The
accompanying unaudited condensed consolidated financial statements of Bio Bridge
Science Inc. (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the requirements for reporting on Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include
all
the information and footnotes required by accounting principles generally
accepted in United States of America for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the consolidated financial position and the consolidated results
of operations. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full fiscal year.
The
condensed consolidated balance sheet information as of December 31, 2006 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB filed with the SEC on April 2, 2007.
These interim financial statements should be read in conjunction with that
report.
NOTE
2 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Bio-Bridge
Science, Inc. (a development stage company) ("the Company") was incorporated
in
the State of Delaware on October 26, 2004. The Company is a development stage
enterprise as defined by Statement of Financial Accounting Standards (SFAS)
No.
7, "Accounting and Reporting by Development Stage Enterprises." All losses
accumulated since the inception of the Company will be considered as part of
the
Company's development stage activities. The Company has generated insignificant
revenue. The Company's fiscal year end is December 31.
On
December 1, 2004, the Company acquired all of the outstanding shares of
Bio-Bridge Science Corporation ("BBSC”) in exchange for 29,971,590 shares of its
common stock. As a result, BBSC became a wholly owned subsidiary of the Company.
BBSC was incorporated in the Cayman Islands on February 11, 2002. At the time
of
the exchange, BBSC held a 100% interest in Bio-Bridge Science (Beijing) Corp.
("BBS Beijing") a wholly-foreign funded enterprise of the People's Republic
of
China ("PRC") which was established on May 20, 2002. BBS Beijing is currently
engaged in the development and commercialization of the HIV-PV Vaccine I in
mainland China.
The
acquisition was accounted for as a reverse merger (recapitalization) with BBSC
deemed to be the accounting acquirer, and the Company deemed to be the legal
acquirer. Accordingly, the historical financial information presented in the
financial statements is that of BBSC as adjusted to give effect to any
difference in the par value of the issuer's and the accounting acquirer's stock
with an offset to capital in excess of par value. The basis of the assets,
liabilities and retained earnings of BBSC, the accounting acquirer, have been
carried over in the recapitalization.
Since
its
inception, the Company has been engaged in organizational and pre-operating
activities. The company has generated insignificant revenues and has incurred
accumulated losses and used cash in operating activities of $5,077,228 and
$2,883,909 respectively, from inception through September 30, 2007. The Company
incurred net losses of $1,186,308 and $1,052,984 for the nine
months ended September 30, 2007 and 2006, respectively. On February 12,
2007, the Company raised $3,000,000 in a private placement in the form of a
sale
of Series A convertible preferred stock and warrants to purchase common stock.
Our capital requirements for the next 12 months, as they relate to further
research and development relating to our product candidate, HIV-PV Vaccine
I,
have been and will continue to be significant. As of September 30, 2007, we
have
funded our operations through equity offerings whereby we raised an aggregate
of
$7,266,899 since inception.
On
November 29, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund, LP, a Delaware limited partnership based in
Boston, Massachusetts ("Dutchess"). Under the terms of the Agreement, Dutchess
has agreed to purchase from the Company up to $10,000,000 of the Company's
common stock over a 24-month period. As of September 30, 2007, no shares have
been issued under the agreement with Dutchess.
We
will
need to obtain additional financing in addition to the funds already raised
through the sale of equity securities to fund our cash needs and continue our
planned operations beyond September 2008. Additional financing, whether through
public or private equity or debt financing, arrangements with stockholders
or
other sources to fund operations, may not be available, or if available, may
be
on terms unacceptable to us. Our ability to maintain sufficient liquidity is
dependent on our ability to raise additional capital. If we issue additional
equity securities to raise funds, the ownership percentage of our existing
stockholders would be reduced. New investors may demand rights, preferences
or
privileges senior to those of existing holders of our common stock or preferred
stock. Any debt would be senior to equity in the ability of debt holders to
make
claims on our assets. The terms of any debt issued could impose restrictions
on
our operations. If adequate funds are not available to satisfy either medium
or
long-term capital requirements, our operations and liquidity could be materially
adversely affected and we could be forced to cease operations.
NOTE
3-SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Bio-Bridge Science
Inc. and its wholly owned subsidiaries, Bio-Bridge Science Corp. and Bio-Bridge
Science (Beijing) Corp. Inter-company accounts and transactions have been
eliminated in consolidation.
Economic
and Political Risks
The
Company faces a number of risks and challenges since its operation is in PRC
and
its primary market is in the PRC. We have operations in China where we are
currently engaged in pre-clinical testing of our HIV-PV Vaccine I product and
other related activities. Our business operations may be adversely affected
by
the political environment in the PRC. The PRC has operated as a socialist state
since 1949 and is controlled by the Communist Party of China. In recent years,
however, the government has introduced reforms aimed at creating a "socialist
market economy" and policies have been implemented to allow business enterprises
greater autonomy in their operations. Changes in the political leadership of
the
PRC may have a significant effect on laws and policies related to the current
economic reforms program, other policies affecting business and the general
political, economic and social environment in the PRC, including the
introduction of measures to control inflation, changes in the rate or method
of
taxation, the imposition of additional restrictions on currency conversion
and
remittances abroad, and foreign investment. These effects could substantially
impair our business, profits or prospects in China. Moreover, economic reforms
and growth in the PRC have been more successful in certain provinces than in
others, and the continuation or increases of such disparities could affect
the
political or social stability of the PRC.
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 revenues and expenses
during the reporting periods. Management makes these estimates using the best
information available and the best judgment at the time the estimates are made,
however actual results could differ materially from those
estimates.
Cash
and
Cash Equivalents
For
financial reporting purpose, the Company considers all highly liquid investments
purchased with original maturity of three months or less to be cash equivalents.
Cash of the Bio-Bridge Science (Beijing) Corporation, a subsidiary of the
Company, is held in accounts at financial institutions, which are located in
the
PRC. The Company and subsidiaries have not experienced any losses in such
accounts and do not believe that cash is exposed to any significant credit
risk.
All of BBS Beijing’s cash on hand and certain bank deposits are denominated in
Renminbi ("RMB") and translated at the exchange rate at the end of the
period.
Marketable
Securities
Foreign
Currency Translation
The
Company’s financial information is presented in US dollars. The functional
currency Renminbi (RMB) of the Company is translated into United States dollars
from RMB at quarter / year-end exchange rates as to assets and liabilities
and
average exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.
|
|
|
2007
|
|
2006
|
|
|
Quarter
/ Year end RMB : US$ exchange rate
|
|
|
7.5108
|
|
|
7.8087
|
|
|
Average
yearly RMB : US$ exchange rate
|
|
|
7.6598
|
|
|
7.9395
|
|
The
RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
dollars at the rates used in translation.
In
2006,
Renminbi rose approximately 26 percent against the US dollar at the exchange
rate of 7.81 to 1. In 2007, Renminbi has been kept appreciating against the
US
dollar. The Chinese government manifested that it would adopt a more flexible
exchange rate system. Therefore, it is expected that the RMB will appreciate
against major currencies gradually in the future.
Income
Taxes
The
Company accounts for income tax using the liability method that allows for
recognition of deferred tax benefits in future years. Under the liability
method, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future utilization is uncertain.
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN
48”) —an interpretation of FASB Statement No. 109, Accounting for Income Taxes.
The Interpretation addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, we may recognize the tax benefit from an uncertain
tax
position 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. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has
a
greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. At the date of adoption, and as of September
30,
2007, the Company does not have a liability for unrecognized tax
benefits.
