Washington,
D.C. 20549
FORM
6-K
REPORT
OF
FOREIGN ISSUER
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the month of February 2007
Commission
File Number 000-51122
pSivida
Limited
(Translation
of registrant’s name into English)
Level
12 BGC Centre
28
The Esplanade
Perth
WA 6000
Australia
(Address
of principal executive offices)
(Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F).
Form
20-F
ý Form
40-F o
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1):
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7):
Indicate
by check mark whether the registrant by furnishing the information contained
in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
o No
ý
If
"Yes"
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ___.
The
document attached as Exhibit 99.1 to this Report on Form 6-K is hereby
incorporated by reference herein and into the following registration statements:
(i) the Registrant's Registration Statement on Form F-3, Registration
No. 333-132776; (ii) the Registrant's Registration Statement on
Form F-3, Registration No. 333-132777; and (iii) the Registrant's
Registration Statement on Form F-3, Registration
No. 333-135428.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant,
pSivida Limited, has duly caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
Date:
February
28, 2007
PSIVIDA
LIMITED
By:
/s/
Michael J.
Soja
Michael
J. Soja
Vice
President, Finance and Chief Financial Officer
EXHIBIT
INDEX
|
EXHIBIT
99.1:
|
ASX
Filing: Appendix 4D - Half-year
report
|
Appendix
4D
Half-year
report
Appendix
4D
Half-year
report
Rule
4.2A.3
Introduced
1/1/2003
|
Name
of entity:
|
pSivida
Limited
|
|
ABN:
|
78
009 232 026
|
|
1.
|
Reporting
period
|
|
|
(“current
period”):
|
Half-year
ended 31 December 2006
|
|
|
Previous
corresponding period:
|
Half-year
ended 31 December 2005
|
|
|
2.
|
Results
for announcement to the market
|
|
$A’000
|
|||||
|
2.1
|
Revenue
from ordinary activities
|
up
|
4948%
|
to
|
2,120
|
|
2.2
|
Loss
from ordinary activities
|
||||
|
after
tax attributable to members
|
up
|
841%
|
to
|
100,742
|
|
|
2.3
|
Net
loss for the period
|
||||
|
attributable
to members
|
up
|
841%
|
to
|
100,742
|
|
2.4
|
The
directors recommend that no amount be paid by way of dividend. No
dividend
has been paid or declared since the start of the financial
period.
|
|
2.5
|
Record
date for determining entitlements to dividends
|
|
N/A
|
|
|
2.6
|
Brief
explanation of figures reported above (if necessary)
|
|
N/A
|
|
|
3.
|
Net
tangible assets
|
|
|
Current
|
Previous
|
|
|
|
period
|
corresponding
|
|
|
|
|
period
|
|
|
|
cents
|
cents
|
|
|
|
|
||
|
Net
tangible asset backing per ordinary share
|
(7.29)
|
(8.21)
|
|
|
|
=======
|
=======
|
Page
1
Appendix
4D
Half-year
report
|
4.
|
Details
of entities over which control has been gained or lost during the
period
|
N/A
| 5. | Dividends |
|
No
dividends have been paid or declared during or since the beginning
of the
reporting period.
|
| 6. |
Dividend
reinvestment plans
|
| No dividend reinvestment plans are in operation. |
| 7. |
Details
of associates and joint venture
entities
|
| N/A |
| 8. | Accounting standards for foreign entities |
| N/A |
| 9. | Auditor’s review report |
|
For
all entities, if the accounts are subject to audit dispute or
qualification, a description of the dispute or
qualification:
|
|
N/A
|
Page
2
Appendix
4D
Half-year
report
pSivida
Limited
ABN
78
009 232 026
Half-Year
Financial Report
for
the
half-year ended
31
December 2006
DIRECTORS’
REPORT
The
Directors of pSivida Limited submit herewith the financial report for the
half-year ended 31 December 2006. In order to comply with the provisions
of the
Corporations Act 2001, the Directors report as follows:
The
names
of the Directors of the Company during or since the end of the half-year
are:
Name
Dr
Paul
Ashton
Dr
Roger
Aston (re-appointed 20 December 2006)
Mr
Stephen Lake
Dr
David
Mazzo
Mr
Michael Rogers
Dr
Roger
Brimblecombe (resigned
24 January 2007)
Mr
Gavin
Rezos (resigned 31 July 2006)
Ms
Heather Zampatti (resigned 28 August 2006)
The
above-named Directors held office during and since the end of the half-year
unless otherwise stated.
Review
of operations
For
the
half-year ended 31 December 2006, the loss attributable to members of pSivida
Limited was $100,742 thousand (half-year ended 31 December 2005: $10,703
thousand). The operating loss included $14,486 thousand (2005: $9,017 thousand)
of research and development costs, $83,352 thousand (2005: Nil) of impairment
write-downs of certain intangible assets, $16,028 thousand (2005: Nil) of
losses
on extinguishment of debt related to modifications of the terms of a convertible
note and $8,210 thousand (2005: $288 thousand) of interest and finance costs,
which included $3,175 thousand (2005: Nil) of penalties in connection with
registration rights agreements, partially offset by a deferred tax benefit
of
$26,400 thousand (2005: $2,368 thousand) primarily attributable to the
intangible asset impairment write-downs.
On
6 July
2006, we announced that BioSiliconTM
showed
the capability to act as an adjuvant when delivered with an antigen. An adjuvant
is any substance capable of enhancing a host response towards an active agent
and is often used in conjunction with antigens to enhance the immune response
of
humans and animals. An antigen is any substance capable of eliciting an immune
response. A patent application was filed in the United Kingdom for the use
of
BioSiliconTM
as an
adjuvant.
On
31
July 2006, we announced that Gavin Rezos had resigned for personal and family
reasons as Managing Director and CEO of pSivida and its subsidiaries. Mr
Rezos
agreed to make himself available in Australia as requested by us to help
achieve
certain goals pending the appointment of a permanent replacement.
On
28
August 2006, we announced that Heather Zampatti resigned as a director of
the
Company.
