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Filing
10KSB
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
one)
|
|
[X]
|
Annual
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the Fiscal Year December 31, 2004, or | |
[
]
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
Commission
file number: 001-32157
ADVENTRX
PHARMACEUTICALS, INC.
(Name of
Small Business Issuer in its charter)
Delaware |
84-1318182 |
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.) |
6725
Mesa Ridge Road, Suite 100, San Diego, California
92121 | |
(Address
of principal executive offices)
| |
(858)
552-0866
(Issuer’s
telephone number, including area code)
|
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.001 per share
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
No [
]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to
the best of issuer’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer’s revenues for its most recent fiscal year: $103,042
The aggregate market value of the Common Stock held by non-affiliates of the
issuer, as of March 28, 2004 was approximately $53,056,708 based upon the
closing price of the issuer’s Common Stock reported for such date on the
American Stock Exchange. For purposes of this disclosure, shares of Common
Stock held by persons who the issuer believes beneficially own more than 5% of
the outstanding shares of Common Stock and shares held by officers and directors
of the issuer have been excluded because such persons may be deemed to be
affiliates of the issuer. This determination is not necessarily
conclusive.
As
of March 28, 2004, 53,811,072 shares of the issuer’s Common Stock were
outstanding.
Portions
of the definitive Proxy Statement to be delivered to stockholders in connection
with the 2005 Annual Meeting of Stockholders to be held May 24, 2005 are
incorporated by reference into Part III.
Certain
exhibits filed with the registrant’s prior forms 10-K and forms 10-Q are
incorporated herein by reference into Part IV of this Report.
TABLE
OF CONTENTS
Part
I | ||
|
|
Page |
Item
1. |
Description
of Business |
1 |
Item
2. |
Description
of Property |
13 |
Item
3. |
Legal
Proceedings |
13 |
Item
4. |
Submission
of Matters to a Vote of Security Holders |
14 |
Part
II | ||
Item
5. |
Market
For Common Equity and Related Stockholder Matters |
14 |
Item
6. |
Plan
of Operations |
15 |
Item
7. |
Financial
Statements |
25 |
Item
8. |
Change
in and Disagreements With Accountants on Accounting and Financial
Disclosure |
25 |
Item
8A. |
Controls
and Procedures |
25 |
Part
III | ||
Item
9. |
Director,
Executive Officers, Promoters and Control Persons; Compliance With Section
16(a) of the Exchange Act |
27 |
Item
10. |
Executive
Compensation |
30 |
Item
11. |
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
30 |
Item
12. |
Certain
Relationships and Related Transactions |
30 |
Item
13. |
Exhibits |
30 |
Item
14. |
Principal
Accountant Fees and Services. |
34 |
PART
I
This
Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
include, without limitation, statements about the market for our technology, our
strategy, competition, expected financial performance and other aspects of our
business identified in this Annual Report, as well as other reports that we file
from time to time with the Securities and Exchange Commission. Any
statements about our business, financial results, financial condition and
operations contained in this Annual Report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words “believes,” “anticipates,” “expects,” “intends,”
“projects,” or similar expressions are intended to identify forward-looking
statements. Our actual results could differ materially from those
expressed or implied by these forward-looking statements as a result of various
factors, including the risk factors described in Part II., Item 6, “Plan of
Operation—Risk Factors,” and elsewhere in this report. We undertake no
obligation to update publicly any forward-looking statements for any reason,
except as required by law, even as new information becomes available or other
events occur in the future
CoFactor™,
SeloneÔ,
ThiovirÔ,
EradicAideÔ,
BlockAide/CR™ and
BlockAide/VP™ are our trademarks. Product names, trade names and trademarks of
other entities are also referred to in this report.
Item
1. Description of Business.
In this
report, the terms “ADVENTRX,” “Company,” “we,” “us” and “our” refer to ADVENTRX
Pharmaceuticals, Inc. The term “Common Stock” refers to our Common Stock,
par value $0.001 per share.
Business
Development
We
organized as a corporation under the Delaware General Corporation Law in
December 1995.
On May
30, 2003, we merged our wholly owned subsidiary, Biokeys, Inc., into itself and
changed our name from Biokeys Pharmaceuticals, Inc. to ADVENTRX Pharmaceuticals,
Inc. The merger had no effect on our financial statements.
In July
2004, we formed a wholly owned subsidiary, ADVENTRX (Europe) Ltd., in the United
Kingdom for the purpose of conducting clinical trials in the European Union.
Business
of Issuer
We are
a
biopharmaceutical research and development company focused on introducing new
technologies for anticancer and antiviral treatments that improve the
performance of existing drugs and address significant problems such as drug
metabolism, bioavailability and resistance. Our business is in the development
stage; we have not generated any significant revenues and we have not yet
marketed any products.
1
Principal
Products
General
information regarding each of the products currently in our pipeline is listed
below.
Product/Description |
Development
Stage |
Indication |
Intellectual
Property | |||
CoFactor™
5-FU
Biomodulator
|
Phase
I/II trials completed in Europe
|
Metastatic
GI and Breast cancers
|
Exclusive
license to use patents and other intellectual property from the University
of Southern California (“USC”). | |||
Phase
II first-line U.S. trial began
in Q1 2004. Patient enrollment complete Q1 2005 |
Metastatic
Colorectal
Cancer |
|||||
Filed
in U.S. for Phase III first- line randomized controlled trial in
Q1 2005 |
Metastatic
Colorectal
Cancer |
|||||
Filed
in the UK for Phase IIb first-line randomized controlled trial in Q1 2005
|
Metastatic
Colorectal
Cancer |
|||||
Plan
to file in EU for Phase III trial in 1H 2005 |
Metastatic
Pancreatic Cancer |
|||||
Selone™
Alkylating
Agent |
Preclinical |
Drug
Resistant Cancers |
Exclusive
license to use patents and other intellectual property from
USC. | |||
Thiovir™
Pyrophosphate
Analogue |
Preclinical
|
HIV/AIDS |
Exclusive
license to use patents and other intellectual property from
USC. | |||
EradicAide™
Therapeutic
Vaccine
|
Preclinical
|
HIV/AIDS
|
Exclusive
license to use patents and other intellectual property from MD
Anderson. | |||
BlockAide/CR™
Viral
Entry Inhibitor
|
Preclinical
|
HIV/AIDS
|
Exclusive
license to use patents and other intellectual property from the University
of Texas MD Anderson Cancer Center (“MD Anderson”) and the National
Institutes of Health (“NIH”). | |||
BlockAide/VP™
Viral
Entry Inhibitor
|
Preclinical
|
HIV/AIDS
|
Exclusive
license to use patents and other intellectual property from MD Anderson
and NIH. |
CoFactor
CoFactor™
is a folate-based biomodulator drug developed to enhance the activity of the
widely used cancer chemotherapeutic, 5-fluorouracil (5-FU). CoFactor enhances
5-FU activity to block cancer cell growth by creating more stable binding of the
target enzyme, thymidylate synthase (TS), compared to leucovorin, which is the
currently approved folate on the market. CoFactor bypasses the chemical
pathway required by leucovorin to deliver the active form of folate to allow
5-FU to work more effectively. This improves 5-FU performance and lowers
toxicity. Data from previous clinical trials in Europe demonstrated
clinical benefit and improved overall median survival in patients with advanced
cancer tumors, including colorectal, pancreatic, stomach and breast cancer.
We have
an exclusive
license from the University of Southern California to develop and commercialize
CoFactor.
2
In Q1
2004, we launched a Phase II Simon two-stage clinical trial using CoFactor with
5-FU in metastatic colorectal cancer patients in the US and in Q2 2004, we
expanded the trial by including clinical sites in Europe under the same
Investigational New Drug (“IND”) application we filed in the United States. In
Q4 2004, the FDA granted allowance to begin recruiting patients for the second
stage of our Phase II trial of CoFactor to treat metastatic colorectal cancer
patients. In Q1 2005, we completed patient enrollment and met the primary
endpoint for response rate in this trial.
In Q4
2004, we announced that CoFactor received orphan drug status in the EU and US
for pancreatic cancer. In the US, orphan drug status is available for products
to treat diseases that affect fewer than 200,000 people in the US and provides
for tax incentives for clinical development of CoFactor trials conducted in the
US and seven years of market exclusivity following drug approval. In the EU,
orphan medicines are defined as those drugs for treating life threatening
medical conditions that affect fewer than 5 out of every 10,000 people in the
EU. EU orphan status provides incentives, such as reduced fees for protocol
assistance and scientific advice and ten years of marketing exclusivity
following drug approval.
We
announced results of CoFactor preclinical studies at three oncology conferences
in 2004. At the American Society of Clinical Oncology 40th Annual Meeting in
June, we presented encouraging data from a xenograft mouse model for colorectal
cancer comparing combination treatments of CoFactor/5-FU and an antibody against
VEGF (vascular endothelial growth factor) with CoFactor/5-FU, leucovorin/5-FU
and 5-FU alone. The results were the first to suggest that treatment with
CoFactor/antiVEGF/5-FU might have utility as a colorectal tumor therapy with
greater antitumor activity than standard 5-FU therapies. In June at the American
Association for Cancer Research (AACR) Pancreatic Advances and Challenges
Conference in San Francisco, we presented a poster showing significant tumor
inhibition in mice treated with CoFactor/5-FU but not leucovorin/5-FU. Combining
anti-VEGF with CoFactor/5-FU resulted in the greatest tumor inhibition compared
to all other treatment groups, including those with or without anti-VEGF.
Likewise, CoFactor/anti-VEGF/5-FU treated mice had significantly greater
survival compared to other treatment groups including mice treated with
combination leucovorin/anti-VEGF/5-FU. In September, at the 16th EORTC/NCI-AACR
Symposium on Molecular Targets and Cancer Therapeutics in Geneva, Switzerland,
we presented a poster showing data from a preclinical study in which
CoFactor/5-FU showed significantly lowered toxicity than the leucovorin/5-FU or
5-FU alone treated groups, without concomitant loss of antitumor
activity.
In Q1
2005 we filed for clearance with the U.S. Food and Drug Administration (FDA) to
launch a Phase III randomized controlled trial in metastatic colorectal cancer.
Additionally, we filed Clinical Trial Applications in the European Union (EU),
including the United Kingdom and Germany, and in countries outside the EU for
clearance to evaluate CoFactor in a Phase IIb, international, multi-center,
randomized, controlled trial for metastatic colorectal cancer. We plan to submit
a Clinical Trial Application in Europe to conduct a Phase III study using
CoFactor in patients with advanced pancreatic cancer in 1H 2005 based on
a final advice letter from the EMEA.
Selone
Selone™
is a compound in a class of drugs known as organoselenones, consisting of
carbon, oxygen and selenium. Selone and its
analogues are effective, at even relatively low concentrations, against human
ovarian, breast, lung and head/neck cancers, and against leukemias and
lymphomas, based upon current in vitro screening methods. Their potency is
high for their rate of alkylating activity, suggesting an increased specificity
of action. Preclinical efforts have demonstrated effectiveness of Selone
in treatment of leukemia in mice at doses predicted to easily achieve effective
blood concentrations, as well as in a variety of human tumor cell lines in
laboratory testing. We intend to undertake further preclinical testing of
Selone during 2005 in order to determine the potential for this drug to be moved
into human testing in the future. We have
an exclusive
license from the University of Southern California to develop and commercialize
Selone.
Thiovir
Thiovir™, and
other Thiovir-analogues under development, are parts of a class of compounds
known as thiophosphonoformates, which have demonstrated powerful antiviral
properties. Thiovir was designed as an oral replacement for the
IV-administered antiviral drug, foscarnet, which is FDA-approved for treatment
of cytomegalovirus (CMV) infection in HIV patients. We have an
exclusive
license from the University of Southern California to develop and commercialize
Thiovir.
3
Although
foscarnet is an effective, broad-spectrum antiviral, it has limitations from a
commercial perspective. Foscarnet is a small molecule with a parent
structure that restricts modification which could lead to improved oral
bioavailability or effectiveness. We believe that Thiovir can serve as an
effective oral replacement for foscarnet as part of HAART therapy where
foscarnet is not currently used since it is difficult to administer.
Thiovir is a NNRTI (non nucleoside reverse transcriptase inhibitor), which we
believe can be used with NRTIs (nucleoside reverse transcriptase inhibitors) and
protease inhibitors. Thiovir has a different mode of action toward HIV,
which is complimentary to NRTIs and protease inhibitors, with the added benefit
of effectiveness against CMV and HSV-6-8, associated with Kaposi’s
sarcoma. Preclinical studies on human cells have demonstrated that Thiovir
is equivalent to foscarnet as a reverse transcriptase inhibitor and has a dosage
profile similar to foscarnet to direct HIV inhibition, with lower toxicity
toward human DNA.
EradicAide
EradicAide™ vaccine
technology is based upon a cell-mediated immunity approach to controlling HIV,
by stimulating disease-fighting cells, called killer-T cells (cytotoxic T cells)
whose function it is to clear HIV infected cells. We have an exclusive
license from MD Anderson to develop and commercialize EradicAide.
EradicAide
is a therapeutic vaccine designed to not stimulate the production of antibodies,
which have been shown to enhance HIV infection in studies designed to observe
how HIV spreads. We are the
exclusive licensee of this compound. EradicAide is being studied in preclinical
assay systems for its ability to inhibit the spread of HIV. At this time, we are
testing different adjuvants for optimization of the EradicAide
vaccine.
BlockAide/CR
BlockAide/CR&#-3884;
is a peptide-based drug that is intended to work by blocking viral entry and
infection of human immune system cells. We have an exclusive license from MD
Anderson and the NIH to develop and commercialize BlockAide/CR. BlockAide/CR is
being studied in preclinical assays for its ability to inhibit HIV entry into
immune system cells. We have decided to postpone the initiation of a Phase I
clinical trial, for which BlockAide/CR was cleared in Q2 2004, in order to
assess the market feasibility of an oral or IV formulation of this drug.
BlockAide/VP
BlockAide/VP™
is an HIV viral entry inhibitor that mimics a section of the CD4 receptor on
human immune system cells. When BlockAide/VP comes into contact with the
gp120 protein present on the surface of HIV, it appears to cause a change in the
protein-folding configuration of gp120, rendering the gp120 unable to initiate
the infection process that requires it to bind to the CD4 receptor. Early
in
vitro tests
indicate that HIV virus exposed to human immune system cells, with the
BlockAide/VP compound present, are unable to bind to and infect such cells.
BlockAide/VP remains in preclinical development. We have
an exclusive
license from MD Anderson and the NIH to develop and commercialize
BlockAide/VP.
Markets
for our Products
Cancer
Chemotherapy Market
On a
worldwide basis, cancer killed over 6 million people in 2003, according to
statistics published by the World Health Organization. After
cardiovascular disease, cancer is the second most frequent cause of death in
developing countries, accounting for 21% of all deaths. In the U.S.,
cancer is responsible for approximately 23% of all deaths according to recent
statistics. The American Cancer Society estimates that more than 1.3 million new
cases of cancer were diagnosed in the U.S. and over 563,000 people died due to
cancer in 2004.
4
Treatment
choices for the cancer patient depend on the stage of the cancerous tumor, and
whether and/or how far the cancer has spread. Treatment options include
surgery, radiation, chemotherapy, hormone therapy and immunotherapy.
Treatment of cancer with chemicals is referred to as chemotherapy, which
represents a current market in the U.S. of approximately $9 billion ($15 billion
worldwide) per year, according to Frost & Sullivan Market Research and IMS
Market Research.
Chemotherapy
is highly individualized, depending on the type of disease and its progression,
the action of the agents used, and the side effects in the patient, and may be
used alone or in combination with other cancer therapies, such as surgery or
radiation. Most chemotherapy drugs are chemical agents that are extremely
toxic, are generally not curative, and historically achieve poor results in
extending patient survival. The antimetabolite, 5-FU (5-fluorouracil) is a
widely used chemotherapeutic. Primary use of 5-FU includes treatment of
colorectal, breast, gastric and hepatic cancers. 5-FU is sometimes used to
treat other cancers, such as ovarian, pancreatic, prostate, bladder, cervical
and head and neck cancers.
Chemotherapy
regimens for diseases such as metastatic colorectal cancer now include the
addition of toxic agents, such as CamptosarTM (CPT-11,
irinotecan) and Eloxatin® (oxaliplatin), to 5-FU and the drug Leucovorin.
Newer, less toxic drugs, such as Erbitux™ (cetuximab) and Avastin™ (bevacizumab)
are also added to 5-FU and Leucovorin.
In order
for 5-FU to work more effectively, the folate-based compound Leucovorin, is
often administered to the cancer patient. However, Leucovorin is inactive
directly and must undergo several metabolic steps. Leucovorin has been shown to
be only modestly effective when used with 5-FU in improving clinical outcomes in
cancer patients.
Our drug,
CoFactor, bypasses the chemical pathway required for Leucovorin metabolism. This
biochemical strategy delivers the correct form of folate that allows 5-FU to
kill cancer cells more effectively. We believe that our understanding of
the biochemistry of folate metabolism and 5-FU-based therapies will overcome the
limitations of Leucovorin and lead to developments that will increase patient
survival, while reducing side effects and improving the quality of life of
patients on chemotherapy.
We
believe that the market potential for CoFactor is related to the broad use of
Leucovorin in 5-FU-based cancer therapies. According to the NDTI database from
IMS Health, in 2003 in the U.S. there were 490,000 patient visits for
leucovorian therapy for colorectal cancer in the U.S. This prescription level is
significantly larger than that of most other anticancer drugs used to treat
colorectal cancer. We believe that if CoFactor shows improved clinical benefit
and patient survival, it may be widely used as a replacement for Leucovorin in
5-FU based cancer therapies.
Selone,
which functions in part as an alkylating agent against cancer cell lines that
exhibit drug resistance to currently available alkylating and platinating
agents, may serve as a useful new anticancer drug. Alkylating agents as a
class are the most broadly used anticancer agents in the world, collectively
surpassing the use of 5-FU as single agent. In recent years, they have
been used increasingly in dose intensification strategies, such as bone marrow
transplant, and have exhibited further promise when used with the thiophosphate
protection agents. Approximately one-half of all cancers can become
resistant to treatment with current chemotherapy products. Accordingly, we
believe there is great potential for new products, such as Selone, that address
drug resistance in cancer therapy.