The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. federal or state income tax examinations
by tax authorities for years after 2002. During the periods open to examination,
the Company has net operating loss and tax credit carry forwards for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these NOLs and tax credit carry forwards may be utilized
in future periods, they remain subject to examination.
The
Company also files tax returns with other jurisdictions, including the PRC.
These returns are subject to audit by the taxing authorities. The Company
believes it files all returns properly.
The
Company’s policy is to record interest and penalties on uncertain tax provisions
as income tax expense. As of September 30, 2007, the Company has no accrued
interest or penalties related to uncertain tax positions.
Comprehensive
Income
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. The Company’s current
components of comprehensive income consist of foreign currency translation
adjustments.
Loss
Per
Share
Basic
loss per share has been computed using the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed based
on the weighted average number of common shares and all common equivalent shares
outstanding during the period in which they are dilutive. Common equivalent
shares consist of shares issuable upon the exercise of stock options or
warrants. As of September 30, 2007, common stock equivalents consist of options
convertible into 2,365,000 shares of the Company's common stock and warrants
convertible into 3,000,000 shares of the Company's common stock. For the three
and nine month periods ended September 30, 2006 and 2007, common equivalent
shares have been excluded from the calculation of loss per share as their effect
is anti-dilutive.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment,” (SFAS 123R) which requires the measurement and recognition of
compensation expense for all stock-based awards based upon the grant-date fair
value of those awards. We previously accounted for our stock-based awards under
SFAS No. 123, "Accounting for Stock-Based Compensation" which was similar to
SFAS 123R where by the fair value of option and warrant grants was determined
using the Black-Scholes option pricing model at the date of grant We adopted
SFAS No. 123R, and its related implementation guidance as promulgated by both
the Financial Accounting Standards Board ( the "FASB"), and the Securities
and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No 107 (“SAB
107”), associated with the accounting for stock-based compensation arrangements
of our employees and directors. These pronouncements require that equity-based
compensation cost be measured at the grant date (based upon an estimate of
the
fair value of the compensation granted) and recorded to expense over the
requisite service period, which generally is the vesting period.
The
Company estimates the fair value of equity-based compensation utilizing the
Black-Scholes option pricing model. This model requires the input of several
factors such as the expected option term, expected volatility of our stock
price
over the expected term, expected risk-free interest rate over the expected
option term, and an estimate of expected forfeiture rate, and is subject to
various assumptions. We believe this valuation methodology is appropriate for
estimating the fair value of stock options granted to employees and directors
which are subject to SFAS 123R requirements. These amounts are estimated and
thus may not be reflective of actual future results, nor amounts ultimately
realized by recipients of these grants. These amounts, and the amounts
applicable to future quarters, are also subject to future quarterly adjustments
based upon a variety of factors.
Registration
Payment Arrangements
The
Company accounts for registration payment arrangements under Financial
Accounting Standards Board (FASB) Staff Position EITF 00-19-2,
Accounting
for Registration Payment Arrangements
(“FSP
EITF 00-19-2”). FSP EITF 00-19-2 specifies that the contingent obligation to
make future payments under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5,
Accounting
for Contingencies
.
FSP
EITF 00-19-2 was issued in December, 2006. The Company adopted FSP EITF 00-19-2
effective January 1, 2007. Certain registration payment arrangements were
included with a private placement of the Company’s preferred stock. The Company
did not record any liability related to these registration payment arrangements
because it determined that there is a remote chance that the Company will be
required to remit any payments for failing to obtain an effective registration
statement.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair
Value Measurements,” which establishes a framework for measuring fair value in
accordance with GAAP and expands disclosures about fair value measurements.
SFAS
157 is effective for fiscal years beginning after November 15, 2007. SFAS
157 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
The Company is currently evaluating the impact this standard will have on its
consolidated financial condition, results of operations, cash flows or
disclosures.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115” (SFAS 159).
SFAS 159,
which becomes effective for the Company on January 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
The Company does not anticipate that an election, if any, of this fair-value
option will have a material effect on its consolidated financial condition,
results of operations, cash flows or disclosures.
NOTE 4
- SHAREHOLDER'S EQUITY
Preferred
Stock
On
December 31, 2006, the Company amended its certificate of incorporation to
provide for 5,000,000 shares of Series A preferred stock. Pursuant to the
Company's certificate of incorporation, its board of directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of undesignated preferred stock, par value $0.001 per share. The
Company's board also has the authority, without the approval of the
stockholders, to fix the designations, powers, preferences, privileges and
relative, participating, optional or special rights and the qualifications,
limitations or restrictions of any preferred stock issued, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. Preferred stock could thus be issued with terms that could delay or
prevent a change in control of our company or make removal of management more
difficult. In addition, the issuance of preferred stock may decrease the market
price of the common stock and may adversely affect the voting and other rights
of the holders of common stock.
ISSUANCE
OF 4,000,000 PERFERRED SHARES AT $ 0.75 PER SHARE FOR TOTAL CONSIDERATION OF
$3,000,000
On
January 30, 2007, the Company entered into a Securities Purchase Agreement
with
three individuals, whereby the Company agreed to sell 4,000,000 shares of Series
A Convertible Preferred Stock and warrants to purchase 3,000,000 shares of
common stock at $1.00 per share. On February 12, 2007, the preferred stock
and
warrants were issued for $0.75 per unit, or $3,000,000 in
aggregate.
At
the
holder’s option, the preferred stock is convertible into the Company’s common
stock on a one-for-one basis anytime up to January 30, 2010. The conversion
price is initially set at $0.75 per share, subject to reset adjustments, but
in
no event can the reset conversion price drop below $0.50 per share. At the
Company’s option, the preferred stock will be convertible into the
Company’s common stock (at the conversion price initially set at $0.75 per
share) when the average closing price of the common stock for any 20 consecutive
trading days is at least $2.00. On January 30, 2010, the Company shall have
the
right to convert all the preferred stock then outstanding into shares of common
stock.
The
$3,000,000 proceeds were allocated to the preferred stock and warrants based
on
their relative fair values. The Company determined the fair value of the
warrants to be $693,177 using a Black-Scholes option pricing model with the
following assumptions: expected volatility of 50%, a risk-free interest rate
of
3.40%, an expected term of 3 years, and 0% dividend yield. The Company
determined the warrants are properly classified as an equity instrument and
no
value was recorded for the warrants as any value assigned would result in an
increase and decrease to additional-paid-in-capital in the same amount. The
conversion terms of the preferred stock resulted in a beneficial conversion
feature valued at $1,293,320. The Company recorded a charge to retained earnings
for $1,293,320 representing a deemed dividend to the preferred stockholders
with
the offset recorded in additional paid in capital.
Two
investors in the Series A preferred stock private placement were appointed
as
directors of the Company.