On
14
September 2006, we closed an agreement revising the terms of the subordinated
convertible promissory note that was issued on 16 November 2005 to an
institutional investor. The note continues to have a three year term and
to bear
8% interest per annum payable quarterly. We may make future interest payments
in
cash or, under certain circumstances, in the form of our NASDAQ-listed American
Depositary Shares (ADSs). Per the amended terms, the note conversion price
was
adjusted to US$2.00 per ADS, subject to further adjustment based upon certain
events or circumstances, including, without limitation, if 108% of the average
market price of our ADSs for the ten trading days prior to 30 April 2007
is
lower than the then current conversion price. In connection with the amendment,
we repaid US$2,500 thousand ($3,300 thousand) of the outstanding principal
of
the note and agreed to pay US$1,000 thousand ($1,300 thousand) in related
penalties, which were paid on 14 September 2006. The investor’s
2
DIRECTORS’
REPORT
conditional
redemption rights under the terms of the initial note were replaced by
unilateral redemption rights for up to 50% of the amended note principal
at 31
July 2007 and 31 January 2008. The investor retains its existing warrants
to
purchase 633,803 additional ADSs, exercisable for six years at a current
exercise price of US$7.17 per ADS. In connection with the amendment, we agreed
with the investor to extend the deadline for the registration statement required
by the registration rights agreement to be declared effective by the Securities
and Exchange Commission (SEC) through 15 October 2006, with increased penalties
if that deadline were missed. Our registration statement was declared effective
on 29 September 2006. We were also released from the restrictions on future
fundraising transactions contained in the original note documentation. We
also
granted the investor an additional Series A warrant to purchase 5,700 thousand
ADSs exercisable for five years with an exercise price of US$1.80 per ADS,
a
security interest in our current royalties, subject to release of that security
upon any disposition by us of the royalty stream, and a guaranty by our U.S.
subsidiary, pSivida Inc.
On
19
September 2006, we announced the initiation of a Phase II clinical trial
of
Mifepristone as an eye drop treatment for steroid-associated elevated
intraocular pressure. The investigator-sponsored trial will involve up to
45
patients in the United States.
On
26
September 2006, we issued new subordinated convertible promissory notes in
the
principal amount of US$6,500 thousand ($8,500 thousand) to institutional
investors. The notes were convertible into our ADSs at a conversion price
of
US$2.00 per ADS ($0.27 per ordinary share), subject to adjustment based on
certain events or circumstances, including if 108% of the average market
price
of our ADSs for the ten days prior to 30 April 2007 is lower than the then
current conversion price. The notes mature in three years and bear 8% interest
per annum payable quarterly in arrears in cash or, under certain circumstances,
in the form of our NASDAQ-listed ADSs. We simultaneously issued warrants
to the
security holders to purchase 2,925 thousand ADSs at an exercise price of
US$2.00
and a term of five years.
On
10
October 2006, we announced that the first patient was implanted with
BrachySilTM
for the
treatment of inoperable pancreatic cancer in London.
On
17
October 2006, we signed a letter agreement with our investor further revising
the terms of the 16 November 2005 subordinated convertible promissory note.
Pursuant to that agreement, we were released until 30 March 2007 from the
requirement to maintain a net cash balance in excess of 30% of the outstanding
principal amount of the note and instead, the net cash balance required to
be
held by us through that date was reduced to US$1,500 thousand ($2,100 thousand).
The investor further waived any default that would otherwise have resulted
from
the unavailability of our resale prospectus until we filed with the SEC our
fiscal 2006 audited financial statements reconciled to accounting principles
generally accepted in the United States of America. We filed those financial
statements with the SEC on 31 October 2006, thus satisfying the condition
in the
agreement. In exchange for the foregoing, we were required to make a one-time
payment to the investor of US$800 thousand ($1,100 thousand) on 28 December
2006
for registration rights penalties through the date of the letter agreement
and
three payments of US$150 thousand ($205 thousand) on 31 January 2007, 28
February 2007 and 30 March 2007.
On
13
November 2006, we signed a non-binding Memorandum of Understanding (MOU)
with
Nordic Biotech Advisors. The MOU provided for Nordic Biotech II K/S or
affiliates and co-investors (collectively, Nordic) to make a $5,200 thousand
(US$4,000 thousand) corporate investment in pSivida and an $28,500 thousand
(US$22,000 thousand) investment over time in a “Special Purpose Vehicle” (SPV)
to fund the expected amount of our portion of costs to develop our lead
ophthalmic development product, MedidurTM
for the
treatment of the chronic eye disease diabetic macular edema (DME). If
consummated, we would receive a total of $6,500 thousand (US$5,000 thousand)
consisting of the $5,200 thousand (US$4,000 thousand) equity investment and
a
payment by the SPV to pSivida of $1,300 thousand (US$1,000 thousand). The
transaction is subject, amongst other things, to completion of due diligence
and
final documentation.
3
DIRECTORS’
REPORT
On
20
November 2006, we announced a collaboration with another company to evaluate
our
BioSiliconTM
technology for the development of transdermal drug delivery systems. The
collaboration is expected to last for twelve months, during which time the
parties plan to evaluate a range of biodegradable porous silicon structures,
including microneedles, for the controlled release of drugs through the
skin.
On
20
December 2006, we issued 14,330,768 fully paid ordinary shares to Australian
and
European investors at $0.26 each (US$2.00 ADR equivalent) to raise US$2,900
thousand ($3,700 thousand) before costs. Each share was purchased with two
free
attached options at an exercise price of $0.26 and a term of four
years.
On
20
December 2006, Dr Roger Aston was reappointed as a Non-executive Director
of the
Company.
On
26
December 2006, we entered into an exclusive negotiation period with a major
global pharmaceutical company to acquire a worldwide, royalty bearing license
to
make, use and sell products using our drug delivery technologies. The
pharmaceutical company will make payments totaling $1,300 thousand (US$ 990
thousand) in exchange for the exclusive right, for a period of three months,
to
negotiate a licensing agreement with us and to fund the cost of a pre-clinical
study.