HIV
Drug Therapy Market
The World
Health Organization and the Centers for Disease Control report that there are
1.5 million HIV positive individuals in the U.S. and Europe where the vast
majority of HIV drugs are used. According to a report by the United
Nations Program on HIV/AIDS (UNAIDS), more than 42 million adults and children
in the world are living with HIV and there are thousands of new infections each
day.
5
Significant
advancements have been made in the treatment of asymptomatic HIV positive
patients with HAART treatment (highly active antiretroviral therapy) consisting
of a three or four drug “cocktail” that can reduce HIV viral load to below
“detectable levels.” However, studies have shown that poor patient
treatment compliance, due to toxic side effects, number of pills and cost, will
continue to cause problems of viral resistance, rendering many drugs
ineffective. HIV has the ability to mutate into forms that are resistant to
drug treatments. No one combination of drugs is effective for all patients and
therapies are
continually modified based upon patient progress.
According
to Datamonitor, the global commercial market for HIV treatments is worth about
$6 billion and is expected to grow to almost $12 billion by 2012. The current
HIV market consists of 5
different classes of drugs: nucleoside reverse transcriptase inhibitors (NRTI),
non-nucleoside reverse transcriptase inhibitors (NNRTI), nucleotide reverse
transcriptase inhibitors (NtRTIs) and protease inhibitors (PI), which are dosed
orally in various forms, as well as one entry inhibitor, which was approved in
March 2003 and is dosed by injection.
We
believe that new options are needed in the fight against HIV/AIDS, including
therapies that would be complementary to current and future approved drugs. We
are exploring Thiovir, EradicAide, BlockAide/CR and BlockAide/VP to address this
need.
Marketing,
Distribution and Sales
We have
not received the necessary regulatory approval from the FDA or any other similar
government agency to commercially market, distribute or sell any of our
products. We presently have a Vice President of Business Development and a
Director of Marketing with experience and background in biotechnical business
development and marketing functions. If we approach the point at which we
anticipate receiving regulatory approval to commercially market, distribute or
sell any of our products, we will likely arrange with third parties, such as
pharmaceutical companies, to market, distribute and sell our products.
While we have held preliminary discussions on a number of occasions with
potential commercialization and marketing partners, we have not yet entered into
any binding agreements regarding the commercialization or marketing of any of
our products.
Manufacturing
We do not
have our own manufacturing facilities, and do not currently intend to establish
them. We contract with outside manufacturers in order to produce our
clinical trial materials. Merck Eprova AG, of Schaffhausen, Switzerland,
currently produces CoFactor for our clinical trial requirements on a purchase
order basis. Additional
manufacturers have been contacted and may serve as secondary manufacturing sites
for CoFactor. Manufacturing of the other drugs in our portfolio is similarly
outsourced.
Raw
Materials
Raw
materials and supplies required for the production of our products for clinical
trials are generally available from various suppliers in quantities adequate to
meet our needs. However, we will need to be selective with our choice of
suppliers of raw materials for our products and use only suppliers who have
expertise in production of either chemical or biological formulations in
accordance with current Good Manufacturing Practices (“cGMP”).
6
Patents,
Licensing and Research Agreements
Patents
Listed
below are patents that have issued to USC, M.D. Anderson, and the NIH which have
been exclusively licensed to us. Our rights under these patents are more
fully described below.
Licensor:
USC
Patent
Number |
Patent
Title |
Expiration
Date | ||
U.S.
5,376,658 |
5,10-Methylene-Tetrahydrofolate
as a Modulator of a Chemotherapeutic Agent |
12-23-13 | ||
U.S.
5,534,519 |
5,10-Methylene-Tetrahydrofolate
as a Modulator of a Chemotherapeutic Agent |
10-20-14 | ||
CA
2,082,811 |
5,10-Methylene-Tetrahydrofolate
as a Modulator of a Chemotherapeutic Agent |
05-13-11 | ||
U.S.
5,072,032 |
Preparation
and use of Thiophosphonates and Thio-analogues of Phosphonoformic Acid
|
06-21-09 | ||
U.S.
5,183,812 |
Preparation
and use of Thiophosphonates and Thio-analogues of Phosphonoformic Acid
|
09-30-11 | ||
U.S.
6,147,244 |
Preparations
of Thiophosphites and Thiophosphates |
05-03-19 | ||
U.S.
6,284,909 |
Preparations
of Thiophosphites and Thiophosphates |
11-01-20 | ||
U.S.
6,441,214 |
Derivatives
and Analogs |
07-13-19 | ||
U.S.
6,444,837 |
Synthesis
and Antiviral Activity of a Series of Pyrophosphate
Analogs |
03-23-20 | ||
U.S.
6,147,245 |
Preparation
and use of Alpha-Keto Bisphosphonates |
07-13-19 | ||
U.S.
5,614,562 |
Method
of Treating Drug Resistant Tumor Cells using
Organoselenones |
03-25-14 |
7
Licensor:
M.D. Anderson
Patent
Number |
Patent
Title |
Expiration
Date | ||
U.S.
5,128,319 |
Prophylaxis
and Therapy of Acquired Immunodeficiency Syndrome |
09-20-09 | ||
U.S.
6,265,539 |
Prophylaxis
and Therapy of Acquired Immunodeficiency Syndrome |
07-24-18 | ||
U.S.
5,603,933 |
CD-4
Peptides for Binding to Viral Envelope Proteins |
02-18-14 | ||
U.S.
6,210,873 |
Methods
and Compositions for the Priming of Specific Cytotoxic T-lymphocyte
Response |
04-03-18 | ||
U.S.
6,645,471 |
HIV
Specific T-Cell Induction |
11-16-19 | ||
EP
0671947 |
Compositions
for Eliciting Cytotoxic T-Lymphocyte Responses Against
Viruses |
02-12-12 |
Licensor:
NIH
Patent
Number |
Patent
Title |
Expiration
Date | ||
U.S.
5,562,905 |
Human
Immunodeficiency Virus (HIV) ENV-coded Peptide Capable of Eliciting HIV
Inhibiting Antibodies in Mammals |
10-08-13 | ||
EP
0400076 |
A
Synthetic Antigen Evoking Anti-HIV Response |
01-17-09 | ||
AU
621097 |
A
Synthetic Antigen Evoking Anti-HIV Response |
01-17-09 | ||
CA
1,340,907 |
A
Synthetic Antigen Evoking Anti-HIV Response |
01-17-09 | ||
IL
89012 |
Peptides
Eliciting T-Cell Cytotoxicity Against HIV |
01-17-09 | ||
JP
2569185 |
Peptides
Eliciting T-Cell Cytotoxicity Against HIV |
01-17-09 | ||
In addition
to the licensed patents noted above, we have filed three provisional patent
applications in the United States covering technology developed pursuant to our
research and development activities.
There can
be no assurance that others will not independently develop similar or competing
technology or design around any patents that may be issued to us, or that we
will be able to enforce our patents against infringement. The actual protection
afforded by any patent we may be issued or obtain license rights under depends
upon the type of patent, the scope of its coverage, the country issuing such
patent and the availability of legal remedies to enforce rights under such
patent.
We
consider our patent applications and licenses under patents owned by the third
parties listed above of material importance to our business. Our copyrights,
trademarks, trade secrets and similar intellectual property are also critical to
our success. We rely on a combination of patent, trademark, copyright and trade
secret laws to protect our proprietary rights. We cannot, however, assure that
the patents and other intellectual property rights we acquire or hold will
afford us significant commercial protection.
8
The
biotechnology industry is characterized by frequent litigation regarding patent
and other intellectual property rights. While we have not received formal notice
of any infringement of the rights of any third party, questions of infringement
in the biotechnology industry involve highly technical and subjective analyses.
Litigation may be necessary in the future to enforce any patents we may be
issued and other intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity, and there can be no
assurance that we would prevail in any future litigation. Any such litigation,
whether or not determined in our favor or settled by us, would be costly and
would divert the efforts and attention of our management and technical personnel
from normal business operations, which would likely have a material adverse
effect on our business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of our proprietary rights,
subject us to significant liabilities, require us to seek licenses from third
parties or prevent us from licensing our technology, any of which could have a
material adverse effect on our business, financial condition and results of
operations. Moreover, the laws of certain foreign countries in which our
technology is or may in the future be licensed may not protect our intellectual
property rights to the same extent as the laws of the U. S., thus increasing the
possibility of infringement of our intellectual property.
License
Agreements
USC
Agreements
Under the
Option and License Agreement with USC dated January 23, 1998 (as amended August
16, 2000) (“1998 USC License”), we hold exclusive rights under a number of
patents that have issued to USC in the United States and Canada covering
products (CoFactor and Selone) and methods intended for use in connection with
cancer chemotherapy. Under the Option and License Agreement with USC dated
August 17, 2000 (as amended April 21, 2003) (the “2000 USC License”), we hold
exclusive rights under a number of additional patents that have issued in the
United States relating to the antiviral product Thiovir and drugs useful for the
treatment of HPV (human papillomavirus) infections, HIV infections, HIV/HPV
coinfections and other human therapeutic uses. Additional patent
applications relating to Thiovir are pending in Europe, Canada and Australia and
would be covered by the 2000 USC License upon issuance.
Pursuant
to the 1998 USC License we must pay USC a 3% royalty on net sales of products
made or sold in a country in which a patent has issued or is pending. Pursuant
to the 2000 USC License we must pay USC a 1% royalty on net sales of products
made or sold in a country in which a patent has issued or is pending. Both the
1998 USC License and the 2000 USC License require that we pay USC these
royalties as well as the cost of filing, prosecuting and maintaining the
licensed patents. We must also make certain milestone payments to USC pursuant
to the 2000 USC License upon entry into human trials and receiving regulatory
approval for each drug candidate developed ($75,000 at Phase I, $100,000 at
Phase II, $125,000 at Phase III and $250,000 at market approval). We have not
yet paid any royalties to USC pursuant to either the 1998 USC License or the
2000 USC License.
M.D.
Anderson Agreement
Pursuant
to the Patent and Technology License Agreement, dated June 14, 1996, as amended
June 15, 2000, with MD Anderson, M.D. Anderson granted to us exclusive,
worldwide rights to develop, manufacture and market technologies in the field of
HIV therapy. To date, a number of patents have issued in the United States and
Europe covering these technologies, and several additional patent applications
are pending in the United States, Canada and Europe. Pursuant to this
license agreement we must pay MD Anderson a 1.5% royalty on net sales of
products covered by the licensed patents as well as 15% of any sub-licensing
revenues we receive. We are also required to reimburse MD Anderson for the cost
of preparing, filing, prosecuting and maintaining the licensed
patents. In
addition, we must issue to MD Anderson shares of our Common Stock with a value
of $1,000,000 upon the enrollment of the first patient in the first Phase I
human trial of any product that utilizes licensed subject matter. We do not
currently have an estimate of when we expect to be required to issue these
shares of Common Stock. We have
not yet paid any royalties or sublicensing revenues to MD Anderson pursuant to
this license agreement.
9
Also, we
currently plan to renegotiate the terms of our license agreement with MD
Anderson. We have no guarantee that we will be able to negotiate terms,
including the royalty and milestone payment terms, which would be mutually
acceptable to both MD Anderson and the Company.
NIH
Agreement
In August
2002, we entered into a Patent License Agreement with NIH pursuant to which NIH
granted us exclusive, worldwide rights to patents covering a peptide product
(BlockAide) for the treatment and prevention of HIV. The agreement was
amended in February 2003. Under the terms of the agreement, we agreed to pay an
annual royalty of 1.5% on
net sales of less than $2 million and 2% on net sales above $2 million, with a
minimum annual royalty of $25,000. In
addition, we agreed to pay NIH “benchmark royalties” as follows: $25,000 upon
initiation of a Phase I trial; $75,000 upon initiation of a Phase II trial;
$150,000 upon initiation of a Phase III trial; $750,000 upon first approval in
the US of a Product License Application for an HIV therapeutic or vaccine; and
$750,000 upon first approval of a product license in Europe.
Sponsored
Research Agreements
We
periodically enter into sponsored research agreements pursuant to which an
institution will provide research service to us on a fee for services
basis. We currently have no obligation to make payments under any such
sponsored research agreements.
Competition
If we
receive regulatory approval to market, distribute and sell any of our products,
we will face significant competition and believe significant long-term
competition can be expected from pharmaceutical companies, pharmaceutical
divisions of chemical companies and biotechnology companies. This
competition can be expected to become more intense as commercial applications
for biotechnology products increase. Most competitors, particularly large
pharmaceutical companies, have greater clinical, regulatory and marketing
resources and experience than we have. Many of these companies have
commercial arrangements with other companies in the biotechnology industry to
supplement their own research capabilities.
The
introduction of new products or the development of new processes by competitors
or new information about our existing products may impact potential pricing of
our products or cause us to discontinue the development of one or more of our
products, even for products protected by patents. However, we believe our
competitive position is enhanced by our commitment to research leading to the
discovery and development of new products.
Over the
longer term, our and our collaborators' abilities to successfully market,
distribute and sell current products, expand their usage and bring new products
to the marketplace will depend on many factors, including, but not limited to,
the effectiveness and safety of the products, FDA and foreign regulatory
agencies' approvals of new products and indications, the degree of patent
protection afforded to particular products and the effect of managed care as an
important purchaser of pharmaceutical products.
CoFactor
We intend
to target replacement of Leucovorin with CoFactor in 5-FU/Leucovorin-based
therapies for various cancers. With an ongoing need for significant improvement
in the clinical response of tens of thousands of cancer patients, especially
those with metastatic colorectal cancer where 5-FU/Leucovorin performs poorly
and other regimens that are highly toxic, we currently believe CoFactor could
successfully compete against or be used in conjunction with other
therapies.
10
There are
approximately 40 different companies marketing generic 5-FU-related drugs.
In addition, Roche markets the branded prodrug (drug that activates in
vivo),
Xeloda™, which is an oral formulation that converts to 5-FU. Since
CoFactor is formulated for IV delivery, generic forms of oral Leucovorin
represent competition for CoFactor. We are currently working on the development
of an oral form for CoFactor. Leucovorin is also marketed by more than a
dozen companies as a generic drug for IV dosing in conjunction with 5-FU. As an
IV drug, Leucovorin represents competition to CoFactor based upon generic
pricing.
Thiovir
We
currently intend to develop Thiovir as a component of HAART therapy for
treatment of HIV/AIDS. Thiovir would compete in a large market of HAART
drugs, and would be only one potential component of a three to four drug
cocktail, but classified as a non-nucleoside reverse transcriptase inhibitor.
There are currently three drugs approved in that specific sector with additional
drugs under development.
Government
Regulation and Clinical Testing for New Drugs
The
manufacture, distribution, marketing and sale of therapeutic drugs are subject
to government regulation in the U.S. and in various foreign countries including
Japan and the member countries of the European Union. In the U.S., we must
follow rules and regulations established by the FDA requiring the presentation
of data indicating that our products are safe and efficacious and are
manufactured in
accordance with cGMP regulations. Japan, the member countries of the
European Union and various other countries have similar rules and regulation
with which we must comply.
The steps
required to be taken before a new prescription drug may be marketed in the U.S.
include (i) preclinical laboratory and animal tests, (ii) the submission to the
FDA of an IND application, which must be evaluated and found acceptable by the
FDA before human clinical trials may commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the drug, (iv) the submission of a New Drug Application (“NDA”) to the FDA
and (v) FDA approval of the NDA. Prior to obtaining FDA approval of an
NDA, the facilities that will be used to manufacture the drug must undergo a
preapproval inspection to ensure compliance with the FDA’s cGMP
regulations.
Preclinical
tests include laboratory evaluation of product chemistry or biology and animal
studies to assess the safety and effectiveness of the product and its
formulation. The results of the preclinical tests are submitted to the FDA
as part of an IND application, and unless the FDA objects, the IND application
will become effective 30 days following its receipt by the FDA, after which
clinical trials can begin. If the FDA has concerns about the proposed
clinical trial, it may delay the trial and require modifications to the trial
protocol prior to permitting the trial to begin.
Clinical
trials involve the administration of the pharmaceutical product to healthy
volunteers or to patients identified as having the condition for which the
product is being tested. The pharmaceutical product is administered under
the supervision of a qualified principal investigator. Clinical trials are
conducted in accordance with protocols previously submitted to the FDA as part
of the IND application that detail the objectives of the trial, the parameters
used to monitor safety and the efficacy criteria that are being evaluated.
Each clinical trial is conducted under the auspices of an institutional review
board (“IRB”) at the institution at which the trial is conducted. The IRB
considers, among other things, ethical factors, the safety of the human subjects
and the possible liability risk for the institution.
Clinical
trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into
healthy human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. Phase II involves trials in a limited patient population to
determine the effectiveness of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks.
11
In
serious diseases such as HIV/AIDS, patients suffering from the disease rather
than healthy volunteers are used in Phase I trials. In addition, Phase I
trials may be divided between Phase Ia, in which single doses of the drug are
given, and Phase Ib, in which multiple doses are given. In the latter
instance, some efficacy data may be obtained if the subjects are patients
suffering from the disease rather than healthy volunteers, and these trials are
referred to as “Phase Ib/IIa.”
After a
compound has been shown in Phase II trials to have an acceptable safety profile
and probable effectiveness, Phase III trials are undertaken to evaluate clinical
effectiveness further and to further test for safety within an expanded patient
population at multiple clinical study sites. The FDA reviews both the
clinical trial plans and the results of the trials at each phase, and may
discontinue the trials at any time if there are significant safety
issues.
The
results of the preclinical tests and clinical trials are submitted to the FDA in
the form of an NDA for marketing approval. The testing and approval
process requires substantial time and effort, and FDA approval may not be
granted on a timely basis or at all. The approval process is affected by a
number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested
during the FDA review process and may delay marketing approval.