ISSUANCE
OF COMMON STOCK FOR CASH
The
following represents transactions involving the purchases of the Company's
common stock for cash categorized by period (for the period from the date of
inception to September 30, 2007):
2002:
ISSUANCE
OF 13,750,000 SHARES AT $0.00004 PER SHARE FOR TOTAL CONSIDERATION OF
$550
ISSUANCE
OF 7,461,090 SHARES AT $0.0468 PER SHARE FOR TOTAL CONSIDERATION OF
$349,180
ISSUANCE
OF 1,875,000 SHARES AT $0.12 PER SHARE FOR TOTAL CONSIDERATION OF
$225,000
2003:
ISSUANCE
OF 3,508,425 SHARES AT $0.12 PER SHARE FOR TOTAL CONSIDERATION OF
$421,011
ISSUANCE
OF 201,200 SHARES AT $0.32 PER SHARE FOR TOTAL CONSIDERATION OF
$64,387
2004:
ISSUANCE
OF 434,600 SHARES PER SHARE AT $0.12 FOR TOTAL CONSIDERATION OF
$52,150
ISSUANCE
OF 1,125,275 SHARES PER SHARE AT $0.32 FOR TOTAL CONSIDERATION OF
$360,086
ISSUANCE
OF 1,616,000 SHARES AT $0.50 PER SHARE FOR TOTAL CONSIDERATION OF
$807,998
2005:
ISSUANCE
OF 2,179,947 SHARES AT $0.50 PER SHARE FOR TOTAL CONSIDERATION OF
$1,089,974
2006:
ISSUANCE
OF 540,348 SHARES AT $1.20 PER SHARE FOR TOTAL CONSIDERATION OF
$648,417
ISSUANCE
OF 100,000 SHARES AT $1.20 PER SHARE TO BE ISSUED FOR TOTAL CONSIDERATION OF
$120,000
ISSUANCE
OF 140,000 SHARES AT $0.75 PER SHARE TO BE ISSUED FOR TOTAL CONSIDERATION OF
$105,000
2007:
ISSUANCE
OF 296,667 SHARES AT $0.75 PER SHARE FOR TOTAL CONSIDERATION OF
$222,500
ISSUANCE
OF COMMON STOCK FOR SERVICES
On
February 9, 2006, the Company and CEOcast, Inc. entered into an investor
relations consulting agreement. The Company agreed to pay $5,000 a month and
issue 72,000 shares of common stock for investor relations services to be
rendered during the six month period following the signing of the agreement.
36,000 shares of common stock were issued on February 9, 2006 and were
valued at $64,800 based on the closing price of the Company’s common stock of
$1.80 per share at the grant date. 36,000 additional shares of common stock
were issued on May 9, 2006 and were valued at $75,600 based on the closing
price of the Company’s common stock of $2.10 per share at the grant date. The
Company recorded the total of $140,400 as compensation cost in
2006.
On
March
6, 2006, we engaged CH Capital LLC for financial consulting services and agreed
to issue a total of 50,000 shares of common stock for these financial consulting
services. 25,000 shares were issued on March 6, 2006 and an additional 25,000
shares were issued on September 6, 2006. The fair value of the 50,000 shares
was
$101,250 and was determined as follows: the value of the first 25,000 shares
was
calculated using the closing share price of $1.80 on March 6, 2006 and the
value
of the remaining 25,000 shares was calculated using the closing share price of
$2.25 on September 6, 2006. The Company recorded $83,506 as compensation cost
in
2006 and $17,744 as compensation cost in 2007.
On
March
23, 2007, the Company granted three directors 10,000 shares each of restricted
common stock for one year of board service. The fair value of 30,000 shares
was
determined to be $30,000, based on the closing price of the shares when granted,
and was recorded as compensation cost.
On
July
1, 2007, the Company granted two scientific board advisors 10,000 shares each
of
restricted common stock for one year of scientific board service. The fair
value
of 20,000 shares was determined to be $20,000, based on the closing price of
the
shares when granted, and was recorded as compensation cost.
ISSUANCE
OF STOCK OPTIONS AND WARRANTS
During
2004, the Company issued to Columbia China Capital Group, Inc. an option to
purchase 1,342,675 shares of common stock at $.001 per share to be exercised
within a three-year period in consideration for financial consulting services
to
be provided over a two-year period The options were granted outside the
Company's stock option plan. On December 1, 2004, 200,000 of these options
were
exercised. The options were valued at their fair value of $670,098 at the date
of grant, which was determined by the Black-Scholes valuation method using
the
following assumptions: no expected dividend yield; risk-free interest rates
of
3.4%; expected lives of 3 years; and estimated volatility of 85% based on recent
history of the stock price in the industry. The Company revalued the fair value
of the options at the end of each reporting period in accordance with EITF
96-18
and determined there was no significant change to the initial valuation. The
value of the options issued was amortized over the two- year term of the service
agreement. Amortization for such amount was $251,287 in 2005 and $279,208 in
2004, and was reflected in the accompanying consolidated statement of
operations for each period, respectively. On October 17, 2005, Columbia China
Capital Group, Inc. exercised 300,000 of these options. On October 18, 2005,
the
Company reached agreement with Columbia China Capital Group, Inc to voluntarily
give up 350,000 options. As such, the remaining unamortized balance of deferred
compensation of $139,604 was charged to operations during the year ended
December 31, 2005. On January 9, 2006 and March 2, 2006, the Company reached
agreement with Columbia China Capital Group, Inc. to voluntarily give up
additional 72,000 and 25,000 options, respectively. On February 16, 2007,
Columbia China Capital Group exercised 395,675 options. As a result, Columbia
China Capital Group no longer owns any options.
On
December 1, 2004, the Company issued 100,000 shares of its common stock and
an
option to purchase an additional 50,000 shares of its common stock at $0.001
per
share to Richardson & Patel, LLC in consideration for past legal services.
The shares issued were valued at $50,000, their fair value at the date of
issuance. The options granted were valued at $24,954 at the date of grant,
which
was determined by the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; risk-free interest rates of 3.4%;
expected lives of 3 years; and estimated volatility of 85 percent based on
recent history of the stock price in the industry. The value of the options
$24,954 was reflected as a consulting expense in 2004.
On
July
1, 2005, the Company issued to two individual consultants an option to purchase
20,000 shares of common stock at $.001 per share to be exercised within a
three-year period in consideration for scientific advisory service to be
provided over a one-year period, and all of these shares were exercised at
the
time when they were granted. The options granted were valued at $9,982 at the
date of grant, which was determined by the Black-Scholes valuation method,
using
the following assumptions: no expected dividend yield; risk-free interest rates
of 3.4%; expected lives of 3 years; and estimated volatility of 70 percent
based
on recent history of the stock price in the industry. The Company revalued
the
fair value of the options at the end of each reporting period in accordance
with
EITF 96-18 and determined there was no significant change to the initial
valuation. The value of the options issued was reflected as deferred
compensation and is being amortized over the one- year term of the service
agreement. The consulting expense had been completely amortized in 2005 and
2006.
On
October 14, 2005, the Company issued to Mr. Liang Qiao, MD, the Company's chief
executive officer, an option to purchase 600,000 shares of common stock at
$0.55
per share to be exercised with a ten-year (10) period. The options granted
were
valued at $157,770 at the date of grant, which was determined by the
Black-Scholes valuation method, using the following assumptions: no expected
dividend yield; risk-free interest rates of 3.4%; expected lives of four years;
and estimated volatility of 70 percent based on recent history of the stock
price in the industry. The value of the options will be amortized over the
three
year vesting period. For quarter ended September 30, 2007, $13,150 has been
amortized and included in the accompanying statement of operations.
On
October 14, 2005, the Company issued to 25 employees options to purchase
1,345,000 shares of common stock at $0.5 per share to be exercised with a
ten-year (10) period. The options granted were valued at $369,045 at the date
of
grant, which was determined by the Black-Scholes valuation method, using the
following assumptions: no expected dividend yield; risk-free interest rates
of
3.4%; expected lives of 4 years; and estimated volatility of 70 percent based
on
recent history of the stock price in the industry. The value of the options
will
be amortized over the three year vesting period. For quarter ended September
30,
2007, $30,070 has been amortized and included in the accompanying consolidated
statement of operations.