On
29
December 2006, we entered into an amendment agreement further revising the
terms
of the convertible promissory note that was issued on 16 November 2005, the
investor agreed to a general forbearance with respect to any defaults through
to
and including 31 March 2007 or such earlier date as defined in the amendment
agreement, including the following:
| · |
The
investor agreed to allow the Company to transfer or grant security
interests in certain of its assets which would be necessary if we
were to
complete a pending transaction;
|
| · |
The
investor agreed to forego the cash interest payment due on 2 January
2007
in favor of adding approximately US$306 thousand ($388 thousand)
to the
outstanding principal amount of the convertible note, which amount
represented the value of the ADSs which we would have issued to satisfy
the payment had we met certain conditions allowing us to pay the
interest
with ADSs;
|
| · |
The
investor agreed to defer our scheduled payment of US$800 thousand
($1,000
thousand);
|
| · |
The
investor agreed to forgive US$770 thousand ($973 thousand) of pending
registration delay penalties;
|
| · |
The
investor agreed to amend the debt covenants to release us from the
obligation to satisfy a minimum cash balance test of 30% of the
outstanding note principal; and
|
| · |
The
investor agreed that we would have until ten days after such earlier
date
to file a registration statement with respect to securities issuable
on
exercise of the investor’s Series A
warrants.
|
In
return
for the foregoing, we issued to the investor Series C warrants to purchase
1,500
thousand ADSs over five years with an exercise price of US$2.00 per ADS and
agreed, upon receipt of required approvals, including shareholder approval,
and
satisfaction of other closing conditions, as defined, to issue additional
Series
D warrants to purchase 4,000 thousand ADSs over five years with an exercise
price of US$2.00, subject to a potential upward adjustment in the number
of
warrants, as defined.
Auditor’s
independence declaration
The
auditor’s independence declaration is included on page 6 of the half-year
financial report.
4
DIRECTORS’
REPORT
Rounding
off of amounts
We
are a
company of the kind referred to in ASIC Class Order 98/0100, dated 10 July
1998,
and in accordance with that Class Order, amounts in the directors’ report and
the half-year financial report are rounded off to the nearest thousand dollars,
unless otherwise noted.
Signed
in
accordance with a resolution of the directors made pursuant to s 306(3) of
the
Corporations Act 2001.
On
behalf
of the Directors
Paul
Ashton, Managing
Director
Watertown,
Massachusetts, USA
28
February 2007
5
| Deloitte |
Deloitte Touche
Tohmatsu
|
|
|
Woodside
Plaza
Level
14
240
St Georges Terrace
Perth
WA 6000
GPO
BOX A46
Perth
WA 6837 Australia
|
||
|
DX
206
Tel:
+61 (0) 8 9365 7000
Fax:
+61 (0) 8 9365 7001
www.deloitte.com.au
|
The
Directors
pSivida
Limited
Level
12,
BGC Centre
28
The
Esplanade
Perth
WA
6000
28
February 2007
Dear
Directors
AUDITOR'S
INDEPENDENCE DECLARATION TO PSIVIDA LIMITED
In
accordance with section 307C of the Corporations Act 2001, I am pleased to
provide the following declaration of independence to the directors of pSivida
Limited.
As
lead
audit partner for the review of the financial statements of pSivida Limited
for
the half year ended 31 December 2006, I declare that to the best of my
knowledge
and belief, there have been no contravention of:
| · |
the
auditor independence requirements of the Corporations Act 2001
in relation
to the review; and
|
| · |
any
applicable code of professional conduct in relation to the
review.
|
Yours
faithfully,
/s/
Deloitte Touche Tohmatsu
DELOITTE
TOUCHE TOHMATSU
/s/
Peter
Rupp
Peter
Rupp
Partner
|
Member
of
Deloitte
Touche Tohmatsu
|
||
Liability
limited by a scheme approved under Professional Standards
Legislation.
6
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the half-year ended 31 December 2006
|
Consolidated
|
|
||||||
|
|
|
|
Half-year
|
|
|
Half-year
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
|
|
|
31
December 2006
|
|
|
31
December 2005
|
|
|
|
|
|
$'000
|
|
|
$'000
|
|
|
Revenue
|
2,120
|
42
|
|||||
|
Other
income
|
119
|
255
|
|||||
|
Research
and development
|
(14,486
|
)
|
(9,017
|
)
|
|||
|
Selling,
general and administrative
|
(10,192
|
)
|
(4,370
|
)
|
|||
|
Impairment
of intangible assets
|
(83,352
|
)
|
-
|
||||
|
Interest
and finance costs
|
(8,210
|
)
|
(288
|
)
|
|||
|
Change
in fair value of derivative
|
2,707
|
-
|
|||||
|
Loss
on extinguishment of debt
|
(16,028
|
)
|
-
|
||||
|
Foreign
exchange gain
|
180
|
307
|
|||||
|
Loss
before income tax
|
(127,142
|
)
|
(13,071
|
)
|
|||
|
Deferred
income tax benefit
|
26,400
|
2,368
|
|||||
|
Loss
for the period
|
(100,742
|
)
|
(10,703
|
)
|
|||
|
Loss
per share:
|
|||||||
|
Basic
and diluted (cents per share)
|
(25.31
|
)
|
(4.75
|
)
|
|||
Notes
to
the financial statements are included on pages 11 to 18
7
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 31 December 2006
|
Consolidated
|
|
||||||
|
|
|
31
December
|
|
30
June
|
|
||
|
|
|
2006
|
|
2006
|
|
||
|
|
|
$'000
|
|
$'000
|
|||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
5,380
|
15,447
|
|||||
|
Trade
and other receivables, net
|
2,053
|
1,001
|
|||||
|
Other
|
372
|
632
|
|||||
|
Total
current assets
|
7,805
|
17,080
|
|||||
|
Non-current
assets
|
|||||||
|
Property,
plant and equipment, net
|
1,764
|
3,140
|
|||||
|
Goodwill