Upon
approval, a drug may be marketed only for the FDA approved indications in the
approved dosage forms. Further clinical trials are necessary to gain
approval for the use of the product for any additional indications or dosage
forms. The FDA may also require post-market reporting and may require
surveillance programs to monitor the side effects of the drug, which may result
in withdrawal of approval after marketing begins.
The FDA
has developed several regulatory procedures to accelerate the clinical testing
and approval of drugs intended to treat serious or life-threatening illnesses
under certain circumstances. We believe that several of our drugs may be
candidates for accelerated development or approval under these
procedures.
Once the
sale of a product is approved, the FDA regulates the manufacturing and marketing
of the product. The FDA periodically inspects both domestic and foreign
drug manufacturing facilities to ensure compliance with applicable cGMP
regulations and other requirements. In addition, manufacturers in the U.S.
must register with the FDA and submit a list of every drug in commercial
distribution. Foreign manufacturers are subject only to the drug listing
requirement. Post-marketing reports are also required to monitor the
product’s usage and effects. Product approvals may be withdrawn, or
sanctions imposed, if compliance with regulatory requirements is not
maintained.
Many
foreign countries also regulate the clinical testing, manufacturing, marketing
and use of pharmaceutical products. The requirements relating to the
conduct of clinical trials, product approval, manufacturing, marketing, pricing
and reimbursement vary widely from country to country. In addition to the
import requirements of foreign countries, a company must also comply with U.S.
laws governing the export of FDA regulated products.
Health
Care Reform Measures and Third Party Reimbursement
Pharmaceutical
companies are affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number
of legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the U.S. has and will continue to increase pressures on
pharmaceutical pricing. While we cannot predict whether legislative or
regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on our business, the announcement or adoption of such
proposals or efforts could have a material adverse effect on us. In the
U.S. and elsewhere, sales of prescription pharmaceuticals are dependent in large
part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices.
12
Research
and Development Outlays
During
fiscal year 2004 and 2003, we expended $2,744,328 and $748,997, respectively, on
research and development activities.
Environment
We seek
to comply with all applicable statutory and administrative requirements
concerning environmental quality. We have made, and will continue to make,
expenditures for environmental compliance and protection. Expenditures for
compliance with environmental laws have not had, and are not expected to have, a
material effect on our capital expenditures, results of operation, financial
position or competitive position.
Employees
At
December 31, 2004, we had twelve employees all of whom were employed on a
full-time basis.
Item
2. Description of Property.
Our principal office is located at 6725 Mesa
Ridge Road, Suite 100, San Diego, California 92121.
Our principal office consists of 8,865 square feet of office and lab space,
which we use pursuant to a lease that will expire on August 31, 2009. The
base rent for this space is currently $177,282 annually, with incremental
operating cost adjustments.
We believe our facilities are in good operating condition and that the real
property leased by us is adequate for all present and near term uses. We
believe any additional facilities we may need in the foreseeable future can be
obtained with our capital resources.
We do not have any investments in and do not plan to make any investments in any
real estate, real estate mortgages or securities of or interests in persons
primarily engaged in real estate activities. We do not own or have an
interest in any real property the book value of which amounts to 10% or more of
our total assets.
Item
3. Legal Proceedings.
From time
to time we may be subject to legal proceedings and claims in the ordinary course
of business. These claims, even if not meritorious, could result in the
expenditure of significant financial and managerial
resources.
On March
28, 2005, the Company received a letter from counsel to a former executive in
which the former executive claims that the Company constructively terminated
him, discriminated against him on the basis of age and committed various torts
against him. No settlement demand was specifically made by the former executive
in this letter and the letter otherwise did not state any specific monetary
damages that this former executive has purportedly sustained. The Company
believes that these claims lack merit and intends to vigorously defend against
them.
13
Item
4. Submission of Matters to a Vote of Security
Holders.
No
matters were submitted to a vote of the holders of the Company's securities,
through solicitation of proxies or otherwise, during 2004.
Part
II
Item
5. Market For Common Equity and Related Stockholder
Matters.
Market
Information.
Our Common Stock is quoted on the American Stock Exchange under the symbol
ANX.
The
following table lists the high and low closing price information for our Common
Stock for each quarter for the fiscal years 2003 and 2004. All prices
listed herein reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Quarter
Ending |
High |
Low |
|||||
March
31, 2003 |
$ |
0.62 |
$ |
0.25 |
|||
June
30, 2003 |
$ |
1.45 |
$ |
0.39 |
|||
September
30, 2003 |
$ |
1.75 |
$ |
0.90 |
|||
December
31, 2003 |
$ |
1.61 |
$ |
0.86 |
|||
March
31, 2004 |
$ |
2.40 |
$ |
0.87 |
|||
June
30, 2004 |
$ |
2.30 |
$ |
1.55 |
|||
September
30, 2004 |
$ |
1.74 |
$ |
0.99 |
|||
December
31, 2004 |
$ |
1.19 |
$ |
0.82 |
|||
Holders.
As of
December 31, 2004, there were 270 holders of record of our Common
Stock.
Dividends.
We have
never paid cash dividends on any of our securities and do not currently expect
to pay any cash dividends on our securities in the foreseeable future.
There are no restrictions that limit our ability to pay dividends on our Common
Stock or that are likely to do so in the future other than restrictions under
the Delaware General Corporation Law and other applicable law.
Securities
Authorized for Issuance Under Equity Compensation Plans.
As
of March 28, 2005, other than the individual compensation arrangements set forth
in the table below, we did not have any compensation plans under which our
equity securities are authorized for issuance.
Number
of shares of
Common
Stock to be
issued
upon exercise of
outstanding
options |
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights |
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans |
||||||
Equity
compensation plans
approved by security
holders |
0 |
$ |
0.00 |
0 |
||||||
Equity
compensation plans
not approved by security
holders |
1,625,000 |
$ |
0.75 |
0 |
||||||
Total |
1,625,000 |
$ |
0.75 |
0 |
||||||
14
The
equity compensation plans not approved by our security holders disclosed in the
table above consist of individual option agreements with seven of our employees
and eight of our non-employee advisors and directors. The number of shares
subject to each of these option agreements ranges from 25,000 to 500,000. The
option agreements have exercise prices that range from $0.20 to $1.50 and expire
on December 30, 2008. The right to exercise shares subject to these option
agreements generally vests over one to five years for employee option grants and
non-employee advisor and director grants. Each of the option agreements permits
the optionee to exercise on a cashless basis. None of the shares issuable upon
exercise of these options is covered by a Form S-8 or other registration
statement.
Recent
Sales of Unregistered Securities.
In
October 2004, we issued a warrant to purchase 300,000 shares of Common Stock at
$2.50 per share to an individual in settlement of a claim. No commission or
other remuneration was paid or given, directly or indirectly, in connection with
this warrant issuance. The person to whom we issued the warrant represented
to us, and we reasonably believe that, that he is an “accredited investor.” The
issuance of this warrant was deemed to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), in reliance on
Section 4(2) of the Securities Act, as a transaction by an issuer not involving
a public offering.
Item
6. Plan of Operations.
This
Plan of Operations should be read in conjunction with the accompanying
consolidated financial statements and notes included in this
report.
General
As
a development-stage biomedical research company, we have not yet generated any
operating revenues from the sale of our products or otherwise. We have had
no operating earnings since inception, and have an accumulated deficit of
$(35,182,194) as of
December 31, 2004. Our expenses have related mainly to costs incurred in
research activities for the development of our drug candidates and from
administrative expenses required to support these efforts. We expect
losses to continue for the near future, and such losses will likely increase as
human clinical trials are undertaken in the U.S. and Europe for our cancer
drugs. Future profitability will be dependent upon our ability to complete
the development of our pharmaceutical products, obtain necessary regulatory
approvals and effectively market such products. Also, future profitability
will require that we establish agreements with other parties for the clinical
testing, manufacturing, commercialization and sale of our products.
Since
inception, we have generally funded our operations through short-term loans and
the sale of equity securities. We will need to obtain additional financing
in order to sustain our efforts, as discussed below under “Liquidity and Capital
Resources.”
Plan
of Operations
We have
used the proceeds from recent private placements of our capital stock primarily
to expand our preclinical and clinical efforts for CoFactor, as well as for
general working capital. At this time we are committing significantly
fewer resources to the development of our other programs.
15
We began
a trial for metastatic colorectal cancer patients with 5-FU in a combination
therapy with our drug CoFactor in QI 2004, based upon an IND application filed
in the U.S. to treat metastatic colorectal cancer patients. In Q1 2005 we
filed for clearance with the FDA to launch a Phase III randomized controlled
trial in metastatic colorectal cancer. Additionally, we filed Clinical Trial
Applications in the European Union (EU), including the United Kingdom and
Germany, and in countries outside the EU for clearance to evaluate CoFactor in a
Phase IIb, international, multi-center, randomized, controlled trial for
metastatic colorectal cancer. In Q1 2005 we received of a final advice
letter from the European Medicines Agency (EMEA) for our proposed CoFactor™
trial protocol in pancreatic cancer. Based on this information, the Company
currently plans to file a Clinical Trial Application for a pivotal Phase III
multinational study in patients with advanced pancreatic cancer in the second
quarter of 2005 and will initiate the trial following regulatory
clearance.
We
previously reported that we intended to file an IND application in QI 2005 to
initiate a clinical trial using Thiovir in HIV patients. Because of continued
unexpected manufacturing delays we do not currently anticipate having the issue
resolved until Q4 2005.
Additional
detail regarding the human trials and INDs that we plan to file are discussed in
Part I, Item 1, Description of Business, of this annual report. We
currently expect to expend the estimated amounts set forth below over the next
12 months:
Estimated |
||||
Expenditure |
Cost |
|||
CoFactor
trials |
$ |
5,453,000 |
||
Other
research and development costs |
2,875,000 |
|||
Total
estimated research and development |
8,328,000 |
|||
Estimated
selling, general and administrative |
3,058,000 |
|||
Total
estimated costs |
$ |
11,386,000 |
||
Our
current cash position of $13,032,263 is sufficient to meet our currently
expected expenditures over the next 12 months as set forth above. However, we
continue to evaluate our need to raise additional capital to execute our
research and development plans and believe that we will need to raise additional
capital prior to receiving regulatory approval to sell any of our
products.
Our
facility is under lease through August 2009. We do not currently believe we will
need any additional space for the remainder of 2005.
In
conjunction with the additional research and development activities we expect to
conduct, we anticipate adding six development and administrative personnel in
the next 12 months.
Liquidity
and Capital Resources
We have
incurred negative cash flows since inception, and have funded our activities
primarily through short-term loans and sales of equity securities. As of
December 31, 2004 and 2003, we had cash and cash equivalents of $13,032,263 and
$4,226,397. We expect our cash flow to continue to be negative in the
foreseeable future and until such time as one of our drug candidates is approved
for commercial production.
We do not
have any bank or any other commercial financing arrangements. Our
operations over the last 12 months have been funded by the proceeds from private
equity placements.
16
Our
dependence on raising additional capital will continue at least until we are
able to commercially market one or more of our products at significant sales
level. Depending on profit margins and other factors, we may still need
additional funding to continue research and development efforts. Our
future capital requirements and the adequacy of our financing depend upon
numerous factors, including: the successful commercialization of our drug
candidates; progress in our product development efforts; progress with
preclinical studies and clinical trials; the cost and timing of production
arrangements; the development of effective sales and marketing activities; the
cost of filing, prosecuting, defending and enforcing intellectual property
rights; competing technological and market developments; and the development of
strategic alliances for the marketing of our products.
We will
be required to obtain such funding through equity or debt financing, strategic
alliances with corporate partners and others, or through other sources not yet
identified. We do not believe that debt financing from financial
institutions will be available until at least the time that one of our products
is approved for commercial production. We do not have any committed
sources of additional financing, and cannot guarantee that additional funding
will be available on acceptable terms, if at all. If adequate funds are
not available, we will be required to delay, scale-back or eliminate certain
aspects of our operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates, products or potential
markets.
Quantitative
and Qualitative Information About Market Risk
We do not engage in trading market-risk sensitive instruments and do not
purchase hedging instruments or “other than trading” instruments that are likely
to expose us to market risk, whether interest rate, foreign currency exchange,
commodity price or equity price risk. We have no outstanding debt
instruments, have not entered into any forward or future contracts, and have
purchased no options and entered into no swaps. We have no credit lines or
other borrowing facilities, and do not view ourselves as subject to interest
rate fluctuation risk at the present time.
Critical
Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the U. S. 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 period. Management believes that the estimates utilized in preparing
our financial statements are reasonable and prudent. Actual results could differ
from those estimates.
The most
significant accounting estimates relate to valuing equity transactions as
described below. The value assigned to stock warrants granted to non-employees
are accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
(EITF) 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services, which
require that such costs be measured at the end of each reporting period to
account for changes in the fair value of our Common Stock until the options are
vested. We value warrants using the Black-Scholes pricing model. Common
Stock is valued using the market price of Common Stock on the measurement date
as defined in EITF 96-18.
Accounting
for Stock-Based Compensation
We apply
Statement of Financial Accounting Standards No. 123 and related
interpretations in accounting for employee stock-based compensation and include
the required footnote disclosures thereon.
17
We
account for nonemployee stock-based compensation in accordance with Emerging
Issues Task Force (EITF) 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services. Amounts
are based on the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably
measurable.
The value
assigned to stock warrants granted to non-employees are accounted for in
accordance with SFAS No. 123 and EITF 96-18, which require that such costs be
measured at the end of each reporting period to account for changes in the fair
value of our Common Stock until the options are vested. We value warrants using
the Black-Scholes pricing model. Common Stock is valued using the market
price of Common Stock on the measurement date as defined in EITF
96-18.
Revenue
Recognition
We
recognize revenue at the time service is performed on commercial contracts and
when ability to collect is assured. Revenue from government grants is a
reimbursement for expenditures associated with the research. We submit
bills to the grant agency and revenue is recognized at the time the
reimbursement request is submitted.
New
Accounting Pronouncements
In
December 2004, the FASB issued Statement of Financial Accounting standards
No. 123 (revised 2004), Share-Based Payment (SFAS 123R). We currently
recognize our option grants and associated expenses in accordance with SFAS 123R
guidance, and therefore SFAS 123R is not expected to have a material effect on
our consolidated financial position or results of operations.
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29. The guidance in APB Opinion No 29, Accounting
for Nonmonetary Transactions, is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in
fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is
not expected to have a material impact on our financial position and results of
operations.
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. This statement amends the guidance in ARB No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts idle
facility expense, freight, handling costs, and wasted material (spoilage). We
currently have no inventory, sales or cost of goods, and therefore it is not
expected to have a material impact on our financial position and results of
operations.
In May
2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet. The adoption of this new accounting pronouncement is not expected to have
a material impact on the Company's financial statements.
In
January 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation
of Variable Interest Entities (FIN
46R) which addressed consolidation by business enterprises of variable interest
entities that meet certain criteria. FIN 46R was effective upon issuance, but
did not have an impact on the Company's financial position or results of
operations.
18
Risk
Factors
If
any of the following risks actually occur, our business, results of operations
and financial condition could suffer significantly.
We
have a substantial accumulated deficit and limited working
capital.
We had an
accumulated deficit of $35,182,194 as of December 31, 2004. Since we presently
have no source of revenues and are committed to continuing our product research
and development program, significant expenditures and losses will continue until
development of new products is completed and such products have been clinically
tested, approved by the FDA or other regulatory agencies and successfully
marketed. In addition, we fund our operations primarily through the sale of
securities, and have had limited working capital for our product development and
other activities. We do not believe that debt financing from financial
institutions will be available until at least the time that one of our products
is approved for commercial production.
We
have no current product sales revenues or profits.
We have
devoted our resources to developing a new generation of therapeutic drug
products, but such products cannot be marketed until clinical testing is
completed and governmental approvals have been obtained. Accordingly, there is
no current source of revenues, much less profits, to sustain our present
activities, and no revenues will likely be available until, and unless, the new
products are clinically tested, approved by the FDA or other regulatory agencies
and successfully marketed, either by us or a marketing partner, an outcome which
we are not able to guarantee.
It
is uncertain that we will have access to future capital or government
grants.
It is not
expected that we will generate positive cash flow from operations for at least
the next several years. As a result, substantial additional equity or debt
financing or the receipt of one or more government grants for research and
development or clinical development will be required to fund our activities. We
cannot be certain that we will be able to consummate any such financing on
favorable terms, if at all, or receive any such government grants or that such
financing or government grants will be adequate to meet our capital
requirements. Any additional equity financing could result in substantial
dilution to stockholders, and debt financing, if available, will most likely
involve restrictive covenants that preclude us from making distributions to
stockholders and taking other actions beneficial to stockholders. If adequate
funds are not available, we may be required to delay or reduce the scope of our
drug development program or attempt to continue development by entering into
arrangements with collaborative partners or others that may require us to
relinquish some or all of our rights to proprietary drugs. The inability to fund
our capital requirements would have a material adverse effect on
us.
We
are not certain that we will be successful in the development of our drug
candidates.
The
successful development of any new drug is highly uncertain and is subject to a
number of significant risks. Our drug candidates, all of which are
in a development stage, require significant, time-consuming and costly
development, testing and regulatory clearance. This process typically takes
several years and can require substantially more time. Risks include, among
others, the possibility that a drug candidate will (i) be found to be
ineffective or unacceptably toxic, (ii) have unacceptable side effects, (iii)
fail to receive necessary regulatory clearances, (iv) not achieve broad market
acceptance, (v) be subject to competition from third parties who may market
equivalent or superior products, or (vi) be affected by third parties holding
proprietary rights that will preclude us from marketing a drug product. There
can be no assurance that the development of our drug candidates will demonstrate
the efficacy and safety of our drug candidates as therapeutic drugs, or, even if
demonstrated, that there will be sufficient advantages to their use over other
drugs or treatments so as to render the drug product commercially viable. In the
event that we are not successful in developing and commercializing one or more
drug candidates, investors are likely to realize a loss of their entire
investment.