On
November 2, 2005, the Company issued to Mr. Wenhui Qiao (the Company's director
and president) and Mr. Chuen Huei (Kevin) Lee (the Company's CFO) an option
to
purchase 300,000 shares of common stock at $0.001 per share. The options granted
were valued at $149,738 at the date of grant, which was determined by the
Black-Scholes valuation method, using the following assumptions: no expected
dividend yield; risk-free interest rates of 3.4%; expected lives of 4 years;
and
estimated volatility of 70 percent based on recent history of the stock price
in
the industry. The value of the stock options of $149,738 was reflected as
consulting expense in 2005.
On
November 2, 2005, the Company issued to Adam Friedman Associates, LLC, the
Company's investor relations consultant, an option to purchase 50,000 shares
of
common stock at $0.001 per share to be exercised within a one-year period in
consideration for financial consulting service to be provided over a one-year
period. The options were exercised in the second quarter of 2006 The options
granted were valued at $24,952 at the date of grant, which was determined by
the
Black-Scholes valuation method, using the following assumptions: no expected
dividend yield; risk-free interest rates of 3.4%; expected lives of 1.5 years;
and estimated volatility of 70 percent based on recent history of the stock
price in the industry. The value of the options was being amortized over the
one- year term of the service agreement.
On
November 2, 2005, the Company issued to Ms. Ma Suifang, the Company's financial
consultant, an option to purchase 8,116 shares of common stock at $.001 per
share. The options granted were valued at $4,051 at the date of grant, which
was
determined by the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; risk-free interest rates of 3.4%;
expected lives of 3 years; and estimated volatility of 70 percent based on
recent history of the stock price in the industry. The value of the stock
options of $4,051 was reflected as consulting expense in 2005.
On
July
1, 2006, the Company issued options to two consultants to purchase 10,000 shares
of common stock, individually. The options granted were valued at $44,982 at
the
date of grant, which was determined by the Black-Scholes valuation method,
using
the following assumptions: no expected dividend yield; risk-free interest rates
of 3.4%; expected lives of 3 years; and estimated volatility of 49 percent
based
on recent history of the stock price in the industry. For the quarter ended
June
30, 2007, $11,245 has been amortized and included as consulting expense in
the
accompanying statement of operations.
In
November 2006, the Company issued a warrant to purchase common stock
to an investor to purchase 50,000 shares of common stock at $1.20 per share
with
a term of three years. The investor also purchased 33,333 shares of common
stock
at $0.75 per share in that transaction.
On
April
1, 2007, the Company granted Mr. Larry E. Henneman, Jr. an option to purchase
20,000 shares of commons stock for legal services in connection with our patent
application in the United States. The exercise price is $0.001 and the
expiration date is five years from the grant date. The fair value of the options
was $20,783 at the date of grant, which was determined using the Black-Scholes
valuation method, using the following assumptions: no expected dividend yield;
a
risk-free interest rate of 3.4%; an expected life of 5 years; and an estimated
volatility of 52 percent based on recent history of the stock price in the
industry. The total of $20,783 was charged to consulting expense at the date
the
options were granted.
On
April
1, 2007, the Company granted Seven Star International Corp. an option to
purchase 100,000 shares of common stock for 2 years of consulting service.
The
exercise price is $0.001 and the expiration date is five years from the grant
date. The fair value of the options was $103,916 at the date of grant, which
was
determined by the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; risk-free interest rates of 3.4%;
expected lives of 5 years; and estimated volatility of 52 percent based on
recent history of the stock price in the industry. The total of $103,916 was
charged to consulting expense at the date the options were granted.
EXERCISE
OF STOCK OPTIONS
In
2004,
200,000 shares of common stock were issued at $0.001 per share for a cash
payment of $200 from an exercise of stock options.
In
2005,
328,116 shares of common stock were issued at $0.001 per share for a cash
payment of $328 from an exercise of stock options.
In
2006,
50,000 shares of common stock were issued at $0.001 per share for a cash payment
of $50 from an exercise of stock options.
During
the first quarter of 2007, 415,675 shares of common stock were issued at $0.001
per share for cash payments of $416 from the exercise of options.
INVESTMENT
AGREEMENT
On
November 29, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund, LP, a Delaware limited partnership based in
Boston, Massachusetts ("Dutchess"). Under the terms of the Agreement, Dutchess
has agreed to purchase from the Company up to $10,000,000 of the Company's
common stock over a 24-month period. After a registration statement covering
the
resale of up to 2,000,000 shares of the Company's common stock is declared
effective, the Company has the right to deliver a put notice and sell to
Dutchess (i) $100,000 of its common stock or (ii) 200% of the average daily
volume of its for the 10 trading days prior to the put notice date, multiplied
by the average of three daily closing bid prices immediately preceding the
put
date. The purchase price per share identified in each put notice will be equal
to 95% of the lowest closing best bid price of the Company's common stock during
five trading days after the applicable put notice date. Pursuant to the terms
of
the Agreement, the Company has the right to control the timing and amount of
stock sold to Dutchess. The Company is not entitled to submit a put notice
until
after the closing of the previous put notice. Pursuant to the Agreement, upon
receipt of a put notice, Dutchess will be required to purchase from the Company
during the applicable pricing period a number of shares having an aggregate
purchase price equal to the lesser of (i) the put amount identified in the
put
notice, and (ii) 20% of the aggregate trading volume of the Company's common
stock during the pricing period multiplied by the lowest closing bid price
during the applicable pricing period. In addition, the Agreement requires the
Company to pay a registered broker dealer 2.5% of the put amount on each draw
toward the placement agent fee up to a total cumulative amount of $10,000.
The
Agreement terminates upon the earlier to occur of the following events: (i)
when
Dutchess has purchased an aggregate $10,000,000 in the Company's common stock,
or an aggregate of 2,000,000 shares of the Company's common stock; and (ii)
on
the date which is 24 months after the effective date of the registration
statement.
The
Company filed with the SEC a registration statement on Form SB-2 under the
Securities Act with respect to the common stock being offered in this offering
on December 30, 2005 and was declared effective in the first quarter of 2006.
As
of September 30, 2007, the Company has not used any equity line under the
Agreement.
NOTE
5-STOCK OPTION PLAN
On
December 1, 2004, the Company’s shareholders approved the 2004 Stock Incentive
Plan. The 2004 Stock Incentive Plan provides for the grant of incentive stock
options to our employees, and for the grant of non-statutory stock options,
restricted stock, stock appreciation rights and performance shares to our
employees, directors and consultants. The Company has reserved a total of
2,000,000 shares of its common stock for issuance pursuant to the 2004 Stock
Incentive Plan. The 2004 Stock Incentive Plan does not provide for automatic
annual increases in the number of shares available for issuance under the plan.
As of September 30, 2007, 1,915,000 options had been granted under this
plan.
The
administrator determines the exercise price of options granted under our 2004
Stock Incentive Plan, but the exercise price must not be less than 85% of the
fair market value of our common stock on the date of grant. In the event the
participant owns 10% or more of the voting power of all classes of our stock,
the exercise price must not be less than 110% of the fair market value per
share
of our common stock on the date of grant. With respect to all incentive stock
options, the exercise price must at least be equal to the fair market value
of
our common stock on the date of grant. The term of an incentive stock option
may
not exceed 10 years, except with respect to any participant who owns 10% of
the
voting power of all classes of our outstanding stock or the outstanding stock
of
any parent or subsidiary of ours, which the term must not exceed five years
and
the exercise price must equal at least 110% of the fair market value on the
grant date. The administrator determines the term of all other options; however,
no option will have a term in excess of 10 years from the date of
grant.