|
50,826
|
53,159
|
|||||
|
Other
intangible assets, net
|
63,181
|
162,107
|
|||||
|
Total
non-current assets
|
115,771
|
218,406
|
|||||
|
Total
assets
|
123,576
|
235,486
|
|||||
|
Current
Liabilities
|
|||||||
|
Trade
and other payables
|
10,919
|
7,416
|
|||||
|
Deferred
revenue
|
2,192
|
2,668
|
|||||
|
Borrowings
|
6,011
|
11,220
|
|||||
|
Other
financial liabilities
|
10,984
|
2,465
|
|||||
|
Provisions
|
141
|
193
|
|||||
|
Total
current liabilities
|
30,247
|
23,962
|
|||||
|
Non-current
liabilities
|
|||||||
|
Borrowings
|
5,471
|
3,940
|
|||||
|
Deferred
tax liabilities, net
|
4,038
|
32,551
|
|||||
|
Total
non-current liabilities
|
9,509
|
36,491
|
|||||
|
Total
liabilities
|
39,756
|
60,453
|
|||||
|
Net
assets
|
83,820
|
175,033
|
|||||
|
Equity
|
|||||||
|
Issued
capital
|
233,097
|
230,377
|
|||||
|
Reserves
|
8,393
|
1,584
|
|||||
|
Accumulated
losses
|
(157,670
|
)
|
(56,928
|
)
|
|||
|
Total
equity
|
83,820
|
175,033
|
|||||
Notes
to
the financial statements are included on pages 11 to 18
8
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the half-year ended 31 December 2006
|
Consolidated
|
|||||||||||||||||||
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
equity-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency
|
|
|
Option
|
|
|
settled
|
|
|
|||||
|
Issued
|
|
translation | premium |
benefits
|
Accumulated
|
||||||||||||||
|
capital
|
|
|
reserve
|
|
|
reserve
|
|
|
reserve
|
|
|
losses
|
|
|
Total
|
||||
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
||||||||||||||
|
Balance
at 1 July 2005
|
107,883
|
(350
|
)
|
293
|
632
|
(28,762
|
)
|
79,696
|
|||||||||||
|
Loss
for the period
|
-
|
-
|
-
|
-
|
(10,703
|
)
|
(10,703
|
)
|
|||||||||||
|
Foreign
currency translation
|
|||||||||||||||||||
|
adjustment
|
-
|
(40
|
)
|
-
|
-
|
-
|
(40
|
)
|
|||||||||||
|
Total
recognized income
|
|||||||||||||||||||
|
and
expense
|
-
|
(40
|
)
|
-
|
-
|
(10,703
|
)
|
(10,743
|
)
|
||||||||||
|
Shares
issued, net of issue costs
|
117,014
|
117,014
|
|||||||||||||||||
|
Equity
portion of convertible note
|
-
|
-
|
1,720
|
-
|
-
|
1,720
|
|||||||||||||
|
Share-based
compensation attributable
|
|||||||||||||||||||
|
to
options and warrants issued
|
-
|
-
|
759
|
785
|
-
|
1,544
|
|||||||||||||
|
Balance
at 31 December 2005
|
224,897
|
(390
|
)
|
2,772
|
1,417
|
(39,465
|
)
|
189,231
|
|||||||||||
|
Balance
at 1 July 2006
|
230,377
|
(3,024
|
)
|
2,687
|
1,921
|
(56,928
|
)
|
175,033
|
|||||||||||
|
Loss
for the period
|
-
|
-
|
-
|
-
|
(100,742
|
)
|
(100,742
|
)
|
|||||||||||
|
Foreign
currency translation
|
|||||||||||||||||||
|
adjustment
|
-
|
(7,769
|
)
|
-
|
-
|
-
|
(7,769
|
)
|
|||||||||||
|
Total
recognized income
|
|||||||||||||||||||
|
and
expense
|
-
|
(7,769
|
)
|
-
|
-
|
(100,742
|
)
|
(108,511
|
)
|
||||||||||
|
Shares
issued, net of issue
|
|||||||||||||||||||
|
costs
of $186
|
911
|
-
|
-
|
-
|
-
|
911
|
|||||||||||||
|
Warrants
issued in connection with
|
|||||||||||||||||||
|
convertible
note transactions
|
-
|
-
|
14,755
|
-
|
-
|
14,755
|
|||||||||||||
|
Conversions
of convertible notes
|
696
|
-
|
-
|
-
|
-
|
696
|
|||||||||||||
|
Share-based
compensation attributable
|
|||||||||||||||||||
|
to
nonvested ADSs, options and
|
|||||||||||||||||||
|
warrants
issued
|
1,113
|
-
|
(2
|
)
|
(175
|
)
|
-
|
936
|
|||||||||||
|
Balance
at 31 December 2006
|
233,097
|
(10,793
|
)
|
17,440
|
1,746
|
(157,670
|
)
|
83,820
|
|||||||||||
Notes
to
the financial statements are included on pages 11 to 18
9
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the half-year ended 31 December 2006
|
Consolidated
|
|
||||||
|
|
|
Half-year
|
|
Half-year
|
|
||
|
|
|
ended
|
|
ended
|
|
||
|
|
|
31
December 2006
|
|
31
December 2005
|
|
||
|
|
|
$'000
|
|
$'000
|
|||
|
Cash
flows from operating activities
|
|||||||
|
Receipts
from customers
|
526
|
-
|
|||||
|
Payments
to suppliers, employees and
|
|||||||
|
consultants
|
(8,561
|
)
|
(4,256
|
)
|
|||
|
Research
and development expenditure paid
|
(4,973
|
)
|
(5,219
|
)
|
|||
|
Interest
paid
|
(797
|
)
|
-
|
||||
|
Interest
received
|
119
|
246
|
|||||
|
Income
received in advance
|
-
|
494
|
|||||
|
Other
revenue received
|
5
|
42
|
|||||
|
Net
cash used in operating activities
|
(13,681
|
)
|
(8,693
|
)
|
|||
|
Cash
flows from investing activities
|
|||||||
|
Purchase
of property, plant and equipment
|
(69
|
)
|
(843
|
)
|
|||
|
Proceeds
from sale of property, plant and
|
|||||||
|
equipment
|
-
|
21
|
|||||
|
Net
cash paid for acquisition of business
|
-
|
(1,086
|
)
|
||||
|
Net
cash used in investing activities
|
(69
|
)
|
(1,908
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Proceeds
from issue of ordinary shares
|
|||||||
|
and
options
|
3,854
|
5,636
|
|||||
|
Payment
of share issue costs
|
(3
|
)
|
(469
|
)
|
|||
|
Proceeds
from borrowings
|
8,512
|
20,500
|
|||||
|
Payment
of finance costs
|
(4,854
|
)
|
(607
|
)
|
|||
|
Repayment
of borrowings
|
(3,274
|
)
|
-
|
||||
|
Net
cash provided by financing activities
|
4,235
|
25,060
|
|||||
|
Net
(decrease) / increase in cash and
|
|||||||
|
cash
equivalents
|
(9,515
|
)
|
14,459
|
||||
|
Cash
and cash equivalents at the
|
|||||||
|
beginning
of the half-year
|
15,447
|
12,892
|
|||||
|
Effects
of exchange rate changes on the
|
|||||||
|
balance
of cash and cash equivalents
|
|||||||
|
held
in foreign currencies
|
(552
|
)
|
332
|
||||
|
Cash
and cash equivalents at the end
|
|||||||
|
of
the half-year
|
5,380
|
27,683
|
|||||
10