19
Positive
results in preclinical and early clinical trials do not ensure that future
clinical trials will be successful or that drug candidates will receive any
necessary regulatory approvals for the marketing, distribution or sale of such
drug candidates.
Success
in preclinical and early clinical trials does not ensure that large-scale
clinical trials will be successful. Clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory
approvals. The length of time necessary to complete clinical trials and to
submit an application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to predict.
We
will face intense competition from other companies in the pharmaceutical
industry.
We are
engaged in a segment of the pharmaceutical industry that is highly competitive
and rapidly changing. If successfully developed and approved, any of our drug
candidates will likely compete with several existing therapies. In addition,
other companies are pursuing the development of pharmaceuticals that target the
same diseases as are targeted by the drugs being developed by us. We anticipate
that we will face intense and increasing competition in the future as new
products enter the market and advanced technologies become available. We cannot
assure that existing products or new products developed by competitors will not
be more effective, or more effectively marketed and sold than those we may
market and sell. Competitive products may render our drugs obsolete or
noncompetitive prior to our recovery of development and commercialization
expenses.
Many of
our competitors will also have significantly greater financial, technical and
human resources and will likely be better equipped to develop, manufacture and
market products. In addition, many of these competitors have extensive
experience in preclinical testing and clinical trials, obtaining FDA and
other regulatory approvals and manufacturing and marketing pharmaceutical
products. A number of these competitors also have products that have been
approved or are in late-stage development and operate large, well-funded
research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, government agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are actively seeking to commercialize the technology they have
developed. Accordingly, competitors may succeed in commercializing products more
rapidly or effectively than us, which would have a material adverse effect on
us.
There
is no assurance that our products will have market
acceptance.
Our
success will depend in substantial part on the extent to which a drug product,
once approved, achieves market acceptance. The degree of market acceptance will
depend upon a number of factors, including (i) the receipt and scope of
regulatory approvals, (ii) the establishment and demonstration in the
medical community of the safety and efficacy of a drug product, (iii) the
product’s potential advantages over existing treatment methods and (iv)
reimbursement policies of government and third party payors. We cannot predict
or guarantee that physicians, patients, healthcare insurers or maintenance
organizations, or the medical community in general, will accept or utilize any
of our drug products.
The
unavailability of health care reimbursement for any of our products will likely
adversely impact our ability to effectively market such products and whether
health care reimbursement will be available for any of our products is
uncertain.
Our
ability to commercialize our technology successfully will depend in part on the
extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health insurers and other third-party payors. Significant uncertainty
exists as to the reimbursement status of newly approved medical products. We
cannot guarantee that adequate third-party insurance coverage will be available
for us to establish and maintain price levels sufficient for realization of an
appropriate return on our investments in developing new therapies. Government,
private health insurers, and other third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products approved for marketing by the
FDA.
Accordingly, even if coverage and reimbursement are provided by government,
private health insurers, and third-party payors for use of our products, the
market acceptance of these products would be adversely affected if the amount of
reimbursement available for the use of our therapies proved to be unprofitable
for health care providers.
20
Uncertainties
related to health care reform measures may affect our
success.
There
have been a number of federal and state proposals during the last few years to
subject the pricing of health care goods and services, including prescription
drugs, to government control and to make other changes to U.S. health care
system. It is uncertain which legislative proposals will be adopted or what
actions federal, state, or private payors for health care treatment and services
may take in response to any health care reform proposals or legislation. We
cannot predict the effect health care reforms may have on our business, and
there is no guarantee that any such reforms will not have a material adverse
effect on us.
Further
testing of our drug candidates will be required and there is no assurance of
FDA
approval.
The
FDA and
comparable agencies in foreign countries impose substantial requirements upon
the introduction of medical products, through lengthy and detailed laboratory
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures. Satisfaction of these requirements typically takes
several years or more and varies substantially based upon the type, complexity,
and novelty of the product.
The
effect of government regulation and the need for FDA approval
will delay marketing of new products for a considerable period of time, impose
costly procedures upon our activities, and provide an advantage to larger
companies that compete with us. There can be no assurance that the FDA or other
regulatory approval for any products developed by us will be granted on a timely
basis or at all. Any such delay in obtaining or failure to obtain, such
approvals would materially and adversely affect the marketing of any
contemplated products and the ability to earn product revenue. Further,
regulation of manufacturing facilities by state, local, and other authorities is
subject to change. Any additional regulation could result in limitations or
restrictions on our ability to utilize any of our technologies, thereby
adversely affecting our operations.
Human
pharmaceutical products are subject to rigorous preclinical testing and clinical
trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of pharmaceutical products. The process of
obtaining these approvals and the subsequent compliance with appropriate U.S.
and foreign statutes and regulations are time-consuming and require the
expenditure of substantial resources. In addition, these requirements and
processes vary widely from country to country.
Among the
uncertainties and risks of the FDA approval
process are the following: (i) the possibility that studies and clinical
trials will fail to prove the safety and efficacy of the drug, or that any
demonstrated efficacy will be so limited as to significantly reduce or
altogether eliminate the acceptability of the drug in the marketplace,
(ii) the possibility that the costs of development, which can far exceed
the best of estimates, may render commercialization of the drug marginally
profitable or altogether unprofitable, and (iii) the possibility that the
amount of time required for FDA approval
of a drug may extend for years beyond that which is originally estimated. In
addition, the FDA or
similar foreign regulatory authorities may require additional clinical trials,
which could result in increased costs and significant development delays. Delays
or rejections may also be encountered based upon changes in FDA policy
and the establishment of additional regulations during the period of product
development and FDA review.
Similar delays or rejections may be encountered in other countries.
21
Our
success will depend on licenses and proprietary rights we receive from other
parties, and on any patents we may obtain.
Our
success will depend in large part on our ability and our licensors’ ability to
(i) maintain license and patent protection with respect to their drug
products, (ii) defend patents and licenses once obtained, (iii) maintain
trade secrets, (iv) operate without infringing upon the patents and
proprietary rights of others and (iv) obtain appropriate licenses to
patents or proprietary rights held by third parties if infringement would
otherwise occur, both in the U.S. and in foreign countries. We have obtained
licenses to patents and other proprietary rights from M.D. Anderson, University
of Southern California and the National Institutes of Health.
The
patent positions of pharmaceutical companies, including ours, are uncertain and
involve complex legal and factual questions. There is no guarantee that we or
our licensors have or will develop or obtain the rights to products or processes
that are patentable, that patents will issue from any of the pending
applications or that claims allowed will be sufficient to protect the technology
licensed to us. In addition, we cannot be certain that any patents issued to or
licensed by us will not be challenged, invalidated, infringed or circumvented,
or that the rights granted thereunder will provide competitive disadvantages to
us.
Litigation,
which could result in substantial cost, may also be necessary to enforce any
patents to which we have rights, or to determine the scope, validity and
unenforceability of other parties’ proprietary rights, which may affect our
rights. U.S. patents carry a presumption of validity and generally can be
invalidated only through clear and convincing evidence. There can be no
assurance that our licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. The mere uncertainty resulting from the institution and continuation
of any technology-related litigation or interference proceeding could have a
material adverse effect on us pending resolution of the disputed matters.
We may
also rely on unpatented trade secrets and know-how to maintain our competitive
position, which we seek to protect, in part, by confidentiality agreements with
employees, consultants and others. There can be no assurance that these
agreements will not be breached or terminated, that we will have adequate
remedies for any breach, or that trade secrets will not otherwise become known
or be independently discovered by competitors.
Our
license agreements can be terminated in the event of a
breach.
The
license agreements pursuant to which we license our core technologies for our
potential drug products permit the licensors, respectively M.D. Anderson,
National Institutes of Health and University of Southern California, to
terminate the agreement under certain circumstances, such as the failure by us
to use our reasonable best efforts to commercialize the subject drug or the
occurrence of any other uncured material breach by us. The license agreements
also provide that the licensor is primarily responsible for obtaining patent
protection for the technology licensed, and we are required to reimburse the
licensor for the costs it incurs in performing these activities. The license
agreements also require the payment of specified royalties. Any inability or
failure to observe these terms or pay these costs or royalties could result in
the termination of the applicable license agreement in certain cases. The
termination of any license agreement would have a material adverse effect on us.
22
Protecting
our proprietary rights is difficult and costly.
The
patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Accordingly, we
cannot predict the breadth of claims allowed in these companies’ patents or
whether we may infringe or be infringing these claims. Patent disputes are
common and could preclude the commercialization of our products. Patent
litigation is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision could force us to
either obtain third-party licenses at a material cost or cease using the
technology or product in dispute.
Our
success is dependent on our key personnel.
We depend
on a small management and scientific/clinical group and on independent
researchers, some of whom are inventors of the patents licensed to us for core
technologies and drugs developed at M.D. Anderson and University of Southern
California. Scientific personnel may from time to time serve as consultants to
us and may devote a portion of their time to our business, as well as continue
to devote substantial time to the furtherance of our sponsored research at M.D.
Anderson, University of Southern California and other affiliated institutions as
may be agreed to in the future, but such personnel are not our employees and are
not bound under written employment agreements. The services of such persons are
important to us, and the loss of any of these services may adversely affect us.
We
may be unable to retain skilled personnel and maintain key
relationships.
The
success of our business depends, in large part, on our ability to attract and
retain highly qualified management, scientific and other personnel, and on our
ability to develop and maintain important relationships with leading research
institutions and consultants and advisors. Competition for these types of
personnel and relationships is intense from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that we will be able to attract and retain such individuals on
commercially acceptable terms or at all, and the failure to do so would have a
material adverse effect on us.
We
currently have no sales capability, and limited marketing
capability.
We
currently do not have sales personnel. We have limited marketing and business
development personnel. We will have to develop a sales force, or rely on
marketing partners or other arrangements with third parties for the marketing,
distribution and sale of any drug product which is ready for distribution. There
is no guarantee that we will be able to establish marketing, distribution or
sales capabilities or make arrangements with third parties to perform those
activities on terms satisfactory to us, or that any internal capabilities or
third party arrangements will be cost-effective.
In
addition, any third parties with which we may establish marketing, distribution
or sales arrangements may have significant control over important aspects of the
commercialization of a drug product, including market identification, marketing
methods, pricing, composition of sales force and promotional activities. There
can be no assurance that we will be able to control the amount and timing of
resources that any third party may devote to our products or prevent any third
party from pursuing alternative technologies or products that could result in
the development of products that compete with, or the withdrawal of support for,
our products.
We
do not have manufacturing capabilities and may not be able to efficiently
develop manufacturing capabilities or contract for such services from third
parties on commercially acceptable terms.
We do not
have any manufacturing capacity. When required, we will seek to establish
relationships with third-party manufacturers for the manufacture of clinical
trial material and the commercial production of drug products as we have with
our current manufacturing partners. There can be no assurance that we will be
able to establish relationships with third-party manufacturers on commercially
acceptable terms or that third-party manufacturers will be able to manufacture a
drug product on a cost-effective basis in commercial quantities under good
manufacturing practices mandated by the FDA.
23
The
dependence upon third parties for the manufacture of products may adversely
affect future costs and the ability to develop and commercialize a drug product
on a timely and competitive basis. Further, there can be no assurance that
manufacturing or quality control problems will not arise in connection with the
manufacture of our drug products or that third party manufacturers will be able
to maintain the necessary governmental licenses and approvals to continue
manufacturing such products. Any failure to establish relationships with third
parties for our manufacturing requirements on commercially acceptable terms
would have a material adverse effect on us.
We
are dependent in part on third parties for drug development and research
facilities.
We do not
possess research and development facilities necessary to conduct all of our drug
development activities. We engage consultants and independent contract research
organizations to design and conduct clinical trials in connection with the
development of our drugs. As a result, these important aspects of a drug’s
development will be outside our direct control. In addition, there can be no
assurance that such third parties will perform all of their obligations under
arrangements with us or will perform those obligations satisfactorily.
In
the future, we anticipate that we will need to obtain additional or increased
product liability insurance coverage and it is uncertain that such increased or
additional insurance coverage can be obtained on commercially reasonable
terms.
Our
business will expose us to potential product liability risks that are inherent
in the testing, manufacturing and marketing of pharmaceutical products. There
can be no assurance that product liability claims will not be asserted against
us. We intend to obtain additional limited product liability insurance for our
clinical trials, directly or through our marketing development partners or
contract research organization (CRO) partners, when they begin in the U.S.
and to expand our insurance coverage if and when we begin marketing commercial
products. However, there can be no assurance that we will be able to obtain
product liability insurance on commercially acceptable terms or that we will be
able to maintain such insurance at a reasonable cost or in sufficient amounts to
protect against potential losses. A successful product liability claim or series
of claims brought against us could have a material adverse effect on us.
Insurance
coverage is increasingly more difficult to obtain or
maintain.
Obtaining
insurance for our business, property and products is increasingly more costly
and narrower in scope, and we may be required to assume more risk in the future.
If we are subject to third-party claims or suffer a loss or damage in excess of
our insurance coverage, we may be required to pay claims in excess of our
insurance coverage on our own. Furthermore, any first- or third-party claims
made on any of our insurance policies may impact our ability to obtain or
maintain insurance coverage at reasonable costs or at all in the future.
The
market price of our shares, like that of many biotechnology companies, is highly
volatile.
Market
prices for the our Common Stock and the securities of other medical and
biomedical technology companies have been highly volatile and may continue to be
highly volatile in the future. Factors such as announcements of technological
innovations or new products by us or our competitors, government regulatory
action, litigation, patent or proprietary rights developments, and market
conditions for medical and high technology stocks in general can have a
significant impact on any future market for the Common Stock.
We
are not paying dividends on our Common Stock.
We have
never paid cash dividends on our Common Stock, and do not intend to do so in the
foreseeable future.
24
The
issuance of shares of our Preferred Stock may adversely affect our Common
Stock.
Our Board
of Directors is authorized to designate one or more series of Preferred Stock
and to fix the rights, preferences, privileges and restrictions thereof, without
any action by the stockholders. The designation and issuance of such shares of
our Preferred Stock may adversely affect the Common Stock, if the rights,
preferences and privileges of such Preferred Stock (i) restrict the
declaration or payment of dividends on Common Stock, (ii) dilute the voting
power of Common Stock, (iii) impair the liquidation rights of the Common
Stock or (iv) delay or prevent a change in control for us from occurring,
among other possibilities.
Under
provisions of our certificate of incorporation, bylaws and Delaware law, our
management may be able to block or impede a change in
control.
Our
certificate of incorporation authorizes our Board of Directors to designate
shares of Preferred Stock without stockholder approval on such terms as our
Board of Directors may determine. The rights of the holders of Common Stock may
be subject to or adversely affected by, the rights of the holders of any such
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may make it more difficult for a third party to acquire, or may discourage
a third party from acquiring, a majority of the voting stock. These and other
provisions of our certificate of incorporation and our by-laws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving a change of control of the company, even if such events
could be beneficial to the interest of the stockholders as a whole. Such
provisions could limit the price that certain investors might be willing to pay
in the future for our Common Stock.
Officers’
and directors’ liabilities are limited under Delaware law.
Pursuant
to our certificate of incorporation and by-laws, as authorized under applicable
Delaware law, directors are not liable for monetary damages for breach of
fiduciary duty, except in connection with a breach of the duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchases illegal
under Delaware law or for any transaction in which a director has derived an
improper personal benefit. Our certificate of incorporation and by-laws provide
that we must indemnify our officers and directors to the fullest extent
permitted by Delaware law for all expenses incurred in the settlement of any
actions against such persons in connection with their having served as officers
or directors.
Item
7. Financial Statements.
See the
Financial Statements and Reports of J.H. Cohn LLP set forth in Item 13, which
are incorporated herein by reference. You
should read the following selected financial data in conjunction with our
financial statements and related notes and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” appearing elsewhere in this
annual report.
Item
8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item
8A. Controls and Procedures.
Evaluation
of disclosure controls and procedures
25
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that the information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
the reports that a company files or submits under the Exchange Act is
accumulated and communicated to the company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Under the
supervision of our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2004. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of December 31, 2004, our disclosure
controls and procedures were not effective to ensure that management is alerted
to material information required to be disclosed by us in the reports we file
with the SEC and that such material information is recorded and reported within
the time periods specified in the SEC's rules and forms. However, since the date
of that evaluation, management has begun to implement changes to improve certain
aspects of our disclosures controls and procedures.
In
connection with J.H. Cohn LLP’s audit of our financial statements for the fiscal
year ended December 31, 2004, J.H. Cohn, our independent registered public
accounting firm, advised our Audit Committee that it had identified material
weaknesses in our accounting function that we need to re-evaluate and
strengthen. J.H. Cohn informed the Audit Committee that our accounting system
software has many limitations that may not allow us to ensure prior period
financial information is not changed. This software allows users to make changes
to historical data and is limited in its ability to provide us with accurate
costing information. We are unaware of any instances in which any users of such
software made any changes to historical data. J.H. Cohn also noted that we
lacked a formal process to review and document journal entries. In addition,
J.H. Cohn stated that we may need to enhance our internal accounting capability
by hiring a controller or entering into an agreement with a third party
consultant with the appropriate level of technical expertise. In addition to
identifying the foregoing material weaknesses, J.H. Cohn also made certain other
suggestions to improve our financial information and internal control
procedures.
Changes
in internal controls
Since the
end of the fiscal year ended December 31, 2004, we have undertaken a number of
remediation actions to improve our internal controls over financial reporting,
including the following:
• | Replacing our legacy computer accounting system with one that supports project tracking, audit trails, and allows for greater internal audit oversight. Our auditors have endorsed our efforts to migrate to a new accounting system that would better meet our needs; |
• | Supplementing our accounting department with additional expertise for preparation or approval of transactions; and |
• | Engaging a third-party consultant to aid us in designing, implementing and testing new procedures to bring our controls and procedures into compliance with Section 404 of the Sarbanes-Oxley Act of 2002 within the time frame required under the Securities Exchange Act of 1934. |
The
remediation actions described above are in varying stages of completion. We
currently expect to complete these actions by the end of 2005.