The
following table summarizes the stock option activity under the plan and outside-
the- plan issuances:
|
|
|
Options
Granted
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
2,685,675
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
120,000
|
|
|
0.001
|
|
|
Exercised
|
|
|
(415,675
|
)
|
$
|
0.001
|
|
|
Withdrawn
|
|
|
(25,000
|
)
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
2,365,000
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2007
|
|
|
1,733,333
|
|
$
|
0.38
|
|
The
following table summarizes information about stock options outstanding as of
September 30, 2007:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Range
of Exercise
Prices
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.001
to $0.55
|
|
|
2,365,000
|
|
$
|
0.41
|
|
|
|
|
|
1
|
|
|
1,733,333
|
|
$
|
0.38
|
|
|
|
|
|
2,365,000
|
|
|
|
|
|
|
|
|
|
|
|
1,733,333
|
|
|
|
|
The
aggregate intrinsic value of the 2,365,000 options outstanding and 1,733,333
options exercisable as of September 30, 2007 was $94,600 and $121,333,
respectively. The aggregate intrinsic value for the options is calculated as
the
difference between the price of the underlying awards and quoted price of the
Company's common shares for the options that were in-the-money as of September
30, 2007.
A
summary
of the status of nonvested shares as of September 30, 2007 are as
follows:
|
|
|
Number
of Shares
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2007
|
|
|
1,120,000
|
|
|
Granted
|
|
|
-
|
|
|
Vested
|
|
|
(479,166
|
)
|
|
Withdrawn
|
|
|
(9,167
|
)
|
|
Nonvested
at September 30, 2007
|
|
|
631,667
|
|
The
total
deferred compensation expense for the outstanding value of unvested stock
options was $172,541 as of September 30, 2007, which will be recognized over
a
period of 12 months.
NOTE 6
- COMMITMENTS AND CONTINGENCIES
Construction
in progress
In
May
2003, the Company acquired a land use right for approximately 2.8 acres of
land
in the Tianzhu Export Processing Zone, Shunyi District, Beijing, China, which
the Company plans to develop into a laboratory and bio-manufacturing facility
in
compliance with Good Manufacturing Practices, or GMP, regulations primarily
for
clinical trials of HIV-PV Vaccine I. As of December 31, 2005, the Company had
received all necessary permits and approvals. The general plans for development
include the construction of a laboratory facility (“Phase One”) and construction
of an administrative office building (“Phase Two”). The Company estimates the
total project costs for Phase One will be approximately $2,100,000 to
$2,200,000. At September 30, 2007, Phase One construction and internal clean
room decoration was substantially completed at a cost of approximately
$1,720,000, and is recorded as construction in progress. At September 30, 2007,
$120,613 is due to the contractors of Phase One for the completed construction
and internal clean room decoration and this obligation is recorded as due to
contractors.
The
Company estimates that the remaining costs associated with completion of Phase
One project will be approximately $400,000 to $500,000, primarily for permanent
electrical and steam equipment to be installed. At September 30, 2007, the
Company had negotiated with several vendors for the purchase of the electrical
and steam equipment, but had not signed any contracts. The Company estimates
the
purchase and installation of the electrical and steam equipment will be
completed around the end of the first quarter of 2008. In addition, the Company
estimates the cost of laboratory equipment it needs before Phase One can be
used
will be approximately $800,000 to $1,000,000. At September 30, 2007, the Company
had not negotiated any contracts for the purchase of any of the laboratory
equipment. The Company estimates the purchase and installation of the laboratory
equipment will be completed by the first quarter of 2008. At September 30,
2007, Phase Two was still in the design stage. The Company estimates total
project costs for Phase Two will be approximately $1,000,000. The Company
estimates that construction may begin on Phase Two in 2009 or later, but
currently has no plans for Phase Two construction.
Lease
commitment
As
of
September 30, 2007, the Company had remaining outstanding commitments with
respect to its non-cancelable operating lease for its office in Oak Brook,
IL,
of which $6,721 is due in 2007 , $27,462 is due in 2008, $28,088 is due in
2009
and $19,004 is due in 2010, and its office in Beijing, PRC (which is leased
from
Mr. Wenhui Qiao, the Company's director and president), of which $4,793 is
due
in 2007 and $9,586 in 2008. Rental expense for the quarters ended September
30,
2007 and 2006 were $9,375 and $12,135, respectively.
Royalty
and License Arrangements
Mr.
Liang
Qiao, M.D., the Company's co-founder and chief executive officer, is one of
the
co-inventors of the Company's core technology that was assigned to Loyola
University Chicago in April 2001. Under an agreement with Loyola University
Chicago, the Company has obtained exclusive rights to this technology for use
in
its future products within the United States, Japan and the People's Republic
of
China, including mainland China, Hong Kong, Taiwan and Macau. The license
continues perpetually or for the maximum period of time permitted by law, unless
terminated earlier under the terms of the agreement. Pursuant to this agreement,
Loyola receives a royalty of 4% from the net profit for all uses of the licensed
technology, including uses under sublicenses. As of September 30, 2007, the
Company had not generated any revenues from the sale of any products under
development, nor had the Company received any revenues from
sublicenses.
Distribution
Agreement
On
November 21, 2005, the Company entered into an exclusive
distribution agreement with Xinhua Surgical Instruments Co. Ltd., located in
Shandong, China. Under this agreement, we were granted exclusive
distribution rights for all Xinhua surgical instruments in the United States,
which are subject to FDA approval. Our minimum sale requirement to retain
exclusivity begins in the second year in the amount of $50,000, increases
to $60,000 during the third year and increases 10% annually thereafter. The
Company estimates it will not reach the minimum sale requirement of $50,000
for
2007. Xinhua has indicated there will be no penalty for not reaching the minimum
sale requirement for 2007 and the Company can still have the exclusive
distribution right in 2008. We are responsible for advertising and marketing
expenses in connection with distribution of Xinhua surgical instruments in
the
United States. On December 6, 2005, we received confirmation from the FDA of
our
registration as a medical device establishment, which enables us to perform
initial distributor and repackager operations. This confirmation is not a FDA
approval of any product or any of our activities. It is neither a license,
nor a
certification. We market Xinhua surgical instruments that meet the criteria
for
Class I medical devices under FDA rules, which do not require pre-market
notification to the FDA.
NOTE 6
- SUBSEQUENT EVENT
On
October 31, 2007, the Company executed a non-binding letter of intent to acquire
51% of Lanzhou Roya Biotechnology Co. Ltd., based in the People's Republic
of
China. Lanzhou Roya is a bovine serum manufacturer in China. Bovine serum is
used in production of many vaccines as well as for laboratory scientific
research. The letter of intent gives Bio-Bridge an exclusive right to complete
the acquisition of control of Lanzhou Roya until March 2008. The completion
of
the acquisition is subject to execution of a definitive acquisition agreement
(including determination of sale price), as well as full legal and financial
due
diligence.