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
| 1. |
Summary
of significant accounting
policies
|
Background
pSivida
Limited, or pSivida, together with its subsidiaries, referred to as the
‘Company’, ‘consolidated entity’ or the ‘Group’, is incorporated in Western
Australia and is committed to the biomedical sector and the development of
drug
delivery products initially in ophthalmology and oncology.
On
18 May
2001, pSivida re-listed on the Australian Stock Exchange (ASX Code: PSD).
pSivida’s shares are also listed on the NASDAQ Global Market under the ticker
symbol PSDV, in Germany on the Frankfurt Stock Exchange on the XETRA system
(German Symbol: PSI Securities Code (WKN) 358705), and in the United Kingdom
on
the OFEX International Market Service (IMS) under the ticker symbol
PSD.
The
interim financial report was authorized for issue by the directors on 28
February 2007.
Statement
of compliance
The
half-year financial report is a general purpose financial report prepared in
accordance with the Corporations Act 2001 and Australian Accounting Standards
Board (AASB) 134 “Interim Financial Reporting”. Compliance with AASB 134 ensures
compliance with International Accounting Standard 34 “Interim Financial
Reporting”. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles under A-IFRS have been condensed or omitted. The half-year
financial report should be read in conjunction with the annual financial report
for the year ended 30 June 2006 and any public announcements made by the Company
during the half-year in accordance with continuous disclosure requirements
arising under the Corporations Act 2001.
Basis
of preparation
The
financial report has been prepared on the basis of historical cost, except
for
derivative financial instruments which are measured at fair value. Cost is
based
on the fair values of the consideration given in exchange for assets. All
amounts are presented in Australian dollars ($), unless otherwise
noted.
In
the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the half-year ended 31 December 2006 are not necessarily
indicative of the results that may be expected for the year ending 30 June
2007.
We
are a
company of the kind referred to in ASIC Class Order 98/0100, dated 10 July
1998,
and in accordance with that Class Order amounts in the directors’ report and the
half-year financial report are rounded off to the nearest thousand dollars,
unless otherwise noted.
Significant
accounting policies
The
accounting policies and methods of computation adopted in the preparation of
the
half-year financial report are consistent with those adopted and disclosed
in
our 2006 annual financial report for the year ended 30 June 2006, other than
as
detailed below. In the current period, we have adopted all of the new and
revised standards and interpretations issued by the AASB that are relevant
to
our operations and effective for annual reporting periods beginning on or after
1 July 2006. Adoption of the new and revised standards and interpretations
have
not affected the amounts reported.
11
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
Extinguishment
and modification of debt instruments
Substantial
modifications of the terms of an existing financial liability are accounted
for
as an extinguishment of the original financial liability and the recognition
of
a new financial liability. The terms are substantially different if the
discounted present value of the cash flows under the new terms, including any
fees paid net of any fees received, and discounted using the effective interest
rate of the original financial liability, is at least 10% different from the
discounted present value of the remaining cash flows of the original financial
liability.
If
the
modification of terms is accounted for as an extinguishment, any transaction
costs or cash and non-cash fees incurred are recognized as part of the gain
or
loss on the extinguishment. If the modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying amount of the
original financial liability and are amortised over the remaining term of the
modified liability.
Going
concern basis
The
half-year financial report has been prepared on a going concern basis of
accounting, which contemplates the continuity of normal business activity,
realization of assets and settlement of liabilities in the normal course of
business.
At
31
December 2006, we had current assets of $7,805 thousand and current liabilities
of $30,247 thousand, resulting in net current liabilities of $22,442 thousand.
Current assets included $5,380 thousand of cash and cash equivalents. For the
half-year ended 31 December 2006, we incurred negative operating cash flow
of
$13,681 thousand and a net loss of $100,742 thousand.
Included
in the net loss for the half-year period were (a) intangible asset impairment
write-downs of $83,352 thousand; (b) losses on extinguishment of debt of $16,028
thousand related to modifications of an existing convertible loan agreement;
and
(c) $3,175 thousand of penalties incurred in connection with delayed
registration of our ADSs that have been issued, or are issuable, in connection
with registration rights agreements. These expenses were partially offset by
a
deferred tax benefit of $26,400 thousand primarily attributable to the asset
impairment write-downs. This deferred tax benefit resulted from the reversal
of
deferred tax liabilities related to intangible assets that were recorded through
purchase accounting.