26
Part
III
Item
9. Director, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors,
Executive Officers and Significant Employees.
The names
of our directors and executive officers, including those persons nominated or
chosen to become such, significant employees, and certain information about each
of them are set forth below:
Name |
Age |
Position(s)
with the Company | ||
Evan
Levine |
39 |
Chief
Executive Officer, President, Chief Operating Officer, Secretary and Vice
Chairman of the Board | ||
M.
Ross Johnson, Ph.D. |
60 |
Chairman
of the Board | ||
Carrie
E. Carlander |
34 |
Chief
Financial Officer, Vice President, Finance, and
Treasurer | ||
Joan
M. Robbins |
44 |
Chief
Technical Officer | ||
Brian
Culley |
33 |
Vice
President, Business Development | ||
Cellia
Habita |
37 |
Senior
Vice President, Clinical and Medical Affairs | ||
Michael
M. Goldberg, M.D.
(1)(2) |
46 |
Director
(3) | ||
Mark
J. Pykett, V.M.D., Ph.D (1)(2) |
40 |
Director
(3) | ||
Mark
Bagnall, CPA (1)(2) |
48 |
Director
(4) |
(1)
Member of the Audit Committee of the Board of Directors.
(2)
Member of the Compensation Committee of the Board of Directors.
(3)
Appointed in January 2004.
(4)
Appointed in February 2004.
M.
Ross Johnson, Ph.D.
Dr. Johnson has served as our Chairman of the Board since October 2002.
From October 2000 until May 2003, Dr. Johnson also served as a Director for
Biokeys, Inc., a wholly owned subsidiary of the Company that was merged with and
into the Company in May 2003. Dr. Johnson is also currently Chief
Executive Officer, Director and Co-Founder of Parion Sciences, Inc. He has
served on numerous boards and currently holds additional board positions with
Cortex Pharmaceuticals, Inc. (COR), ChemCodes, Inc., the Board of Governors of
Research Triangle Institute and the University of North Carolina Education
Advancement Board. He also currently serves on the Advisory Board of the
Chemistry Department at the University of California at Berkley and the
University of North Carolina at Chapel Hill. From 1995 to 1999, he was
President, Chief Executive Officer and Chief Scientific Officer of Trimeris,
Inc. (TRMS), a company he took public in 1997. From 1987 to 1994, he was
Vice President of Chemistry at Glaxo Inc. (GSK) where he was part of the
original scientific founding team for Glaxo's research entry in the U. S.
From 1971 to 1987, Dr. Johnson served in key scientific and research management
positions with Pfizer Central Research (PFE). He has also served as a
Special Advisor to Nobex Corporation, Ceretec, AtheroGenics, Inc. (AGIX) and
Albany Molecular Research, Inc. (AMRI). Dr. Johnson received his B.S. in
Chemistry from the University of California at Berkeley in 1967 and a Ph.D. in
organic chemistry from the University of California at Santa Barbara in
1970.
Evan
M. Levine.
Mr. Levine has served as our Chief Executive Officer and President since
September 2004, as our Vice Chairman of the Board since January 2004 and as our
Chief Operating Officer and Secretary and a Director since October 2002.
Currently, Mr. Levine also acts as the Managing Member of Mark Capital LLC, a
venture capital and consulting firm specializing in technology and biotechnology
investments. From March 2002 to June 2002, Mr. Levine served as the
Interim Chief Executive Officer of Digital Courier Technologies, Inc., a
provider of advanced e-payment services for businesses, merchants and
financial institutions. From 1997 to 2001, Mr. Levine served as a Managing
Principal and Portfolio Manager of Brown Simpson Asset Management, specializing
in structured finance for public companies. From 1996 to 1997, Mr. Levine
served as Senior Vice President of Convertible Sales and Trading at Dillon Read
& Company, a financial services company. From 1993 to 1996, Mr. Levine
served as Vice President of Convertible Sales and Trading at Hambrecht &
Quist, a financial services company. From 1992 to 1993, Mr. Levine served
as a Global Arbitrage Trader at Spectrum Trading Partners, financial derivatives
trading company. Mr. Levine received his B.A. in Economics and Finance
from Rutgers University and has completed graduate coursework for an MBA at New
York University’s Stern School of Business.
27
Carrie
E. Carlander.
Ms. Carlander has served as our Chief Financial Officer, Vice President, Finance
and Treasurer since December 2004. From August 2004 to December 2004, Ms.
Carlander served in a consulting capacity as Chief Financial Officer of
Singlefin, Inc., an email/internet security software company. From December 2003
to December 2004, Ms. Carlander served in a consulting capacity as Chief
Financial Officer of SofLinx, Inc., a wireless sensor network and software
company. From December 2002 to June 2004, Ms. Carlander served as Vice President
of Finance of V-Enable, Inc., a software company specializing in multimodal
software for wireless devices. From December 1996 to May 2000, Ms. Carlander
served first as Director of Finance and Human Resources, and then as Vice
President, Finance and Administration, of Websense Inc., a publicly traded
company that provides software products that analyze, report and manage
computing resource use by employees. Ms. Carlander received her B.A. in
Political Science from University of California, San Diego, her MBA from San
Diego State University and a Certified Management Accountant designation from
the IMA.
Joan
M. Robbins, Ph.D. Dr.
Robbins is our Chief Technical Officer and has served in this role since March
2003. From 1996-2003, Dr. Robbins was employed by Immusol, Inc., a
biopharmaceutical company specializing in anticancer and antiviral therapeutics
in addition to certain dermatologic and ophthalmic disorders. At Immusol, she
held several positions, including Vice President, Product Development, Senior
Director, Product Development, and Director, Therapeutics. Dr. Robbins has
directed drug discovery and development resulting in the advancement of drug
candidates into Phase I, II and III human trials, including the development of
clinical protocols with the FDA. She has also led programs for formulation,
manufacturing, toxicology and pharmacology development. From 1994 to 1995, she
was Research Scientist and Project Leader for Cancer Research at Chiron where
she developed gamma-IFN recombinant retroviral immuno-gene therapy for cancer,
and tk-recombinant retroviral gene therapy for brain tumors. From 1992 to 1993,
Dr. Robbins was a Post Graduate Researcher at University of California, San
Diego, where she developed a novel DNA-based immunotherapeutic for treatment of
Her2/neu expressing tumors. From 1990 to 1991, she was a Research Fellow at the
Garvin Institute for Medical Research, Centre for Immunology in Sydney,
Australia, and from 1981 to 1989, Dr. Robbins was a Microbiologist at the
Laboratory of Tumor Immunology and Biology at the National Cancer Institute in
Bethesda, Maryland. Dr. Robbins' background in drug discovery and development
has resulted in over 20 scientific publications and 5 patents. Dr. Robbins
received her B.S. degree in genetics from the University of California, Davis,
and a Ph.D. degree in genetics from George Washington University, Washington
D.C.
Cellia
Habita, M.D., Ph.D. Dr.
Habita is our Senior Vice President of Medical and Clinical Affairs and has
served in this role since January 2005. Previously, Dr. Habita was Vice
President of Medical and Clinical Affairs since joining us in March 2004. From
2001 to 2004, Dr. Habita was employed by Immusol, Inc., a biopharmaceutical
company involved in development of therapies for cancer, viral diseases and
certain dermatologic and ophthalmic disorders, where her most recent title was
Director of Product Development and Preclinical. At Immusol, Dr. Habita directed
product formulation, toxicology and pharmacology testing and oversaw offsite
manufacturing. Dr. Habita was responsible for regulatory submissions in addition
to assisting with clinical protocols and trial design. Under her leadership, two
drug candidates were successfully launched into clinical trials. Previous to
Immusol, Dr. Habita was Assistant Project Scientist at the Center for Molecular
Genetics at the University of California, San Diego (UCSD). While at UCSD, Dr.
Habita developed an in vivo gene transfer model in fetal tissue and neonates for
the study of metabolic disorders and therapies to treat such disorders. Dr.
Habita earned a Ph.D. in Human Genetics, completed her graduate research at
Oxford University in the UK at The Wellcome Trust for Human Genetics where she
identified chromosomal regions involved in Type I Diabetes. Dr. Habita received
an MS in Biology and Genetics of Aging from The University of Paris VII in
France and an M.D. in General Medicine from the National Institute of Medical
Sciences in Algiers, Algeria. Her clinical training covered Pediatric and Adult
Endocrinology, Obstetrics/Gynecology and Orthopedic Surgery at The Saint Louis
and Robert Debré Hospitals in Paris, and she has conducted Genetic studies for
Diabetes and Aging and Epidemiological studies in public health.
28
Brian
M. Culley, MS, MBA. Mr.
Culley is Vice President, Business Development and has served in this role since
joining us in December 2004. From 2002 until 2004, Mr. Culley managed all
strategic collaborations and licensing agreements for Immusol, Inc. in San
Diego, where his most recent title was Director of Business Development and
Marketing. From 1999 until 2000, he was a licensing and marketing associate at
the University of California, San Diego Department of Technology Transfer &
Intellectual Property Services and from 1996 to 1999, he was a research
associate for Neurocrine Biosciences, Inc., where he performed drug discovery
research. Mr. Culley has over 12 years of experience in the biotechnology
industry, including deal structure and negotiation, licensing, due diligence,
market and competitive research, and venture funding. He received a MS in
Biochemistry from the University of California Santa Barbara and an MBA from The
Johnson School of Business at Cornell University with an emphasis on private
equity and entrepreneurship.
Michael
M. Goldberg, M.D. Dr.
Goldberg has served as a Director since January 2004. Since August 1990, Dr.
Goldberg has been with Emisphere Technologies, Inc. where he is now Chairman and
Chief Executive Officer. Emisphere is a biopharmaceutical company specializing
in the oral delivery of therapeutic macromolecules and other compounds that are
not currently deliverable by oral means. Dr. Goldberg was previously a Vice
President for The First Boston Corporation, where he was a founding member of
the Healthcare Banking Group. He received a B.S. from Rensselaer Polytechnic
Institute, an M.D. from Albany Medical College of Union University and an M.B.A.
from Columbia University Graduate School of Business.
Mark
J. Pykett, V.M.D., Ph.D
Dr. Pykett has served as a Director since January 2004. Since November 2004, Dr.
Pykett has been with Boston Life Sciences, Inc. where he is now President and
Chief Operating Officer. In 1996, Dr. Pykett co-founded Cytomatrix, LLC, a
private biotechnology company focused on the research, development and
commercialization of novel cell-based therapies. Dr. Pykett served as
Cytomatrix’ President and Chief Executive Officer and a Director until April
2003, when Cytomatrix merged with Cordlife, Pte. Ltd., a subsidiary of CyGenics,
Ltd., a public biotechnology company. From April 2003 to February 2004, Dr.
Pykett served as President of Cordlife, Pte. Ltd. and then as President and
Director of CyGenics from February 2004 until November 2004. Cytomatrix is. Dr.
Pykett graduated Phi Beta Kappa, Summa Cum Laude from Amherst College, holds a
veterinary degree, Phi Zeta, Summa Cum Laude, and doctorate in molecular biology
from the University of Pennsylvania, and received an M.B.A. degree Beta Gamma
Sigma from Northeastern University. He completed post-doctoral fellowships at
the University of Pennsylvania and Harvard University. In his research in
academia, Dr. Pykett focused on understanding the molecular basis of cancer. Dr.
Pykett also held an adjunct faculty position at the Harvard School of Public
Health from 1997 to 2003.
Mark
Bagnall, CPA . Mr.
Bagnall has served as a Director since February 2004. Since June 2000, Mr.
Bagnall has been at Metabolex, Inc. where he now serves as Senior Vice President
and Chief Business Officer. Metabolex is a privately held pharmaceutical
company focused on the development of drugs to treat diabetes and related
metabolic disorders. Mr. Bagnall has been in the biotechnology industry
for over 15 years. In the 12 years prior to joining Metabolex, Mr. Bagnall
held the top financial position at four life science companies: Metrika, Inc., a
privately held diagnostics company, and three public biotechnology companies,
Progenitor, Inc., Somatix Therapy Corporation, and Hana Biologics, Inc. During
his career in biotechnology, he has managed several private and public
financings, merger and acquisition transactions and corporate licensing
agreements. Mr. Bagnall received his Bachelor of Science degree in Business
Administration from the U.C. Berkeley Business School and is a Certified Public
Accountant.
29
Compliance
with Section 16(a) of the Exchange Act
Section 16(a)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our directors and officers, and persons who own more than 10% of a
registered class of our equity securities (“Section 16 Persons”), to file with
the Securities and Exchange Commission (the “SEC”) initial reports of ownership
and reports of changes in ownership of our Common Stock and derivative
securities to acquire our Common Stock. Section 16 Persons are required by
SEC regulation to furnish us with copies of all Section 16(a) reports they
file. Based on our review of the forms we have received, on other reports
filed by Section 16 Persons with the SEC and on our records, we believe that
during 2004 Cellia Habita and Mark Bagnall did not timely file a Form 3 to
report their beneficial ownership of our Common Stock.
Audit
Committee
As of the
date of this report, Messrs. Goldberg, Pykett and Bagnall serve on the Audit
Committee of the Company’s board of directors. The Company believes that
each of Messrs. Goldberg, Pykett and Bagnall is independent within the meaning
of Section 121(a) of the AMEX’s listing standards and is an “audit committee
financial expert” within the meaning of Item 401(e)(2) of Regulation S-B under
the Securities Act of 1933, as amended.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics (the “Code”) that
applies to all of the Company’s employees (including our executive officers) and
directors. The Company shall provide to any person without charge, upon
request, a copy of the Code. Any such request must be made in writing to
the Company, c/o Investor Relations, 6725 Mesa Ridge Road, Suite 100, San Diego,
California 92121.
Item
10. Executive Compensation.
The
information required by Item 10 of Form 10-KSB is incorporated by reference from
the information contained in the section captioned “Executive
Compensation and Other Information” in our
Proxy Statement related to the Annual Meeting of Stockholders to be held on May
24, 2005.
Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
information required by Item 11 of Form 10-KSB concerning security ownership of
certain beneficial owners and management is incorporated by reference from the
information contained in the section captioned “Ownership
of Securities” in our
Proxy Statement related to the Annual Meeting of Stockholders to be held on May
24, 2005.
Item
12. Certain Relationships and Related Transactions.
The
information required by Item 12 of Form 10-KSB is incorporated by reference from
the information contained in the section captioned “Certain
Relationships and Related Transactions” in our
Proxy Statement related to the Annual Meeting of Stockholders to be held on May
24, 2005.
Item
13. Exhibits.
Financial
Statements Incorporated by Reference
The Financial Statements and Reports of J.H. Cohn LLP which are set forth in the
index to Consolidated Financial Statements beginning on page F-1 of this report
are filed as part of this report. You should read the following selected
financial data in conjunction with our financial statements and related notes
and “Plan of Operations” appearing elsewhere in this annual report.
|
Page |
Report
of Independent Registered Public Accounting Firm |
F-2 |
Consolidated
Balance Sheets |
F-3 |
Consolidated
Statements of Operations |
F-4 |
Consolidated
Statements of Stockholders’ Equity |
F-5 |
Consolidated
Statements of Cash Flows |
F-9 |
Notes
to Consolidated Financial Statements |
F-10 |
30
Exhibits.