Item
2. Management's Discussion and Analysis or Plan of
Operation
Some
of
the statements made by us in this Quarterly Report on Form 10-QSB are
forward-looking in nature, including but not limited to, statements relating
to
our future revenue and expenses, product development, future market acceptance,
levels of research and development, our management's plans and objectives for
our current and future operations, and other statements that are not historical
facts. Forward-looking statements include, but are not limited to, statements
that are not historical facts, and statements including forms of the words
"intend", "believe", "will", "may", "could", "expect", "anticipate", "plan",
"possible", and similar terms. Actual results could differ materially from
the
results implied by the forward looking statements due to a variety of factors,
many of which are discussed throughout this Quarterly Report and in our SEC
filings. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly release any revisions to these forward-looking
statements that may reflect events or circumstances after the date hereof or
to
reflect the occurrence of unanticipated events, unless required by law. Factors
that could cause actual results to differ materially from those expressed in
any
forward-looking statement made by us include, but are not limited
to:
|
·
|
our
ability to finance our activities and maintain our financial
liquidity;
|
|
·
|
our
ability to attract and retain qualified, knowledgeable
employees;
|
|
·
|
our
ability to complete product development;
|
|
·
|
our
ability to obtain regulatory approvals to conduct clinical
trials;
|
|
·
|
our
ability to design and market new products
successfully;
|
|
·
|
our
failure to acquire new customers in the
future;
|
|
·
|
deterioration
of business and economic conditions in our
markets;
|
|
·
|
intensely
competitive industry conditions.
|
In
this
document, the words "we," "our," "ours," and "us" refers to Bio-Bridge Science,
Inc. and our wholly owned subsidiaries, including Bio-Bridge Science (Beijing)
Co. Ltd., a Wholly-Foreign Funded Enterprise of the People's Republic of China
("Bio-Bridge (Beijing)") and Bio-Bridge Science Corporation, a Cayman Islands
corporation.
OVERVIEW
Bio-Bridge
Science, Inc. is a development stage company whose subsidiaries are focused
on
the commercial development of HIV-PV Vaccine I technology. The pre-clinical
testing of HIV-PV Vaccine I on laboratory animals in Beijing, China was
completed in June 2006. After the lab equipment is installed and we are able
to
produce vaccine candidate samples, we will apply to China's State Food and
Drug
Administration for approval to conduct clinical trials of HIV-PV Vaccine I.
As
of December 31, 2005, we had completed the construction of the outside body
of
our laboratory and bio-manufacturing facility in Beijing, China. As
of September 30, 2007 our facility requires the completion of electrical and
steam work and the purchase of laboratory equipment. We hope to have those
projects completed by end of the first quarter in 2008.
Since
inception, we have generated few revenues. We incurred net losses of $1,186,308
and $1,052,284 for the nine months ended September 30, 2007 and 2006,
respectively. As of September 30, 2007, we had an accumulated deficit of
$6,597,548 and a working capital of $1,768,024. As of September 30, 2007, we
have funded our operations through equity offerings whereby we raised an
aggregate $7,266,899 since inception. In the second quarter of 2007, the Company
raised $222,500 in private placements in the form of a sale of shares of common
stock, of which $200,000 remains to be received as of September 30, 2007. Our
capital requirements for the next 12 months, as they relate to further research
and development relating to our product candidates, have been and will continue
to be significant. We plan to raise more capital in the near future to meet
our
capital requirement for the development of our product candidates as well as
our
potential acquisitions in China.
Plan
of Operation
Our
primary corporate focus is on the commercial development of our first potential
vaccine product, HIV-PV Vaccine I, through our subsidiaries. In addition, we
will bring in more potential vaccine candidates to our product pipeline. Our
capital requirements, particularly as they relate to product research and
development, have been and will continue to be significant. Our future cash
requirements and the adequacy of available funds will depend on many factors,
including the pace at which we are able to obtain regulatory approvals of HIV-PV
Vaccine I and other potential vaccine candidates, whether or not a market
develops for our products and, if a market develops, the pace at which it
develops, and the pace at which the technology involved in making our products
changes.
|
·
|
HPV
preventive and therapeutic vaccines - an oral vaccine that will be
used to
prevent and treat HPV6, 11, 16, 18, 31, 45, and 58 infection (cover
>90% of HPV causing cervical
cancer).
|
|
·
|
Colon
cancer therapeutic vaccine--an oral vaccine that treats CEA+ colon
cancer.
|
|
·
|
Mucosal
adjuvant -- an adjuvant that can be used to enhance vaccines efficacy
in
elderly, e.g. for influenza virus vaccine for age over
60.
|
The
pre-clinical testing of HIV-PV Vaccine I on laboratory animals was completed
in
Beijing Institute of Radiation Medicine, and the testing result was issued
in
June 2006 and showed encouraging results. After the vaccine samples are able
to
be produced in our GMP facility, we will submit application for clinical trials
with the SFDA. The clinical trial for therapeutic vaccine is expected to last
three years. The clinical trial for preventive vaccine will last longer, most
likely five to seven years.
We
entered into a cooperative agreement with the Institute of Basic Medical
Sciences at the Chinese Academy of Medical Sciences, a leading medical research
institute in China, to research and develop a human papillomavirus polyvalent
vaccine using prokaryotic expression system (HPV vaccine) on March 9, 2007.
This
vaccine is designed to prevent from infection by human papillomavirus types
6,
11, 16, 18, 31, 45, and 58, which will prevent more types of HPV infection
than
the current vaccines in the market.
We
also
plan to conduct the pre-clinical trials for colon cancer vaccine and mucosal
adjuvant in cooperation with leading medical research institutes in China in
early 2008. We estimate that we will complete the pre-clinical trial of HPV
vaccine by the second half of 2008 and enter clinical trials in the first half
of 2009. As we discussed previously, clinical trials for therapeutic vaccine
are
expected to last 2 to 3 years. The clinical trials for a preventive vaccine
will
last longer, most likely 5 to7 years. All the technology used in the new product
candidates is derived from the technology co-developed by our CEO, Liang Qiao,
M.D. Because we use the same technology to develop our potential vaccine
products, we expect to use the same GMP facility in Beijing, China to produce
these vaccines for pre-clinical and clinical trials.
To
date
we have funded our operations from funds we raised in private offerings. During
2006, we sold 780,345 shares of common stock at a price of $0.75 or $1.20 per
share to 47 investors in private placements, and raised gross proceeds of
$848,376. In the first quarter of 2007, we raised another US$3 million through
a
Series A preferred stock private placement. In the second quarter of 2007,
we
raised $222,500 through sale of common stock to three investors at the price
of
$0.75 per share, of which $200,000 remains to be received as of September 30,
2007. During the next twelve months, we still need to raise additional capital
through an offering of our securities or from loans to continue research and
development of our various vaccine product candidates in China as well as
completion the construction of our Phase Two laboratory and administrative
facility in China, which we estimate will cost approximately $3 million for
total Phase I and II project works. We estimate that our capital requirements
for the next twelve months will be as follows:
|
·
|
approximately
$0.7 million for our laboratory/bio-manufacturing facility’s steam and
electricity work for Phase I laboratory manufacturing facility project
in
Beijing, China;
|
|
·
|
approximately
$1.0 million to purchase advanced laboratory equipment and supplies
for
our vaccine production;
|
|
·
|
approximately
$0.5 million for Phase I clinical study and the preparatory
work;
|
|
·
|
approximately
$0.8 million for working capital and general corporate needs;
and
|
|
|
approximately
$0.6 million for pre-clinical trials on HPV vaccines, colon cancer
vaccine, and mucosal adjuvant.
|
In
addition, we estimate that the total cost to bring our HIV-PV Vaccine I product
to market in China will be $10 million for the therapeutic vaccine, and an
additional $6 million for the preventative vaccine. We expect that the
therapeutic vaccine can be brought to market in 2 to 3 years and the preventive
vaccine can be brought to market in 5 to 7 years, if we are successful in
raising the funds to complete development of the vaccine. As of September 30,
2007, our cash/cash equivalents and marketable securities position was $
1,979,503. We must raise additional funds through the public or private sales
of
our securities, loans, or a combination of the foregoing to proceed with our
planned operations. We cannot guarantee that financing will be available to
us,
on acceptable terms or at all. We also may borrow from local banks in China
given that our land use right and laboratory facility could be used as
collateral for borrowing. If we fail to obtain other financing in the next
12
months, either through an offering of our securities or by obtaining additional
loans, we may be unable to develop our planned projects.