The
Directors anticipate that the Company will require substantial additional cash
resources not only to conduct its operations and develop its products, but
also
to service its existing borrowing arrangements (assuming that the existing
convertible note holders do not exercise their conversion rights).
Having
regard to these matters, the Directors are nonetheless of the opinion that
the
going concern basis upon which the financial report is prepared continues to
be
appropriate for the following reasons:
| (i) | on 22 February 2007 we consummated a private placement sale of 50,044,132 fully paid ordinary shares to Australian, European and U.S. investors at $0.23 per share to raise $11,510 thousand (US$9,092 thousand) before costs. As a result of this additional funding, we believe that we have met the conditions for permanent release from the cash balance requirements associated with our initial convertible note, as amended. |
12
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
| (ii) |
on
29 December 2006 we closed a further amendment of our initial convertible
note as further described in Note 4, the terms of which included
(a)
capitalization of interest due; (b) elimination of the minimum cash
requirement debt covenant for a period of up to three months; and
(c)
deferral of a scheduled payment of US$800 thousand ($1,000 thousand)
for a
period of up to three months.
|
| (iii) |
the
Directors believe that the Company has the capacity to raise additional
funding either through the issuance of additional equity or new debt
securities to third parties, a combination of debt and equity or
collaboration agreements with third parties who are evaluating our
drug
delivery technologies; and
|
| (iv) |
in
the event of a future default under the terms of our initial convertible
note, as amended, the Directors believe that the Company will be
able to
reach agreement on further revisions to the terms of the convertible
note
without the debt being called.
|
Notwithstanding
the Directors’ expectations noted above, there is material uncertainty that the
Company will be able to continue as a going concern. Should the Company not
continue as a going concern and pay its debts as and when they fall due, we
may
be unable to realise our assets and discharge our liabilities in the normal
course of business and at the amounts stated in our financial
statements.
These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and
classification of liabilities that may be necessary should we be unable to
continue as a going concern.
Comparative
Information
Where
necessary, comparatives have been reclassified and repositioned for consistency
with current year presentation.
| 2. |
Segment
information
|
Business
segment - primary segment
The
consolidated entity operates in only one business segment, being the
biotechnology sector.
13
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
|
3.
|
Impairment
of assets
|
During
the half-year period, our market capitalization decreased to a level
substantially below the carrying value of our net assets at 31 December 2006.
Also, during December 2006, in response to a need to conserve cash, we
implemented certain cost reduction measures. One impact of these measures was
a
delay in the time period during which we believe certain BrachySil™ product
candidates will be approved and begin generating sales. Additionally, during
December 2006, our assessment of the probable level of future sales of our
Retisert® product decreased as a result of information provided by a third
party. In accordance with AASB 136, “Impairment of Assets” (AASB 136), these
events were indicators of potential asset impairment that required us to compare
the carrying value of each of our respective intangible assets, including
goodwill, to their estimated recoverable amounts.
Our
significant intangible assets at 31 December 2006 that were subjected to
impairment analysis consisted of the following:
| ● |
Patents
and licenses related to our BioSilicon™ technology, for which there are
currently no marketed products;
|
| ● |
Patents
related to our Retisert® product, which is marketed by our licensee and
for which we receive sales-based royalty
payments;
|
| ● |
In-process
research and development (IPR&D) related to the ongoing Phase III
clinical trials of our Medidur™ for diabetic macular edema (DME) product
candidate; and
|
| ● |
IPR&D
related to early stage clinical trials of our BrachySil™ product
candidates, which utilize our patented BioSilicon™
technology.
|
AASB
136
defines the recoverable amount as the higher of “fair value less costs to sell”
and “value in use”. We evaluated the recoverable amounts of the above intangible
assets as the “fair value less costs to sell”. Based upon the extended period of
time expected before the commencement of cash inflows of its product candidates,
the Company determined that this measurement approach would result in larger
recoverable amounts than could be expected by using the “value in use”
measurement criteria. We estimated costs to sell at 5% of asset fair value
on
the basis that for assets of an intangible nature the primary cost would be
a
commission for brokering a sale.
We
estimated the future net after-tax cash flows, net of direct costs, of each
intangible asset over its expected economic useful life from the measurement
date. In preparing the estimated cash flows, we took into account various
factors, including:
| (i) |
recent
discussions with our licensee and the likelihood that our next generation
Medidur™ for DME product technology would, if approved, impact future
levels of Retisert® sales;
|
| (ii) |
recent
progress of our ongoing clinical trials and the estimated period
of time
until completion and potential regulatory
approvals;
|
| (iii) |
known
or anticipated competitive
products;
|
| (iv) |
projected
market size, assumed market penetration and growth
rates
|
14
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
We
then
determined nominal after-tax discount rates that we believed would be
appropriate to value the estimated after-tax net cash flows of the individual
intangible assets. In our assessment of an appropriate cost of equity for the
Company, we applied a risk-free rate of return of 4.7%, a beta of approximately
2.1% and an estimated market risk premium (the additional return that investors
historically expect for holding a well-diversified portfolio of risky assets)
of
6%. Additional premiums were then applied to take account of perceived risk
profiles and market prospects attributable to each of the intangible
assets.
