, based on
management s judgment, we capitalize pre-launch inventory costs prior to regulatory approval. A number of factors are taken into consideration, including the current status in the regulatory approval process, potential impediments to the
approval process such as safety or efficacy, anticipated research and development initiatives that could impact the indication in which the compound will be used, viability of commercialization and marketplace trends. For product candidates that
have not been approved by the FDA, inventory used in clinical trials is expensed at the time of production and recorded as research and development expense. For products that have been approved by the FDA, inventory used in clinical trials is
expensed at the time the inventory is packaged for the clinical trial. Prior to receiving FDA approval, costs related to purchases of the active pharmaceutical ingredient and the manufacturing of the product candidate are recorded as research and
development expense. Currently, our ORP product is available for sale for research purposes and our Zertane product is not currently being capitalized.
recorded at cost and after being placed in service, are depreciated using the straight-line method over estimated useful lives. Fixed assets consist of the following:
| Estimated | December 31, | |||||||||
| Useful Lives in years | 2014 | 2013 | ||||||||
| Lab equipment | 3 - 5 | 90,000 | 90,000 | |||||||
| Less accumulated depreciation | (46,000 | ) | (19,000 | ) | ||||||
| Fixed assets, net | $ | 44,000 | $ | 71,000 |
The combined Vyrix and Luoxis company recorded the following depreciation expense in the respective periods:
| Year Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Depreciation expense | $ | 27,000 | $ | 19,000 |
In-Process Research and Development
In-process research and development ( IPRD ) relates to the Zertane product and clinical trial data acquired in connection with the 2011 acquisition
of BioSciences Inc. The $7,500,000 recorded was based on an independent, third party appraisal of the fair value of the assets acquired. IPRD is considered an indefinite-lived intangible asset and its fair value will be assessed annually and written
down if impaired. Once the Zertane product obtains regulatory approval and commercial production begins, IPRD will be reclassified to an intangible that will be amortized over its estimated useful life. If the combined Vyrix and Luoxis company
decided to abandon the Zertane product, the IPRD would be expensed.
Costs of establishing patents, consisting of legal and filing fees paid to third parties, are expensed as incurred. The fair value of the Zertane patents,
determined by an independent, third party appraisal to be $500,000, acquired in connection with the 2011 acquisition of BioSciences is being amortized over the remaining U.S. patent lives of approximately 11 years. The cost of the Luoxis patents was
$380,000 when they were acquired in connection with the 2013 formation of Luoxis and is being amortized over the remaining U.S. patent lives of approximately 15 years. Patents consist of the following:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Patents | $ | 880,000 | $ | 880,000 | ||||
| Less accumulated armortization | (216,000 | ) | (145,000 | ) | ||||
| Patents, net | $ | 664,000 | $ | 735,000 |
The combined Vyrix and Luoxis company recorded the following amortization expense in the respective periods:
| Year Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Amortization expense | $ | 71,000 | $ | 66,000 |
Future amortization is as follows:
| 2015 | $ | 71,000 | ||
| 2016 | 71,000 | |||
| 2017 | 71,000 | |||
| 2018 | 71,000 | |||
| 2019 | 71,000 | |||
| Thereafter | 309,000 | |||
| $ | 664,000 |
The preparation of combined financial statements in accordance with Generally Accepted Accounting Principles in the United States of America ( GAAP )
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the combined financial statements and the reported amounts of
revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include valuation allowances, stock-based compensation, useful lives of fixed assets and assumptions in evaluating impairment of
indefinite lived assets. Actual results could differ from these estimates.