Another
major corporate focus is for the Company to acquire other profitable vaccine
companies or vaccine production related companies, such as those to produce
material for vaccine production, in China. Such an acquisition may help support
our development of HIV vaccines by providing us with operating cash flows,
lower
cost for material used in our vaccine production, skillful work force in vaccine
production, and a distribution channel. We believe these companies will be
complementary to us and make us more competitive. We plan to spend less than
$ 1
million to execute our first acquisition. However, we cannot assure you that
we
will be able to achieve our goal by acquiring vaccine related companies in
China
although we are talking to several potential targets in China. Further, even
if
we acquire a vaccine company we may not be successful at generating positive
operating cash flows or other benefits we anticipate.
Results
of Operations
Three-month
period ended September 30, 2007 and September 30, 2006
During
the quarter ended September 30, 2007, we had revenues of $1,694. The cost of
revenue was $950, which was 56% of the total revenue.
During
the quarter ended September 30, 2006, we had revenues of $733. The cost of
revenue was $539, which was 74% of the total revenue. The decrease of the cost
of sales was due to the decrease in costs of the surgical instruments. All
these
revenues were due to our selling surgical instruments in the United States.
Since we entered into this agreement, we have established a sales inventory
of
Xinhua’s surgical instruments, printed marketing materials such as catalogs and
post cards, compiled a list of potential customers, and implemented a strategic
marketing plan for selling Xinhua’s instruments. We expect that the revenue will
increase in the future as a result of these efforts.
For
the
quarter ended September 30, 2007, research and development expenses were
$21,476, as compared to $22,401 for the quarter ended September 30, 2006. The
decrease of $925 is due primarily to the decrease of pre-clinical trail
development of our HIV-PV Vaccine I.
For
the
quarter ended September 30, 2007, general and administrative expenses were
$203,878 as compared to $279,544 for the quarter ended September 30, 2006.
The
decrease of $75,666 is due primarily to decreases in consulting
expense.
For
the
quarter ended September 30, 2007, selling and distribution expenses were $8,640
as compared to $6,786 for the quarter ended September 30, 2006. The increase
of
$1,854 is due primarily to increases in shipping and selling
expense.
For
the
quarter ended September 30, 2007, interest and other income (loss) was $1,328
as
compared to $1,005 for the quarter ended September 30, 2006. The increase of
$323 is due primarily to an increase in cash balance.
However,
none of these revenues pertain to our core planned principal operation of
developing vaccines. Therefore, we believe a separate analysis of these revenues
is not as helpful as an analysis of our liquidity and capital
resources.
Net
loss
for the quarter ended September 30, 2007, was $312,625 as compared to $307,532
for the quarter ended September 30, 2006. This increase in net loss is
attributable primarily to the increase in an unrealized loss on trading
securities.
Nine-
month period ended September 30, 2007 and September 30,
2006
During
the nine months ended September 30, 2007 and September 30, 2006, we had revenues
of $ 2,384 and $1,006 respectively, from our selling surgical instruments in
the
United States. The costs of revenue were $1,355 and $623,which were 57% and
62%
of the total revenue, respectively.
For
the
nine months ended September 30, 2007, research and development expenses were
$103,816 as compared to $72,845 for the nine months ended September 30 2006.
The
increase of $30,971 is due primarily to the pre-clinical trial development
of
our HIV-PV Vaccine I, and the continuing recruiting of the research and
development staff.
For
the
nine months ended September 30, 2007, general and administrative expenses were
$922,570 as compared to $970,104 for the nine months ended September 30, 2006.
The decrease of $47,534 is due primarily to decreases in non-cash compensation
expense.
For
the
nine months ended September 30, 2007, selling and distribution expenses were
$24,952 as compared to $13,430 for the nine months ended September 30, 2006.
The
increase of $11,522 is due primarily to increases in shipping and selling
expense.
For
the
nine months ended September 30, 2007, interest and other income was $5,128
as
compared to $3,012 for the nine months ended September 30, 2006. The increase
of
$2,116 was due primarily to increase in cash balance.
Net
loss
for the nine months ended September 30, 2007, was $1,186,308 as compared to
$1,052,984 for the nine months ended September 30, 2006. This increase in net
loss was attributable primarily to unrealized loss in trading
securities.
However,
none of these revenues pertain to our core planned principal operation of
developing vaccines. Therefore, we believe a separate analysis of these revenues
is not as helpful as an analysis of our liquidity and capital
resources.
Liquidity
and Capital Resources
Our
principal sources of liquidity are cash and cash equivalent balances, which
were
$310,249 at September 30, 2007 and $149,613 at December 31, 2006. Also, we
had
marketable securities valued at $1,669,254 as of September 30, 2007. These
marketable securities were classified as trading securities.
Net
cash
used in operating activities was $948,355 for the nine months ended September
30, 2007 and $623,908 for the nine months ended September 30, 2006. The increase
was due primarily to an increase in payments to the contractors for building
our
laboratory facilities.
Net
cash
used in investing activities was $1,916,058 for the nine months ended September
30, 2007 and $326,990 for the nine months ended September 30, 2006. This large
increase was due to the purchase of marketable securities, fixed assets and
construction in process.
Net
cash
provided by financing activities was $3,029,102 for the nine months ended
September 30, 2007 compared to $768,376 for the nine months ended September
30,
2006. This increase was mainly due to proceeds from the issuance of preferred
stock in 2007.
To
date,
our operations have been funded through issuances of our common stock and
preferred stock whereby we raised an aggregate $7,266,899 from inception through
September 30, 2007.
We
estimate the total project costs for Phase One will be approximately $2,100,000
to $2,200,000. As of September 30, 2007, the remaining costs associated with
completion of Phase One project will be approximately $400,000 to $500,000,
primarily for permanent electrical and steam equipment to be installed. Also,
we
plan to spend less than $ 1 million to acquire a vaccine production related
company in China in the near future. We plan to use our cash in hand to acquire
the target, and in the meantime, to raise funds through private placements
to
increase our cash position. Currently, we have received oral commitments from
current board members for further investment in our Company before the end
of
the first quarter of 2008.