Exhibit Index
Exhibit |
Description |
|
|
3.1
(1) |
Certificate
of Incorporation of Victoria Enterprises, Inc. |
|
|
3.2
(1) |
Certificate
of Amendment of Certificate of Incorporation of Victoria Enterprises,
Inc. |
|
|
3.3
(1) |
Certificate
of Amendment of Certificate of Incorporation of BioQuest,
Inc. |
|
|
3.4
(1) |
Certificate
of Amendment of Certificate of Incorporation of BioQuest,
Inc. |
|
|
3.5
(1) |
Certificate
of Ownership and Merger Merging Biokeys, Inc. with and into Biokeys
Pharmaceuticals, Inc. |
|
|
3.6
(2) |
Amended
and Restated Bylaws of Biokeys Pharmaceuticals, Inc. |
|
|
3.7
(1) |
Certificate
of Amendment to the Certificate of Incorporation of ADVENTRX
Pharmaceuticals, Inc. |
|
|
3.8
(3) |
Certificate
of Designation of BioQuest, Inc. |
|
|
3.9
(4) |
Certificate
of Designation of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock of Biokeys Pharmaceuticals,
Inc. |
|
|
4.1
(5) |
Common
Stock and Warrant Purchase Agreement, dated as of April 5, 2004, among the
Company and the Investors named therein |
|
|
4.2
(5) |
A-1
Warrant to Purchase Common Stock issued to Investors pursuant to the
Common Stock and Warrant Purchase Agreement with the
Investors |
|
|
4.3
(5) |
A-2
Warrant to Purchase Common Stock issued to Investors pursuant to the
Common Stock and Warrant Purchase Agreement with the
Investors |
|
|
4.4
(6) |
Common
Stock and Warrant Purchase Agreement, dated April 8, 2004, between the
Company and CD Investment Partners, Ltd. |
|
|
4.5
(6) |
A-1
Warrant to Purchase Common Stock issued to CD Investment Partners, Ltd.
|
|
|
4.6
(6) |
A-2
Warrant to Purchase Common Stock issued to CD Investment Partners, Ltd.
|
|
|
4.7
(6) |
Warrant
to Purchase Common Stock issued on April 8, 2004 to Burnham Hill Partners
|
|
|
4.8
(6) |
Warrant
to Purchase Common Stock issued on April 8, 2004 to Ernest Pernet
|
|
|
4.9
(6) |
Warrant
to Purchase Common Stock issued on April 8, 2004 to W.R. Hambrecht + Co.,
LLC |
|
|
4.10
(5) |
Registration
Rights Agreement, dated as of April 5, 2004, among the Company and the
Investors named therein |
|
|
4.11
(6) |
Registration
Rights Agreement, dated as of April 8, 2004, between the Company and CD
Investment Partners, Ltd. |
|
|
4.12
|
Not
used |
|
|
4.13
|
Not
used |
31
4.14
(7) |
Common
Stock and Warrant Purchase Agreement, dated April 19, 2004, between the
Company and Franklin Berger |
|
|
4.15
(7) |
A-1
Warrant to Purchase Common Stock issued to Franklin
Berger |
|
|
4.16
(7) |
A-2
Warrant to Purchase Common Stock issued to Franklin
Berger |
|
|
4.17
(7) |
Registration
Rights Agreement, dated as of April 19, 2004, between the Company and
Franklin Berger |
|
|
4.18
(5) |
Registration
Rights Agreement, dated _______, 2001, between the Company and certain
stockholders |
|
|
4.19
(5) |
Warrant
to Purchase Common Stock issued by the Company |
|
|
4.20
(5) |
Stock
Subscription Agreement |
|
|
4.21
(5) |
Warrant
to Purchase Common Stock issued by the Company |
|
|
4.22
(5) |
Warrant
for the Purchase of Shares of Common Stock No. WA-2A issued June 14, 2001
to Robert J. Neborsky and Sandra S. Neborsky, JTWROS |
|
|
10.1
(8) |
Patent
and Technology License Agreement, dated June 14, 1996, among the Company,
the Board of Regents of the University of Texas System and the University
of Texas M. D. Anderson Cancer Center (Request for confidential treatment
of certain data) |
|
|
10.2 (8) |
Amendment
No. 1 to Patent and Technology License Agreement, dated June 15, 2000,
between the Company and the University of Texas M. D. Anderson Cancer
Center(Request for confidential treatment of certain
data) |
|
|
10.3 (8) |
Option
and License Agreement, dated January 23, 1998, between the Company and the
University of Southern California (Request for confidential treatment of
certain data) |
|
|
10.4 (2) |
First
Amendment to License Agreement, dated August 16, 2000, between the Company
and the University of Southern California (Request for confidential
treatment of certain data) |
|
|
10.5 (8) |
Option
and License Agreement, dated August 17, 2000, between the Company and the
University of Southern California (Request for confidential treatment of
certain data) |
|
|
10.6
(9) |
Standard
Multi-Tenant Office Lease - Gross, dated June 3, 2004, between the Company
and George V. Casey & Ellen M. Casey, Trustees of the Casey Family
Trust dated June 22, 1998 |
|
|
10.7
(10) |
Patent
License Agreement, effective August 1, 2002, between the Company and the
National Institutes of Health |
|
|
10.9
(11) |
Offer
Letter, dated March 5, 2003, from the Company to Joan M. Robbins,
Ph.D. |
|
|
10.10
(12) |
Amendment
to Option and License Agreement, dated April 21, 2003, the Company and the
University of Southern California |
32
10.11 |
Offer
Letter, dated March 1, 2004, from the Company to Cellia Habita,
Ph.D. |
10.12 |
Offer
Letter, dated November 15, 2004, from the Company to Brian
Culley |
10.13 |
Offer
Letter, dated November 17, 2004, from the Company to Carrie
Carlander |
21.1 |
Subsidiaries
of ADVENTRX Pharmaceuticals, Inc. |
23.1 |
Consent
of Independent Registered Public Accounting Firm |
24.1 |
Powers
of Attorney (included on signature page) |
31.1 |
Rule
13a-14(a)/15d-14(a) Certification |
|
|
31.2 |
Rule
13a-14(a)/15d-14(a) Certification |
|
|
32.1 |
Section
1350 Certifications |
32.2 |
Section
1350 Certifications |
(1) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Form 8-A, filed
April 27, 2004 |
(2) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Registration
Statement on Form 10-SB, filed October 2,
2001. |
(3) |
Incorporated
by reference to Exhibit 4.1 to the Company’s Registration Statement on
Form 10-SB, filed October 2, 2001. |
(4) |
Incorporated
by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form
10-QSB, filed November 26, 2002 (exhibit included in the body of the Form
10-QSB and not filed as a separate exhibit
file). |
(5) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Registration
Statement on Form S-3, filed June 30, 2004. |
(6) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Current Report
on Form 8-K, filed April 13, 2004. |
(7) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Quarterly
Report on Form 10-QSB, filed May 12, 2004. |
(8) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Registration
Statement on Form 10-SB/A, filed January 14,
2002. |
(9) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Quarterly
Report on Form 10-QSB, filed August 10,
2004. |
(10) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Quarterly
Report on Form 10-QSB, filed November 26,
2002. |
(11) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Annual Report
on Form 10-KSB, filed April 16, 2003. |
(12) |
Incorporated
by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form
10-QSB, filed August 14, 2003. |
33
Item
14. Principal Accountant Fees and Services.
2003 | 2004 | |||||||||||||||||||||
Audit
|
All
|
Audit
|
All
|
|||||||||||||||||||
Audit
|
Related
|
Tax
|
Other
|
Audit
|
Related
|
Tax
|
Other
|
|||||||||||||||
Fee
|
Fee
|
Fee
|
Fees
|
Fee
|
Fee
|
Fee
|
Fees
|
|||||||||||||||
$
36,534 |
--
|
$ |
4,244 |
--
|
$ |
61,780 |
$ |
6,340 |
-
|
--
|
||||||||||||
Audit
Fees.
During
the fiscal years ended December 31, 2004 and 2003, the fees billed for
professional services rendered by J.H. Cohn LLP for the audit of our annual
financial statements and review of financial statements included in our Forms
10-QSB for fiscal years 2004 and 2003 were $61,780 and $36,534,
respectively.
Audit-Related
Fees.
During the fiscal years ended December 31, 2004 and 2003, audit-related
fees billed for professional services rendered by J.H. Cohn LLP were $6,340 and
$0, respectively. These were professional services requested by the Audit
Committee in connection with the review and/or filing of our Forms S-3 and 8K in
2004.
Tax
Fees.
During the fiscal years ended December 31, 2004 and 2003, tax fees billed
by J.H. Cohn LLP for tax compliance, tax advice or tax planning services were $0
and $4,244, respectively.
All
Other Fees.
During the fiscal years ended December 31, 2004 and 2003, no fees were
billed by J.H. Cohn LLP, other than the fees set forth above.
Pre-Approval
Policies and Procedures of the Audit Committee.
The Audit
Committee has the sole authority to appoint, terminate and replace our
independent auditor. The Audit Committee may not delegate these
responsibilities. The Audit Committee has the sole authority to approve
the scope, fees and terms of all audit engagements, as well as all permissible
non-audit engagements of our independent auditor.
34
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
the 31st day of March 2004.
|
ADVENTRX
PHARMACEUTICALS, INC | ||
|
By: |
|
/s/
Evan Levine
Evan
Levine
Chief
Executive Officer, President and Secretary |
|
By: |
|
/s/
Carrie Carlander
Carrie
Carlander
Chief
Financial Officer |
POWER
OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Evan Levine and Carrie Carlander, and each of them, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to his Report on
Form 10-KSB, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature |
Title |
Date |
|||||
/s/
M. Ross Johnson |
|||||||
M.
Ross Johnson, Ph.D. |
Chairman
of the Board |
March
31, 2005 |
|||||
/s/
Evan Levine |
|||||||
Evan
Levine |
Chief
Executive Officer, Director, President and Secretary |
March
31, 2005 |
|||||
/s/
Carrie Carlander |
|
|
|||||
Carrie
Carlander |
Chief
Financial Officer, Vice President |
March
31, 2005 |
|||||
Finance
and Treasurer |
|||||||
/s/
Michael M. Goldberg |
|||||||
Michael
M. Goldberg, M.D. |
Director |
March
31, 2005 |
|||||
/s/
Mark J. Pykett |
|||||||
Mark
J. Pykett, V.M.D., Ph.D. |
Director |
March
31, 2005 |
|||||
/s/
Mark Bagnall |
|||||||
Mark
Bagnall, CPA |
Director |
March
31, 2005 |
Index to
Consolidated Financial Statements
|
Page |
Report
of Independent Registered Public Accounting Firm |
F-2 |
Consolidated
Balance Sheets |
F-3 |
Consolidated
Statements of Operations |
F-4 |
Consolidated
Statements of Shareholders’ Equity |
F-5 |
Consolidated
Statements of Cash Flows |
F-9 |
Notes
to Consolidated Financial Statements |
F-10 |
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders
ADVENTRX
Pharmaceuticals, Inc.
We have
audited the accompanying consolidated balance sheets of ADVENTRX
Pharmaceuticals, Inc. and Subsidiary (a development stage enterprise) as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended and for
the period from June 12, 1996 (date of inception) to December 31, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
for the period from June 12, 1996 (date of inception) to December 31, 2001 were
audited by other auditors whose report, dated April 10, 2003, expressed an
unqualified opinion and included an explanatory paragraph concerning the
Company's ability to continue as a going concern. Our opinion on the
consolidated statements of operations, shareholders' equity and cash flows for
the period from June 12, 1996 (date of inception) to December 31, 2004, insofar
as it relates to amounts for the period for June 12, 1996 (date of inception) to
December 31, 2001, is based solely on the report of the other
auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of ADVENTRX Pharmaceuticals, Inc. and
Subsidiary (a development stage enterprise) as of December 31, 2004 and 2003,
and their results of operations and cash flows for the years then ended and for
the period from June 12, 1996 (date of inception) to December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ J.H.
Cohn LLP
San
Diego, California
February
3, 2005 except for Note 9, as to which the date is March 28, 2005
F-2
ADVENTRX
PHARMACEUTICALS, INC.
(Formerly
Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Consolidated
Balance Sheets |
December
31,
2004 |
December
31,
2003 |
||||||
|
|||||||
Assets |
|
|
|||||
|
|
|
|||||
Current
assets: |
|
|
|||||
Cash
and cash equivalents |
$ |
13,032,263 |
$ |
4,226,397 |
|||
Accrued interest income |
10,808 |
— |
|||||
Prepaid expenses |
115,144 |
28,376
|
|||||
Assets available for sale |
108,000 |
— |
|||||
|
|||||||
Total
current assets |
13,266,215 |
4,254,773
|
|||||
Property
and equipment, net |
285,304
|
20,840
|
|||||
Other
assets |
57,268
|
7,743
|
|||||
|
|||||||
Total
assets |
$ |
13,608,787 |
$ |
4,283,356 |
|||
|
|||||||
|
|||||||
Liabilities
and Shareholders’ Equity |
|||||||
Current
liabilities: |
|||||||
Accounts
payable |
$ |
532,327 |
$ |
90,243 |
|||
Accrued liabilities |
628,754
|
— |
|||||
Accrued
salaries and related taxes |
57,315
|
— |
|||||
Accrued
dividends payable |
— |
72,800
|
|||||
|
|||||||
Total
liabilities |
1,218,396
|
163,043
|
|||||
|
|||||||
Commitments
and contingencies |
|||||||
Shareholders’
equity: |
|||||||
Series
A cumulative convertible Preferred Stock, $0.01 par value;
Authorized
8,000 shares; issued and outstanding, 473
shares
in 2003(aggregate involuntary liquidation preference
$473,000
at December 31, 2003) |
—
|
4
|
|||||
Series
B convertible Preferred Stock, $0.01 par value;
Authorized
200,000 shares in 2003; issued and outstanding,
200,000
shares (no liquidation preference) |
— |
2,000
|
|||||
Common
Stock, $0.001 par value; Authorized 100,000,000
shares;
issued 53,834,237 in 2004 and issued and outstanding
42,491,708
shares in 2003 |
53,835 |
42,492
|
|||||
Additional
paid-in capital |
47,553,497 |
32,556,963
|
|||||
Deficit
accumulated during the development stage |
(35,182,194 |
) |
(28,481,146 |
) | |||
Treasury
stock, at cost, 23,165 shares |
(34,747 |
) |
— |
||||
|
|||||||
Total
shareholders’ equity |
12,390,391
|
4,120,313
|
|||||
|
|||||||
Total
liabilities and shareholders’ equity |
$ |
13,608,787 |
$ |
4,283,356 |
|||
|
See
accompanying notes to consolidated financial statements.
F-3
ADVENTRX PHARMACEUTICALS,
INC.
(Formerly
Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Statements
of Operations
|
Year
Ended December 31, |
Inception
(June
12, 1996)
through
December
31, |
||||||||
2004 |
2003 |
2004 |
||||||||
|
||||||||||
Net
sales |
$ |
— |
$ |
— |
$ |
174,830 |
||||
Cost
of goods sold |
—
|
—
|
51,094
|
|||||||
Gross margin |
—
|
—
|
123,736
|
|||||||
Grant
revenue |
— |
3,603
|
129,733
|
|||||||
Interest
income |
103,042
|
9,269
|
202,278
|
|||||||
Total income |
103,042
|
12,872
|
455,747 |
|||||||
|
||||||||||
Operating
expenses: |
||||||||||
Research and development |
2,744,328
|
748,997
|
7,474,254 |
|||||||
General and administrative |
4,018,453
|
1,585,596
|
12,433,297 |
|||||||
Depreciation and amortization |
41,309
|
8,970
|
10,140,016 |
|||||||
Impairment loss - write off of goodwill |
—
|
—
|
5,702,130
|
|||||||
Interest expense |
—
|
1,386
|
179,090
|
|||||||
Equity in loss of investee |
—
|
—
|
178,936
|
|||||||
Total operating expenses |
6,804,090 |
2,344,949
|
36,107,723 |
|||||||
Loss before cumulative effect of change
in accounting principle |
(6,701,048 |
) |
(2,332,077 |
) |
(35,651,976 |
) | ||||
Cumulative
effect of change in accounting principle |
—
|
—
|
(25,821 |
) | ||||||
|
||||||||||
Net loss |
(6,701,048 |
) |
(2,332,077 |
) |
(35,677,797 |
) | ||||
Preferred Stock dividends |
— |
(37,840 |
) |
(621,240 |
) | |||||
Net loss applicable to Common Stock |
$ |
(6,701,048 |
) |
$ |
(2,369,917 |
) |
$ |
(36,299,037 |
) | |
|
||||||||||
Loss per Common Share - basic and diluted |
$ |
(0.13 |
) |
$ |
(0.07 |
) |
||||
|
See
accompanying notes to consolidated financial statements.
F-4
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(A
Development Stage Enterprise)
Consolidated
Statements of Shareholders' Equity
Inception
(June 12, 1996) through December 31, 2004
Cumulative
convertible
Preferred
Stock, series A |
Cumulative
convertible
Preferred
Stock, series B |
Cumulative
convertible
Preferred
Stock, series C |
|||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
||||||||||||||
|
|||||||||||||||||||
Balances
at June 12, 1996 (date of incorporation) |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
||||||||||
Sale
of Common Stock without par value |
— |
— |
— |
— |
— |
— |
|||||||||||||
Change
in par value of Common Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock and net liabilities assumed in acquisition |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1996 |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Common Stock, net of offering costs of $9,976 |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock in acquisition |
— |
— |
— |
— |
— |
— |
|||||||||||||
Minority
interest deficiency at acquisition charged to the Company
|
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1997 |
— |
— |
— |
— |
— |
— |
|||||||||||||
Rescission
of acquisition |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock at conversion of notes payable |
— |
— |
— |
— |
— |
— |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
Balances
at December 31, 1998 |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Common Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
Balances
at December 31, 1999 |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Preferred Stock, net of offering costs of $76,500 |
3,200 |
32 |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock at conversion of notes and interest
payable |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock at conversion of notes payable |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock to settle obligations |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock for acquisition |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of warrants for acquisition |
— |
— |
— |
— |
— |
— |
|||||||||||||
Stock
issued for acquisition costs |
— |
— |
— |
— |
— |
— |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
— |
— |
— |
— |
|||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Cashless
exercise of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2000 |
3,200 |
32 |
— |
— |
— |
— |
|||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Repurchase
of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Cashless
exercise of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock to pay preferred dividend |
— |
— |
— |
— |
— |
— |
F-5
Cumulative
convertible
Preferred
Stock, series A |
Cumulative
convertible
Preferred
Stock, series B |
Cumulative
convertible
Preferred
Stock, series C |
|||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Detachable
warrants issued with notes payable |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of warrants to pay operating expenses |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock to pay operating expenses |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Preferred Stock to pay operating expense |
137 |
1 |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2001 |
3,337 |
33 |
— |
— |
— |
— |
|||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Repurchase
of warrants (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of warrants (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Cashless
exercise of warrants (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Exercise
of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Preferred Stock at $1.50 per share |
— |
— |
200,000 |
2,000 |
— |
— |
|||||||||||||
Sale
of Preferred Stock at $10.00 per share |
— |
— |
— |
— |
70,109 |
701 |
|||||||||||||
Conversion
of Preferred Stock into Common Stock |
(3,000 |
) |
(30 |
) |
— |
— |
— |
— |
|||||||||||
Preferred
Stock dividends forgiven |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of warrants to pay operating expenses (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock to pay operating expenses (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Preferred Stock to pay operating expenses (note 6) |
136 |
1 |
— |
— |
— |
— |
|||||||||||||
Issuance
of stock options to employees (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2002 |
473 |
4 |
200,000 |
2,000 |
70,109 |
701 |
|||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Conversion
of Series C Preferred Stock into Common Stock |
— |
— |
— |
— |
(70,109 |
) |
(701 |
) | |||||||||||
Issuance
of Common Stock to pay interest on Bridge Notes |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Common Stock at $0.40 per share, net of issuance costs |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Common Stock at $1.00 per share, net of issuance costs |
— |
— |
— |
— |
— |
— |
|||||||||||||
Exchange
of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of Common Stock to pay operating expenses (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of warrants to pay operating expenses (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of stock options to employees (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2003 |
473 |
4 |
200,000 |
2,000 |
— |
||||||||||||||
Extinguishment
of dividends payable on Preferred Stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Conversion
of Series A cumulative Preferred Stock into Common Stock |
(473 |
) |
(4 |
) |
— |
— |
— |
— |
|||||||||||
Conversion
of Series B Preferred Stock into Common Stock |
— |
— |
(200,000 |
) |
(2,000 |
) |
— |
— |
|||||||||||
Exercise
of warrants |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of Common Stock at $1.50 per share |
— |
— |
— |
— |
— |
— |
|||||||||||||
Payment
of financing and offering costs |
— |
— |
— |
— |
— |
— |
|||||||||||||
Issuance
of stock options to employees |
— |
— |
— |
— |
— |
— |
|||||||||||||
Acquisition
of treasury stock |
— |
— |
— |
— |
— |
— |
|||||||||||||
Net
Loss |
— |
— |
— |
— |
— |
— |
|||||||||||||
Balances
at December 31, 2004 |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
||||||||||
See
accompanying notes to consolidated financial statements.