The
results of our impairment analysis are summarized in the following
table:
|
|
|
|
|
|
|
Asset
|
|
|
|
|||||||
|
|
|
|
|
Discount
|
|
Estimated
|
|
Carrying
|
|
|
|
|||||
|
|
|
Asset
|
|
Rate
|
|
Recoverable
|
|
Value
|
|
Impairment
|
|
|||||
|
Intangible
Asset
|
|
Classification
|
|
Used
|
|
Amount
|
|
31-Dec-06
|
|
Write-down
|
||||||
|
$'000
|
|
$'000
|
|
$'000
|
||||||||||||
|
Retisert
|
Patents
|
22.5%
|
23,870
|
74,772
|
(50,902
|
)
|
||||||||||
|
Medidur
for DME
|
IPR&D
|
27.5%
|
152,174
|
31,619
|
-
|
|||||||||||
|
BrachySil
|
Patents
|
37.5%
|
7,692
|
38,064
|
(30,372
|
)
|
||||||||||
|
BrachySil
|
IPR&D
|
37.5%
|
-
|
2,078
|
(2,078
|
)
|
||||||||||
|
(83,352
|
)
|
|||||||||||||||
For
goodwill impairment analysis purposes, we have identified the Group as the
single Cash Generating Unit (CGU). We estimated the incremental future net
after-tax cash outflows of the Group that were not directly associated with
the
individual intangible assets analyzed above and applied a discount rate of
17.5%
to value the Group’s aggregate net after-tax cash flows. After reducing the
carrying value of our individual intangible assets for the impairment
write-downs, we concluded that the estimated recoverable amount of the CGU
exceeded our consolidated net assets, resulting in no impairment of
goodwill.
| 4. |
Modification
and extinguishment of debt
instruments
|
On
14
September 2006, we closed an agreement revising the terms of the subordinated
convertible promissory note that was issued on 16 November 2005 to an
institutional investor (the Amended Note). The Amended Note continues to have
a
three-year term and to bear 8% interest payable quarterly in arrears in cash
or,
under certain conditions, at our option, in the form of our NASDAQ-listed
American Depositary Shares (ADSs). The terms of the Amended Note included an
adjusted conversion price of US$2.00 per ADS, subject to further adjustment
based upon certain events or circumstances, including, without limitation,
if
108% of the market price of our ADSs for the ten trading days prior to 30 April
2007 is lower than the then current conversion price. The investor’s optional
redemption rights under the original note were replaced by unilateral redemption
rights for up to 50% of the Amended Note principal at 31 July 2007 and 31
January 2008. In connection with the amendment, we repaid US$2,500 thousand
($3,300 thousand) of the outstanding note principal and agreed to pay US$1,000
thousand ($1,300 thousand) in related penalties, which were paid on 14 September
2006. The investor retained its existing warrants to purchase 633,803 additional
ADSs, exercisable for six years at a current exercise price of US$7.17 per
ADS.
In connection with the amendment, the investor extended the deadline for the
registration statement required by the registration rights agreement to be
declared effective by the Securities and Exchange Commission (SEC) through
15
October 2006, with increased penalties if that deadline were missed. Our
registration statement was declared effective on 29 September 2006. We were
also
released from restrictions on future fundraising transactions contained in
the
original note documentation. We also granted the investor Series A warrants
to
purchase 5,700 thousand ADSs exercisable for five years with an exercise price
of US$1.80 per ADS, a security interest in our current royalties, subject to
release of that security upon any disposition by us of the royalty stream,
and a
guaranty by our U.S. subsidiary, pSivida Inc.
15
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
The
present value of the future cash flows of the Amended Note, including the
US$1,000 thousand of cash fees paid and the value of the Series A warrants
granted, was determined to be substantially different compared to the future
cash flows under the original note terms, both discounted using the effective
interest rate determined under the original note. We recorded a loss on
extinguishment of debt of $11,902 thousand during the half-year period, which
represented the difference between the carrying amount of the original debt
instrument and the consideration paid, including the value of the Series A
warrants. The Amended Note, embedded derivatives and the Series A warrants
were
valued using a Binomial Tree Model.
On
17
October 2006, we signed a letter agreement with the investor further revising
the terms of the Amended Note. Pursuant to that letter agreement, we were
released until 30 March 2007 from the requirement to maintain a net cash balance
in excess of 30% of the outstanding principal amount of the Amended Note and
instead the net cash balance required to be held by us through that date was
reduced to US$1,500 thousand ($2,100 thousand). The investor further waived
any
default that would otherwise have resulted from the unavailability of our resale
prospectus until we filed with the SEC our fiscal 2006 audited financial
statements reconciled to accounting principles generally accepted in the United
States of America. We filed those financial statements with the SEC on 31
October 2006, thus satisfying the condition in the agreement. In exchange for
the foregoing, we agreed to make (i) a one-time payment to the investor of
US$800 thousand ($1,000 thousand) on 28 December 2006 in satisfaction of
registration rights penalties specified under the terms of the 14 September
2006
amendment agreement; and (ii) three payments of US$150 thousand ($205 thousand)
on 31 January 2007, 28 February 2007 and 30 March 2007.
The
present value of the future cash flows of the Amended Note, as further modified,
was determined not to be substantially different compared to the future cash
flows of the original Amended Note, both discounted using the effective interest
rate as determined under the Amended Note dated 14 September 2006. Accordingly,
the US$450 thousand ($615 thousand) of cash fees and the transaction costs
directly related to the 17 October 2006 letter agreement reduced the carrying
amount of the Amended Note, subject to amortization over the remaining term
at
an adjusted effective interest rate.
On
29
December 2006, we entered into a further amendment agreement with the investor
revising the Amended Note (the Second Amended Note), pursuant to which the
investor agreed to a general forbearance with respect to any defaults through
31
March 2007 or such earlier date as defined in the amendment agreement, including
the following:
| · |
The
investor agreed to allow us to transfer or grant security interests
in
certain of our assets which would be necessary if we were to complete
a
pending transaction;
|
| · |
The
investor agreed to forego the cash interest payment due on 2 January
2007
in favor of adding approximately US$306 thousand ($388 thousand)
to the
outstanding principal amount of the convertible note, which amount
represented the value of the ADSs which we would have issued to satisfy
the payment had we met certain conditions allowing us to pay the
interest
with ADSs;
|
| · |
The
investor agreed to defer our scheduled payment of US$800 thousand
($1,000
thousand);
|
| · |
The
investor agreed to forgive US$770 thousand ($973 thousand) of pending
registration delay penalties;
|
| · |
The
investor agreed to amend the debt covenants to release us from the
obligation to satisfy a minimum cash balance test of 30% of the
outstanding note principal; and
|
16
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
| · |
The
investor agreed that we would have until ten days after such earlier
date
to file a registration statement with respect to securities issuable
on
exercise of the investor’s Series A
warrants.
|
In
return
for the foregoing, we issued to the investor Series C warrants to purchase
1,500
thousand ADSs over five years with an exercise price of US$2.00 per ADS and
agreed, upon receipt of required approvals, including shareholder approval,
and
satisfaction of other closing conditions, as defined, to issue additional Series
D warrants to purchase four million ADSs over five years with an exercise price
of US$2.00, subject to a potential upward adjustment in the number of warrants,
as defined.