Based
on
our current operating plan, we believe that we have sufficient cash and cash
equivalents to last approximately through September 2008. We will need to
obtain additional financing in addition to the funds already raised through
the
sale of equity securities to fund our cash needs and continue our operations
beyond September 2008. Additional financing, whether through public or private
equity or debt financing, arrangements with stockholders or other sources to
fund operations, may not be available, or if available, may be on terms
unacceptable to us. Our ability to maintain sufficient liquidity is dependent
on
our ability to raise additional capital. If we issue additional equity
securities to raise funds, the ownership percentage of our existing stockholders
would be reduced. New investors may demand rights, preferences or privileges
senior to those of existing holders of our common stock. Debt incurred by us
would be senior to equity in the ability of debt holders to make claims on
our
assets. The terms of any debt issued could impose restrictions on our
operations. If adequate funds are not available to satisfy either medium or
long-term capital requirements, our operations and liquidity could be adversely
affected.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses for each period. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123R) which requires the
measurement and recognition of compensation expense for all stock-based awards
based upon the grant-date fair value of those awards. We previously accounted
for our stock-based awards under SFAS No. 123, "Accounting for Stock-Based
Compensation" which was similar to SFAS 123R whereby the fair value of option
and warrant grants was determined using the Black-Scholes option pricing model
at the date of grant We adopted SFAS No. 123R, and its related implementation
guidance as promulgated by both the Financial Accounting Standards Board (
the
"FASB"), and the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No 107 (“SAB 107”), associated with the accounting for
stock-based compensation arrangements of our employees and directors. These
pronouncements require that equity-based compensation cost be measured at the
grant date (based upon an estimate of the fair value of the compensation
granted) and recorded to expense over the requisite service period, which
generally is the vesting period.
The
Company estimates the fair value of equity-based compensation utilizing the
Black-Scholes option pricing model. This model requires the input of several
factors such as the expected option term, expected volatility of our stock
price
over the expected term, expected risk-free interest rate over the expected
option term, and an estimate of expected forfeiture rate, and is subject to
various assumptions. We believe this valuation methodology is appropriate for
estimating the fair value of stock options granted to employees and directors
which are subject to SFAS 123R requirements. These amounts are estimated and
thus may not be reflective of actual future results, nor amounts ultimately
realized by recipients of these grants. These amounts, and the amounts
applicable to future quarters, are also subject to future quarterly adjustments
based upon a variety of factors.
The
Company continues to apply the provisions of EITF No. 96-18, “Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or
in
Conjunction with Selling, Goods or Services” (EITF 96-18) for our non-employee
stock-based awards. Under EITF 96-18, the measurement date at which the fair
value of the stock-based award is measured is equal to the earlier of 1) the
date at which a commitment for performance by the counterparty to earn the
equity instrument is reached or 2) the date at which the counterparty’s
performance is complete. We recognize stock-based compensation expense for
the
fair value of the vested portion of non-employee awards in our consolidated
statements of operations.
Impairment
of Long-Lived Assets
We
account for long-lived assets in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, or SFAS No. 144, which was
adopted on January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, Accounting
for
the Impairment of Long-Lived Assets and for Long- Lived Assets To Be Disposed
of, or SFAS No. 121. Our long-lived assets consist of land use right, notes,
fixed assets, construction in process, and prepaid consulting fees. We regularly
evaluate our long-lived assets, including our intangible assets, for indicators
of possible impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
An
impairment loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of an asset and its eventual disposition
are less than its carrying amount. Impairment, if any, is measured using
discounted cash flows. In the period ended September 30, 2007, we performed
an
evaluation of our long-lived assets and noted no impairment.
Research
and Development Costs
We
account for research and development expense under the guidance of SFAS No.2,
Accounting for Research and Development Costs, which was adopted in October
1974. Research and development costs are charged to operations as incurred.
Our
research and development costs include salaries of research and development
personnel and contract service expenses for conducting pre-clinical trial
studies.
Registration
Payment Arrangements
The
Company accounts for registration payment arrangements under Financial
Accounting Standards Board (FASB) Staff Position EITF 00-19-2,
Accounting
for Registration Payment Arrangements
(“FSP
EITF 00-19-2”). FSP EITF 00-19-2 specifies that the contingent obligation to
make future payments under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5,
Accounting
for Contingencies
.
FSP
EITF 00-19-2 was issued in December, 2006. The Company adopted FSP EITF 00-19-2,
effective January 1, 2007. Certain registration payment arrangements were
included with a private placement of the Company’s preferred stock in the first
quarter of 2007. The Company did not record any liability related to these
registration payment arrangements because it determined there is a remote chance
that the Company will be required to remit any payments for failing to obtain
an
effective registration statement.
Recent
Accounting Pronouncements
Recent
Accounting Pronouncements
In
September 2006, the FASB issued FAS No. 157 (“FAS 157”), “Fair
Value Measurements,” which establishes a framework for measuring fair value in
accordance with GAAP and expands disclosures about fair value measurements.
FAS
157 is effective for fiscal years beginning after November 15, 2007. FAS
157 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
The Company is currently evaluating the impact this standard will have on its
consolidated financial condition, results of operations, cash flows or
disclosures.
In
February 2007, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities-Including an amendment of FASB Statement No. 115”
(FAS 159).
FAS 159,
which becomes effective for the Company on January 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
Most of the provisions apply only to entities that elect the fair value option.
However, the amendment to SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," applies to all entities with available for
sale
and trading securities. The Company does not anticipate that election, if any,
of this fair-value option will have a material effect on its consolidated
financial condition, results of operations, cash flows or
disclosures.
Lease
Commitment
As
of
September 30, 2007, the Company had remaining outstanding commitments with
respect to its non-cancelable operating lease for its office in Oak Brook,
IL,
of which $6,721 is due in 2007 , $27,462 is due in 2008, $28,088 is due in
2009
and $19,004 is due in 2010, and its office in Beijing, PRC (which is leased
from
Mr. Wenhui Qiao, the Company's director and president), of which $4,793 is
due
in 2007 and $9,486 is due in 2008.
Royalty
and License Arrangements
Liang
Qiao, M.D., our co-founder and chief executive officer, is one of the
co-inventors of our core technology that was assigned to Loyola University
Chicago in April 2001. Under an agreement with Loyola University Chicago, we
have obtained exclusive rights to this technology for use in its future products
within the United States, Japan and the People's Republic of China, including
mainland China, Hong Kong, Taiwan and Macau. The license continues perpetually
or for the maximum period of time permitted by law, unless terminated earlier
under the terms of the agreement. Pursuant to this agreement, Loyola receives
a
royalty of 4% from the net profit for all uses of the licensed technology,
including uses under sublicenses. As of September 30, 2007, we had not generated
any revenues from the sale of any products under development, nor had we
received any revenues from sublicenses.
Contractual
Obligations
Payments
due under contractual obligations at September 30, 2007 mature as
follows:
|
|
|
Payments due by period ($ in thousands)
|
|
|
Contractual
Obligations
|
|
Total
|
|
Less
than 1
year
|
|
1
to 3 years
|
|
|
|
|
|
|
|
|
|
|
|
Lease
obligation
|
|
|
96
|
|
|
12
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96
|
|
$
|
12
|
|
$
|
84
|
|
Item
3. Controls and Procedures
(a)
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
and Chief Financial Officer, of the effectiveness of the design and operation
of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon
that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of
the
applicable period to ensure that the information required to be disclosed by
us
in reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) is accumulated
and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
(b)
Changes in internal controls over financial reporting. There was no change
in
our internal control over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
Not
Applicable
The
Company issued 180,000 shares of unregistered common stock in early October
to
three accredited investors for a Series A preferred stock dividend. Also, during
the quarter, the Company issued 20,000 shares of unregistered common stock
to
two scientific advisory board members for services.
Not
applicable
Not
applicable
Not
applicable
The
exhibits listed in the Exhibit Index are filed as part of this
report.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Bio-Bridge
Science, Inc.
|
|
|
|
|
|
|
|
/s/
Dr. Liang Qiao
|
|
|
|
|
|
By:
Dr. Liang Qiao
|
|
Dated:
November 14, 2007
|
|
|
|
Chief
Executive Officer
|
|
|
|