F-6
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(A
Development Stage Enterprise)
Consolidated
Statements of Shareholders' Equity
Inception
(June 12, 1996) through December 31, 2004
CONTINUED
FROM PREVIOUS PAGE
Common
Stock |
Additional
paid-in
capital |
Deficit
accumulated
during
the |
Treasury
Stock |
Total
stockholders' |
|||||||||||||||
|
Shares |
Amount |
Capital |
development
stage |
At
Cost |
equity
(deficit) |
|||||||||||||
|
|||||||||||||||||||
Balances
at June 12, 1996 (date of incorporation) |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||||||
Sale
of Common Stock without par value |
503 |
5 |
5 |
— |
— |
10 |
|||||||||||||
Change
in par value of Common Stock |
— |
(4 |
) |
4 |
— |
— |
— |
||||||||||||
Issuance
of Common Stock and net liabilities assumed in acquisition |
1,716,132 |
1,716 |
3,224 |
(18,094 |
) |
— |
(13,154 |
) | |||||||||||
Issuance
of Common Stock |
2,010,111 |
2,010 |
456 |
(2,466 |
) |
— |
— |
||||||||||||
Net
loss |
— |
— |
— |
(259,476 |
) |
— |
(259,476 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1996 |
3,726,746 |
3,727 |
3,689 |
(280,036 |
) |
— |
(272,620 |
) | |||||||||||
Sale
of Common Stock, net of offering costs of $9,976 |
1,004,554 |
1,004 |
1,789,975 |
— |
— |
1,790,979 |
|||||||||||||
Issuance
of Common Stock in acquisition |
375,891 |
376 |
887,874 |
— |
— |
888,250 |
|||||||||||||
Minority
interest deficiency at acquisition charged to the Company
|
— |
— |
— |
(45,003 |
) |
— |
(45,003 |
) | |||||||||||
Net
loss |
— |
— |
— |
(1,979,400 |
) |
— |
(1,979,400 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1997 |
5,107,191 |
5,107 |
2,681,538 |
(2,304,439 |
) |
— |
382,206 |
||||||||||||
Rescission
of acquisition |
(375,891 |
) |
(376 |
) |
(887,874 |
) |
561,166 |
— |
(327,084 |
) | |||||||||
Issuance
of Common Stock at conversion of notes payable |
450,264 |
451 |
363,549 |
— |
— |
364,000 |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
260,000 |
— |
— |
260,000 |
|||||||||||||
Net
loss |
— |
— |
— |
(1,204,380 |
) |
— |
(1,204,380 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1998 |
5,181,564 |
5,182 |
2,417,213 |
(2,947,653 |
) |
— |
(525,258 |
) | |||||||||||
Sale
of Common Stock |
678,412 |
678 |
134,322 |
— |
— |
135,000 |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
212,000 |
— |
— |
212,000 |
|||||||||||||
Net
loss |
— |
— |
— |
(1,055,485 |
) |
— |
(1,055,485 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 1999 |
5,859,976 |
5,860 |
2,763,535 |
(4,003,138 |
) |
(1,233,743 |
) | ||||||||||||
Sale
of Preferred Stock, net of offering costs of $76,500 |
— |
— |
3,123,468 |
— |
— |
3,123,500 |
|||||||||||||
Issuance
of Common Stock at conversion of notes and interest
payable |
412,487 |
412 |
492,085 |
— |
— |
492,497 |
|||||||||||||
Issuance
of Common Stock at conversion of notes payable |
70,354 |
70 |
83,930 |
— |
— |
84,000 |
|||||||||||||
Issuance
of Common Stock to settle obligations |
495,111 |
496 |
1,201,664 |
— |
— |
1,202,160 |
|||||||||||||
Issuance
of Common Stock for acquisition |
6,999,990 |
7,000 |
9,325,769 |
— |
— |
9,332,769 |
|||||||||||||
Issuance
of warrants for acquisition |
— |
— |
4,767,664 |
— |
— |
4,767,664 |
|||||||||||||
Stock
issued for acquisition costs |
150,000 |
150 |
487,350 |
— |
— |
487,500 |
|||||||||||||
Expense
related to stock warrants issued |
— |
— |
140,000 |
— |
— |
140,000 |
|||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
(85,000 |
) |
— |
— |
(85,000 |
) | |||||||||||
Cashless
exercise of warrants |
599,066 |
599 |
(599 |
) |
— |
— |
— |
||||||||||||
Net
loss |
— |
— |
— |
(3,701,084 |
) |
— |
(3,701,084 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2000 |
14,586,984 |
14,587 |
22,299,866 |
(7,704,222 |
) |
— |
14,610,263 |
||||||||||||
Dividends
payable on Preferred Stock |
— |
— |
(256,000 |
) |
— |
— |
(256,000 |
) | |||||||||||
Repurchase
of warrants |
— |
— |
(55,279 |
) |
— |
— |
(55,279 |
) | |||||||||||
Sale
of warrants |
— |
— |
47,741 |
— |
— |
47,741 |
|||||||||||||
Cashless
exercise of warrants |
218,493 |
219 |
(219 |
) |
— |
— |
— |
F-7
Common
Stock |
Additional
paid-in
capital |
Deficit
accumulated
during
the |
Treasury
Stock |
Total
stockholders' |
|||||||||||||||
|
Shares |
Amount |
Capital |
development
stage |
At
Cost |
equity
(deficit) |
Issuance
of Common Stock to pay preferred dividend |
93,421 |
93 |
212,907 |
— |
— |
213,000 |
|||||||||||||
Detachable
warrants issued with notes payable |
— |
— |
450,000 |
— |
— |
450,000 |
|||||||||||||
Issuance
of warrants to pay operating expenses |
— |
— |
167,138 |
— |
— |
167,138 |
|||||||||||||
Issuance
of Common Stock to pay operating expenses |
106,293 |
106 |
387,165 |
— |
— |
387,271 |
|||||||||||||
Issuance
of Preferred Stock to pay operating expense |
— |
— |
136,499 |
— |
— |
136,500 |
|||||||||||||
Net
loss |
— |
— |
— |
(16,339,120 |
) |
— |
(16,339,120 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2001 |
15,005,191 |
15,005 |
23,389,818 |
(24,043,342 |
) |
— |
(638,486 |
) | |||||||||||
Dividends
payable on Preferred Stock |
— |
— |
(242,400 |
) |
— |
— |
(242,400 |
) | |||||||||||
Repurchase
of warrants (note 6) |
— |
— |
— |
— |
— |
— |
|||||||||||||
Sale
of warrants (note 6) |
240,000 |
240 |
117,613 |
— |
— |
117,853 |
|||||||||||||
Cashless
exercise of warrants (note 6) |
100,201 |
100 |
(100 |
) |
— |
— |
— |
||||||||||||
Exercise
of warrants |
344,573 |
345 |
168,477 |
— |
— |
168,822 |
|||||||||||||
Sale
of Preferred Stock at $1.50 per share |
— |
— |
298,000 |
— |
— |
300,000 |
|||||||||||||
Sale
of Preferred Stock at $10.00 per share |
— |
— |
700,392 |
— |
— |
701,093 |
|||||||||||||
Conversion
of Preferred Stock into Common Stock |
1,800,000 |
1,800 |
(1,770 |
) |
— |
— |
— |
||||||||||||
Preferred
Stock dividends forgiven |
— |
— |
335,440 |
— |
— |
335,440 |
|||||||||||||
Issuance
of warrants to pay operating expenses (note 6) |
— |
— |
163,109 |
— |
— |
163,109 |
|||||||||||||
Issuance
of Common Stock to pay operating expenses (note 6) |
6,292 |
6 |
12,263 |
— |
— |
12,269 |
|||||||||||||
Issuance
of Preferred Stock to pay operating expenses (note 6) |
— |
— |
6,000 |
— |
— |
6,001 |
|||||||||||||
Issuance
of stock options to employees (note 6) |
— |
— |
329,296 |
— |
— |
329,296 |
|||||||||||||
Net
loss |
— |
— |
— |
(2,105,727 |
) |
— |
(2,105,727 |
) | |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2002 |
17,496,257 |
17,496 |
25,276,138 |
(26,149,069 |
) |
— |
(852,730 |
) | |||||||||||
Dividends
payable on Preferred Stock |
— |
— |
(37,840 |
) |
— |
— |
(37,840 |
) | |||||||||||
Conversion
of Series C Preferred Stock into Common Stock |
14,021,860 |
14,022 |
(13,321 |
) |
— |
— |
— |
||||||||||||
Issuance
of Common Stock to pay interest on Bridge Notes |
165,830 |
165 |
53,326 |
— |
— |
53,491 |
|||||||||||||
Sale
of Common Stock at $0.40 per share, net of issuance costs |
6,640,737 |
6,676 |
2,590,656 |
— |
— |
2,597,332 |
|||||||||||||
Sale
of Common Stock at $1.00 per share, net of issuance costs |
3,701,733 |
3,668 |
3,989,181 |
— |
— |
3,992,849 |
|||||||||||||
Exchange
of warrants |
235,291 |
235 |
49,486 |
— |
— |
49,721 |
|||||||||||||
Issuance
of Common Stock to pay operating expenses (note 6) |
230,000 |
230 |
206,569 |
— |
— |
206,799 |
|||||||||||||
Issuance
of warrants to pay operating expenses (note 6) |
— |
— |
156,735 |
— |
— |
156,735 |
|||||||||||||
Issuance
of stock options to employees (note 6) |
— |
— |
286,033 |
— |
— |
286,033 |
|||||||||||||
Net
loss |
—
|
—
|
—
|
(2,332,077
|
)
|
—
|
(2,332,077
|
)
| |||||||||||
|
|||||||||||||||||||
Balances
at December 31, 2003 |
42,491,708 |
42,492 |
32,556,963 |
(28,481,146 |
) |
— |
4,120,313 |
||||||||||||
Extinguishment
of dividends payable on Preferred Stock |
— |
— |
72,800 |
— |
— |
72,800 |
|||||||||||||
Conversion
of Series A cumulative Preferred Stock |
236,500 |
236 |
(232 |
) |
— |
— |
— |
||||||||||||
Conversion
of Series B Preferred Stock |
200,000 |
200 |
1,800 |
— |
— |
— |
|||||||||||||
Cashless
exercise of warrants |
464,573 |
465 |
(465 |
) |
— |
— |
— |
||||||||||||
Exercise
of warrants |
23,832 |
23 |
27,330 |
— |
— |
27,353 |
|||||||||||||
Issuance
of warrants in settlement of a claim |
— |
— |
86,375 |
— |
— |
86,375 |
|||||||||||||
Sale
of Common Stock at $1.50 per share |
10,417,624 |
10,419 |
15,616,031 |
— |
— |
15,626,450 |
|||||||||||||
Payment
of financing and offering costs |
— |
— |
(1,366,774 |
) |
— |
— |
(1,366,774 |
) | |||||||||||
Issuance
of stock options to employees |
— |
— |
524,922 |
— |
— |
524,922 |
|||||||||||||
Acquisition
of treasury stock |
— |
— |
34,747 |
— |
(34,747 |
) |
— |
||||||||||||
Net
Loss |
— |
— |
— |
(6,701,048 |
) |
— |
(6,701,048 |
) | |||||||||||
Balances
at December 31, 2004 |
53,834,237 |
$ |
53,835 |
$ |
47,553,497 |
$ |
(35,182,194 |
) |
$ |
(34,747 |
) |
$ |
12,390,391 |
||||||
F-8
ADVENTRX
PHARMACEUTICALS, INC.
(Formerly
Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Consolidated
Statements
of Cash Flow
|
Year
ended December 31, |
Inception
(June
12, 1996)
through
December
31, |
||||||||
|
2004 |
2003 |
2004 |
|||||||
Cash
flows from operating activities: |
|
|
|
Net
loss |
$ |
(6,701,048 |
) |
$ |
(2,332,077 |
) |
$ |
(35,677,797 |
) | |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
||||||||||
Depreciation
and amortization |
41,309
|
8,970
|
9,690,016
|
|||||||
Amortization
of debt discount |
—
|
—
|
450,000
|
|||||||
Forgiveness
of employee advance |
—
|
—
|
30,036
|
|||||||
Impairment
loss - write off of goodwill |
—
|
—
|
5,702,130
|
|||||||
Expenses
paid by warrants |
86,375
|
156,735
|
573,357
|
|||||||
Expenses
paid by Preferred Stock |
—
|
—
|
142,501
|
|||||||
Expenses
related to stock warrants issued |
—
|
—
|
612,000
|
|||||||
Expenses
related to employee stock options issued |
524,922 |
286,033
|
1,140,251
|
|||||||
Expenses
paid by issuance of Common Stock |
— |
206,799
|
817,548
|
|||||||
Equity
in loss of investee |
—
|
—
|
178,936
|
|||||||
Write-off
of license agreement |
—
|
—
|
152,866
|
|||||||
Cumulative
effect of change in accounting principle |
—
|
—
|
25,821
|
|||||||
Changes
in assets and liabilities, net of effect of acquisitions: |
||||||||||
Increase
in prepaid and other assets |
(255,101 |
) |
(23,136 |
) |
(430,588 |
) |
Increase
(decrease) in accounts payable and accrued liabilities |
1,128,153
|
(550,433 |
) |
697,125
|
Increase
in sponsored research payable and license obligation |
—
|
—
|
924,318
|
|||||||
Net
cash used in operating activities |
(5,175,390 |
) |
(2,247,109 |
) |
(14,971,480 |
) | ||||
Cash
flows from investing activities: |
||||||||||
Purchase
of certificate of deposit |
—
|
—
|
(1,016,330 |
) | ||||||
Maturity
of certificate of deposit |
—
|
—
|
1,016,330
|
|||||||
Purchases
of property and equipment |
(305,773 |
) |
(16,376 |
) |
(428,242 |
) | ||||
Payment
on obligation under license agreement |
—
|
—
|
(106,250 |
) | ||||||
Cash
acquired in acquisition of subsidiary |
—
|
—
|
64,233
|
|||||||
Issuance of note receivable - related party |
—
|
—
|
(35,000 |
) | ||||||
Payments
on note receivable |
—
|
—
|
405,993
|
|||||||
Advance
to investee |
—
|
—
|
(90,475 |
) | ||||||
Cash
transferred in rescission of acquisition |
—
|
—
|
(19,475 |
) | ||||||
Cash
received in rescission of acquisition |
—
|
—
|
230,000
|
|||||||
Net
cash provided by (used in) investing activities |
(305,773 |
) |
(16,376 |
) |
20,784 |
|||||
Cash
flows from financing activities: |
||||||||||
Proceeds
from sale of Preferred Stock |
—
|
—
|
4,200,993
|
|||||||
Proceeds
from sale of Common Stock |
15,626,450
|
6,590,181
|
24,152,596 |
|||||||
Proceeds
from sale or exercise of warrants |
27,353
|
—
|
411,590 |
|||||||
Repurchase
of warrants |
—
|
49,721
|
(55,279 |
) | ||||||
Payment
of financing and offering costs |
(1,366,774 |
) |
—
|
(1,465,750 |
) | |||||
Payments
of notes payable and long-term debt |
—
|
(253,948 |
) |
(605,909 |
) | |||||
Proceeds
from issuance of notes payable and detachable warrants |
—
|
—
|
1,344,718
|
|||||||
Net
cash provided by financing activities |
14,287,029
|
6,385,954
|
27,982,959 |
|||||||
Net
increase in cash and cash equivalents |
8,805,866
|
4,122,469
|
13,032,263
|
|||||||
Cash
and cash equivalents at beginning of period |
4,226,397
|
103,928
|
-
|
|||||||
Cash
and cash equivalents at end of period |
$ |
13,032,263 |
$ |
4,226,397 |
$ |
13,032,263 |
See
accompanying notes to consolidated financial statements. |
F-9
(1)
Description of the Company
ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation, (the Company), is a
biopharmaceutical research and development company focused on introducing new
technologies for anticancer and antiviral treatments that improve the
performance of existing drugs and address significant problems such as drug
metabolism, bioavailability and resistance. The Company currently does not
manufacture, market, sell or distribute any product. Through our license
agreements with University of Texas M.D. Anderson Cancer Center (M.D. Anderson),
University of Southern California (USC), and the National Institutes of Health
(NIH), the Company has rights to drug candidates in varying early stages of
development.
On May
30, 2003, the Company merged our wholly owned subsidiary, Biokeys, Inc., into
itself and changed the name of the Company from Biokeys Pharmaceuticals, Inc. to
ADVENTRX Pharmaceuticals, Inc. The merger had no effect on the financial
statements of the Company.
In July
2004, the Company formed a wholly owned subsidiary, ADVENTRX (Europe) Ltd., in
the United Kingdom for the purpose of conducting drug trials in the European
Union.
(2)
Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the U. S. 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 period. Actual results could differ from those estimates.
The most
significant accounting estimates relate to valuing equity transactions as
described below. The value assigned to stock warrants granted to non-employees
is accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
(EITF) Issue 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). The Company values warrants using the Black-Scholes option pricing
model. Common Stock is valued using the market price of Common Stock on
the measurement date as defined in EITF 96-18.
Accounting
for Stock-Based Compensation
The
Company applies Statement of Financial Accounting Standards No. 123 and related
interpretations in accounting for employee stock-based compensation, and
includes the required footnote disclosures thereon.