The
present value of the future cash flows of the Second Amended Note, including
the
value of the Series C warrants issued, were determined to be substantially
different compared to the future cash flows of the Amended Note, both discounted
using the effective interest rate as determined under the original Amended
Note.
We recorded a loss on extinguishment of debt of $4,126 thousand for the
half-year period, which represented the difference between the carrying amount
of the Amended Note instrument and the consideration paid, including the value
of the Series C warrants.
| 5. |
Issuance
of securities
|
On
26
September 2006, we issued new subordinated promissory notes in the principal
amount of US$6,500 thousand ($8,500 thousand) to other institutional investors.
The notes are convertible into our ADSs at a conversion price of US$2.00 per
ADS, subject to adjustment based upon certain events or circumstances,
including, without limitation, if 108% of the market price of our ADSs for
the
ten trading days prior to 30 April 2007 is lower than the then current
conversion price. The notes mature in three years and bear 8% interest payable
quarterly in arrears in cash or, under certain circumstances, at our option,
in
ADSs at an 8% discount to the 10-day volume-weighted-average closing price.
We
also issued detachable warrants to purchase 2,925 thousand ADSs at an exercise
price of US$2.00 per ADS and a term of five years. Under certain conditions,
the
investors have optional redemption rights to require us to repay 50% of the
original principal of the notes at 14 August 2008 and 14 February 2009;
provided, however, that each such redemption right is contingent on our initial
convertible note dated 16 November 2005, as amended, having been paid in full
as
of such redemption date. We may redeem the notes at any time by payment of
108%
of the face value and may force conversion if our ADS price remains above two
times the then current note conversion price for a set period of 25 days. The
convertible notes, embedded derivatives and warrants were valued using a
Binomial Tree Model.
In
November 2006 certain holders of our convertible notes exercised their rights
to
convert US$531 thousand ($727 thousand) of the remaining principal amount of,
and US$4 thousand ($6 thousand) of associated interest on, the notes into 2,675
thousand ordinary shares.
In
December 2006, we issued 14,330,768 fully paid ordinary shares to Australian
and
European investors at $0.26 each (US$2.00 ADR equivalent) to raise US$2,940
thousand ($3,726 thousand) before costs. Each share was purchased along with
options to purchase two additional shares exercisable for four years at $0.26
per share. To the extent that the exercise of these options would result in
a
variable amount of United States dollars (pSivida Limited’s functional
currency), the value of the options is treated as a derivative liability and
re-valued at each reporting period date. At 31 December 2006, the option value
of $2,622 thousand was included in other financial liabilities in the
accompanying condensed consolidated balance sheet.
17
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
for
the half-year ended 31 December 2006
| 6. |
Contingencies
|
There
are
no material contingencies at 31 December 2006.
| 7. |
Subsequent
events
|
On
9
January 2007, we entered into a drug delivery licensing agreement with a U.S.
research company to develop our proprietary Durasert™, Zanisert™ and CODRUG™
drug delivery technologies for infectious diseases and diseases of the ear.
Under the terms of the license, the research company receives exclusive rights
to our technologies for diseases of the ear and for five specific infectious
diseases, namely malaria, HIV/AIDS, influenza, tuberculosis, and osteomyelitis.
All costs of development will be borne by the research company and we will
be
entitled to receive royalties and milestone payments. In addition, we granted
the research company co-exclusive rights to the Durasert™, Zanisert™ and CODRUG™
drug delivery technologies for other infectious diseases. Under this arrangement
either company can elect to convert their co-exclusive rights to exclusive
rights for a specific infectious disease indication.
On
24
January 2007, we announced the retirement of Dr. Roger Brimblecombe as our
Acting CEO and Executive Chairman of the Board of Directors and, concurrently,
the appointments of Dr. Paul Ashton as our Managing Director and Dr. David
J.
Mazzo as our Non-executive Chairman of the Board of Directors.
On
29
January 2007, we announced that Retisert® was allocated a product-specific
reimbursement code by the Center for Medicare Services (CMS) in the United
States. The new code replaced the prior hospital outpatient code. CMS also
published a payment rate for the code of US$19,345, or 106%, of the average
sales price for the product. The new code and the Medicare payment rate are
effective as of 1 January 2007. Private issuers may pay at different rates
than
Medicare.
On
22
February 2007, we issued
50,044,132 ordinary shares to Australian, European and U.S. investors at $0.23
per share for total proceeds of $11,510 thousand (US$9,092 thousand) before
costs. Each ordinary share was purchased along with options
to purchase two additional shares exercisable for four years at
an
exercise price of $0.23 per share. As a result of this additional funding,
we
believe that we have met the conditions for permanent release from the cash
balance requirements associated with our initial convertible note, as amended.
In addition, the pricing of these units has triggered an adjustment of the
conversion price for our outstanding convertible notes from US$2.00 per ADS
to
the current rate of US$1.62 per ADS.
18
DIRECTORS’
DECLARATION
The
directors declare that:
| a) |
in
the directors’ opinion, there are reasonable grounds to believe that the
disclosing entity will be able to pay its debts as and when they
become
due and payable; and
|
| b) |
in
the directors’ opinion, the attached financial statements and notes
thereto are in accordance with the Corporations Act 2001, including
compliance with accounting standards and giving a true and fair view
of
the financial position and performance of the consolidated
entity.
|
Signed
in
accordance with a resolution of the directors, made pursuant to s 303(5) of
the
Corporations Act 2001.
On
behalf
of the Directors
Paul
Ashton, Managing Director
Watertown,
Massachusetts, USA
28
February 2007
19