Cash
Equivalents
Highly
liquid investments with original maturities of three months or less when
purchased are considered to be cash equivalents.
F-10
Financial
Instruments
The
carrying amounts of cash and cash equivalents and accounts payable are a
reasonable estimate of their fair values at the balance sheet dates due to the
short-term nature of these instruments.
The
Company maintains cash and cash equivalents with banks, which from time to time
may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that the risk of any loss
is minimal. At December 31, 2004, cash and cash equivalents with banks
exceeded federally insured limits by approximately $12,960,000.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are calculated
using the straight-line method over the estimated useful lives of the assets.
The costs of improvements that extend the lives of the assets are capitalized.
Repairs and maintenance are expensed as incurred.
Revenue
Recognition
The
Company recognizes revenue at the time service is performed on commercial
contracts and ability to collect is reasonably assured. Revenue from
government grants is a reimbursement for expenditures associated with the
research. The Company submits bills to the grant agency and revenue is
recognized at the time reimbursement is requested.
Research
and Development Costs
All
research and development costs are expensed as incurred, including
Company-sponsored research and development and cost of patent rights and
technology rights under license agreements that have no alternative future use
when incurred.
Impairment
of Long-lived Assets
In the
event that facts and circumstances indicate that property and equipment and
intangible or other long-lived assets with finite lives may be impaired, an
evaluation of the recoverability of currently recorded costs will be made. If an
evaluation is required, the estimated value of undiscounted future net cash
flows associated with the asset is compared to the asset’s carrying value to
determine if impairment exists. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Advertising
Expenses
Advertising
costs are expensed as incurred. Advertising costs charged to operations
for the years ended December 31, 2004 and 2003 totaled $67,782 and $88,221
respectively.
Income
Taxes
Income
taxes are accounted for using the asset and liability method under which
deferred tax assets and liabilities are recognized for estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax expense or benefit is recognized as a
result of the change in the asset or liability during the period.
F-11
Supplementary
Cash Flow Information
Interest
of $0 and $1,386 was paid during the years ended December 31, 2004 and 2003,
respectively. No income taxes were paid during 2004 or 2003.
Noncash
investing and financing transactions excluded from the consolidated statements
of cash flows for the years ended December 31, 2004 and 2003 and for the period
from Inception (June 12, 1996) to December 31, 2004 are as follows:
|
2004 |
2003 |
Inception
(June
12, 1996)
through
December
31, 2004 |
|||||||
|
|
|
||||||||
Issuance
of warrants, Common Stock and Preferred
Stock for: |
|
|
|
|||||||
Conversion
of notes payable and accrued
interest |
$ |
— |
$ |
53,491 |
$ |
1,213,988 |
||||
Payment
of operating expenses |
— |
— |
1,224,281 |
|||||||
Conversion
of Preferred Stock |
2,004 |
701 |
2,705 |
|||||||
Acquisitions |
— |
— |
14,617,603 |
|||||||
Payment
of dividends |
— |
— |
213,000 |
|||||||
Financial
advisor services in conjunction
with private placement |
1,137,456 |
— |
1,137,456 |
|||||||
Settlement
of claim |
86,375 |
— |
86,375 |
|||||||
Acquisition
of treasury stock in settlement of a claim |
34,747 |
— |
34,747 |
|||||||
Assumptions
of liabilities in acquisitions |
— |
— |
1,009,567 |
|||||||
Acquisition
of license agreement for long-term
debt |
— |
— |
161,180 |
|||||||
Cashless
exercise of warrants |
465 |
2,360 |
3,742 |
|||||||
Dividends
accrued |
—
|
37,840 |
621,040 |
|||||||
Trade
asset converted to available for sale asset |
108,000 |
— |
108,000 |
|||||||
Dividends
extinguished |
72,800 |
— |
408,240 |
|||||||
Trade
payable converted to note payable |
— |
83,948 |
||||||||
Issuance
of warrants for return of Common
Stock |
— |
50,852 |
50,852 |
|||||||
Detachable
warrants issued with notes payable |
— |
— |
450,000 |
New
Accounting Pronouncements
In
December 2004, the FASB issued Statement of Financial Accounting standards
No. 123 (revised 2004), Share-Based Payment (SFAS 123R). We currently
recognize our option grants and associated expenses in accordance with SFAS 123R
guidance, and therefore SFAS 123R is not expected to have a material effect on
our consolidated financial position or results of operations.
F-12
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29. The guidance in APB Opinion No 29, Accounting
for Nonmonetary Transactions, is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in
fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is
not expected to have a material impact on our financial position and results of
operations.
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. This statement amends the guidance in ARB No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts idle
facility expense, freight, handling costs, and wasted material (spoilage). We
currently have no inventory, sales or cost of goods, and therefore it is not
expected to have a material impact on our financial position and results of
operations.
In May
2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet. The adoption of this new accounting pronouncement is not expected to have
a material impact on the Company's financial statements.
In
January 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation
of Variable Interest Entities (FIN
46R) which addressed consolidation by business enterprises of variable interest
entities that meet certain criteria. FIN 46R was effective upon issuance, but
did not have an impact on the Company's financial position or results of
operations.
(3)
Property and Equipment
Property
and equipment at December 31, 2004 and December 31, 2003 were as
follows:
|
Useful
lives |
2004 |
2003 |
|||||||
|
||||||||||
Office
furniture, computer and lab equipment |
3 -
5 years |
$ |
333,286 |
$ |
48,259 |
|||||
Computer
software |
3
years |
11,845 |
11,845
|
|||||||
|
345,131 |
60,104
|
||||||||
Less
accumulated depreciation and amortization |
(59,827 |
) |
(39,264 |
) | ||||||
$ |
285,304 |
$ |
20,840 |
|||||||
|
F-13
(4)
Income Taxes
A
reconciliation of the expected income tax benefit at the U.S. Federal income tax
rate to the income tax benefit actually recognized for the years ended December
31, 2004 and 2003 is set forth below:
|
2004 |
2003 |
|||||
|
|||||||
Expected
income tax benefit |
$ |
2,278,000 |
$ |
793,000 |
|||
State
income benefit, net of federal tax |
371,000
|
135,000
|
|||||
Increase
in valuation allowance |
(2,518,000 |
) |
(931,000 |
) | |||
Other |
(19,000 |
) |
3,000
|
||||
Stock
options previously expensed, forfeited |
(112,000 |
) |
— |
||||
Income
tax benefit |
$ |
— |
$ |
— |
|||
|
The tax
effects of temporary differences that give rise to deferred tax assets at
December 31, 2004 and December 31, 2003 are as follows:
|
2004 |
2003 |
|||||
|
|||||||
Net
operating loss carryforwards |
$ |
6,864,000 |
$ |
4,654,000 |
|||
Change
in temporary deferred assets: |
|||||||
Other |
25,000 |
3,000 |
|||||
Stock
options expense under FAS 123 |
292,000 |
215,000 |
|||||
Accrued
settlements |
209,000 |
— |
|||||
Total
deferred tax assets |
7,390,000 |
4,872,000
|
|||||
|
|||||||
Less
valuation allowance |
(7,390,000 |
) |
(4,872,000 |
) | |||
Net
deferred tax assets |
$ |
— |
—
|
||||
|
At
December 31, 2004, the Company had unused net operating loss carryforwards of
approximately $17,271,000 and $15,586,000, which expire from 2010 through 2023,
for state and federal purposes, respectively.
(5)
Equity Transactions
In
January 2003, the Company paid accrued interest on notes payable through the
issuance of 119,454 shares of Common Stock, having a fair market value on the
date of issuance of $26,646.
In
January 2003, the Company completed a private placement of 1,589,856 shares of
Common Stock and warrants to purchase an additional 476,962 shares of Common
Stock at $0.40 per share to investors for gross proceeds of $635,949 in
cash.
In March
2003, the holders of 70,109.3 shares of Series C convertible Preferred Stock
elected to convert their shares of Series C Preferred Stock into 14,021,860
shares of Common Stock.
In March
2003, the Company paid two consulting firms for services rendered with 125,000
shares of Common Stock with a fair market value on the date of issuance of
$68,750, and two warrants to purchase 37,500 shares of Common Stock at an
exercise price of $0.50 per share. Each warrant will expire on March 25,
2006. The fair market value of the warrants on the date of issuance was
$33,777.
F-14
In March
2003, the Company issued three warrants to three individuals in consideration of
certain investment banking advice. The three warrants represent the right
to purchase 50,000, 50,000 and 10,000 shares of Common Stock at an exercise
price of $0.50 per share. Each warrant will expire on March 25,
2006. The fair market value of the warrants on the date of issuance was
$52,886.
In March
2003, the Company issued a warrant to a former executive in consideration of
certain covenants related to his separation from the Company. The warrant
represents the right to purchase 150,000 shares of Common Stock at an exercise
price of $1.25 per share. The warrant will expire on December 12,
2005. The Company recognized compensation expense of $50,852 in connection
with the issuance of this warrant.
During
the three months ended March 31, 2003, $10,955 was recognized in conjunction
with the vesting of warrants previously issued for consulting
services.
In April
2003, the Company paid accrued interest on notes payable through the issuance of
46,376 shares of Common Stock, having a fair market value on the date of
issuance of $26,845.
In June
2003, the Company completed a private placement of 5,027,328 shares of Common
Stock and warrants to purchase an additional 1,508,199 shares of Common Stock at
$0.60 per share to private investors for gross proceeds of $2,010,931 in
cash.
The
Company paid cash commissions of $49,400 in connection with the private
placement.
In June
2003 the Company issued 59,535 shares of Common Stock as commissions on the
private placement. The value of the commission was
$56,099.
In June
2003 the Company issued warrants to purchase 43,422 shares of Common Stock at
$0.60 per share and warrants to purchase 86,844 shares of Common Stock at $0.01
per share as commissions on the private placement. The value of these
warrants was $129,521.
In June
2003, the Company paid a consulting firm for services rendered with 75,000
shares of Common Stock with a fair market value on the date of issuance of
$91,500.
Between
August 2003 and October 2003, the Company completed a private placement of
2,691,990 shares of Common Stock and warrants to purchase an additional 834,600
shares of Common Stock at $1.25 per share to private investors for gross
proceeds of $2,691,990 in cash.
The
Company paid cash commissions of $124,500 in connection with the private
placement.
In
September 2003 the Company issued 124,200 shares of Common Stock as commissions
on the private placement. The value of the commission was $188,596.
In
September 2003, a warrant to purchase a total of 150,000 shares of Common Stock
at $1.25 per share was exercised in a cashless exchange for 23,165 shares of
Common Stock.
In
November 2003, the Company paid a consulting firm for services rendered with
30,000 shares of Common Stock with a fair market value on the date of issuance
of $46,549.
In
December 2003, the Company completed a private placement of 849,561 shares of
Common Stock, 649,797 shares of treasury stock, and warrants to purchase an
additional 435,000 shares of Common Stock at $1.25 per share to private
investors for gross proceeds of $1,488,961.
F-15
In
December 2003, the Company paid $63,750 and issued warrants to purchase 63,750
shares of Common Stock as commissions on the private placement. The value of the
commission was $56,478.
In
December 2003, warrants to purchase a total of 244,526 shares of Common Stock at
between $0.01 and $0.60 per share were exercised. Warrants representing
175,100 shares of Common Stock were issued for proceeds of $49,721. The
remaining warrants representing 69,426 shares of Common Stock were exchanged for
a total of 37,026 shares in a cashless exchange.
In March
2004, a warrant to purchase 3,750 shares of Common Stock at $0.60 per share was
exercised for proceeds of $2,250 and the Company issued 38,372 shares of Common
Stock upon the cashless exercise of a warrant to purchase 50,000 shares of
Common Stock at $0.50 per share.
In March
2004, 473 shares of Series A cumulative convertible Preferred Stock,
representing all of the Series A cumulative convertible Preferred Stock then
outstanding, was converted into 236,500 shares of Common Stock. In conjunction
with the conversion, dividends payable of $72,800 at December 31, 2003, were
extinguished.
In March
2004, 200,000 shares of Series B convertible Preferred Stock, representing all
of the Series B convertible Preferred Stock then outstanding, were converted
into 200,000 shares of Common Stock.
In April
2004, the Company sold 10,417,624 shares of Common Stock at $1.50 per share and
issued warrants to purchase 3,125,272 shares of Common Stock at $2.00 and
warrants to purchase 2,083,518 shares of Common Stock at $2.50 per share to
accredited investors in a private placement for aggregate gross proceeds of
$15,626,450 in cash. In connection with the private placement, the Company paid
cash commissions of $900,452 and other related expenses of $466,322 and issued
warrants to purchase 632,547 shares of Common Stock at $2.00 per share to two
placement agents, having a fair market value of $890,963 on the date of
issuance.
In April
2004, the Company engaged W.R. Hambrecht + Co., LLC for financial advisory and
investment banking services related to the private placement, and in connection
with that engagement, issued to it a warrant to purchase 175,000 shares of
Common Stock at $2.00 per share, having a fair market value of $246,493 on the
date of issuance.
In May
2004, a warrant to purchase 20,082 shares of Common Stock at $1.25 per share was
exercised for gross proceeds of $25,103.
In May
2004, the Company issued 46,784 shares of Common Stock upon the cashless
exercise of two warrants to purchase a total of 60,000 shares of Common Stock at
$0.50 per share.
In June
2004, the Company issued 379,417 shares of Common Stock upon the cashless
exercise of a warrant to purchase 502,528 shares of Common Stock at $0.49 per
share.
In
October 2004, the Company issued a warrant to purchase 300,000 shares of Common
Stock at an exercise price of $2.50 in settlement of a claim. The warrant, which
expires in October 2007, had a value of $86,375 on the date of
issuance.
Nonemployee
stock-based compensation that is not valued at the fair value of consideration
received is valued, as of the grant date, using the Black-Scholes pricing model
with the following assumptions for grants in 2004 and 2003: no dividend yield
for either year; expected volatility of 81% to 199%; risk-free interest rates
2.78% to 4.74%; and expected lives of three and seven years,
respectively.
F-16
At
December 31, 2004, there were outstanding warrants to purchase a total of
11,154,964 shares of Common Stock as follows:
Warrants |
Exercise
price |
Expiration
date |
||||||
118,094 |
$ |
0.49 |
Sep-05 |
|||||
440,000 |
0.50 |
Oct-05 |
||||||
100,000 |
3.00 |
Apr-06 |
||||||
2,090,537 |
0.60 |
May-06 |
||||||
502,528 |
0.49 |
Jun-06 |
||||||
914,175 |
1.25 |
Oct-06 |
||||||
150,000 |
0.50 |
Dec-06 |
||||||
523,293 |
1.25 |
Dec-06 |
||||||
300,000 |
2.50 |
Oct-07 |
||||||
3,932,819 |
2.00 |
Apr-09 |
||||||
2,083,518 |
2.50 |
Apr-09 |
||||||
Total |
11,154,964 |
|||||||
(6)
Stock
Compensation Plans
In
October 2002, the Company granted two non-statutory stock options to purchase an
aggregate of 1,500,000 shares and one non-statutory stock option to purchase
165,000 shares of Common Stock at $0.20 and $0.50 per share, respectively. The
value of the options on the date of the grant was $329,296. In July 2004, stock
options to purchase an aggregate of 1,665,000 shares of Common Stock were
forfeited.
In March
2003, the Company granted four non-statutory stock options to purchase an
aggregate of 1,900,000 shares of the Company's Common Stock at $0.50 per share.
The options were valued using the Black-Scholes pricing model. The value of the
options on the date of the grant was $948,846. In April and June 2003, the
Company and four of our option holders agreed to revise the vesting schedules of
the non-statutory stock options held by such optionholders. No other terms were
changed. In addition, in June 2003 one non-statutory stock option was modified
such that any portion of the option that was not vested as of July 1, 2003 was
cancelled in exchange for cash compensation.
On July
1, 2003, the Company formed a Scientific Advisory Board (the SAB). Each of the
three SAB members was granted an option to purchase 30,000 shares of Common
Stock at a purchase price of $1.25 per share. The value of the options on the
date of grant, July 1, 2003, was $97,086.
In
November 2003, the Company granted a non-statutory stock option to purchase
50,000 shares of the Company’s Common Stock at $1.25 per share. The value of the
option on the date of grant was $68,088.
In
January and February 2004, three individuals became members of the Company’s
board of directors. Each new director was granted an option to purchase 50,000
shares of Common Stock at a purchase price of $1.50 per share. The options begin
vesting 90 days from the date of grant and vest in equal installments over the
next four quarters. The options expire on December 30, 2008. The value of the
options on the dates of grant was $223,826.
In
February 2004, an individual became a member of the Company’s Scientific
Advisory Board. The new member was granted an option to purchase 30,000 shares
of Common Stock at a purchase price of $1.50 per share. The option will vest in
equal installments over eight quarters, starting March 1, 2004. The option will
expire on December 30, 2008. The value of the option on the date of grant was
$45,350.
F-17
In March
2004, the Company granted an option to purchase 100,000 shares of Common Stock
at a purchase price of $1.50 per share to the Company’s Vice President of
Clinical and Medical Affairs. The option will vest in three installments over
three years starting March 2004. The value of the option on the date of grant
was $88,627.
In April
2004, the Company granted an option to purchase 30,000 shares of Common Stock at
a purchase price of $1.50 per share to the Senior Scientist, Antiviral Research.
The option will vest in three installments over three years starting April 2004.
The value of the option on the date of grant was $37,600.
In the
period May 2004 through August 2004, the Company granted options to purchase an
aggregate of 66,000 shares of Common Stock at purchase prices of $1.20 to $1.80
per share to employees. AMEX listing requirements prohibit granting equity
without a shareholder vote or an approved stock option plan; therefore, the
options were rescinded in February 2005. Accordingly, the financial statement
effect of the options granted has been reversed in 2004.
The
Company recognized compensation expense of $524,922 in the year ended December
31, 2004, related to the portion of the options that vested in that
period.
|
December
31, 2004 |
December
31, 2003 |
|||||||||||
Non-statutory
Stock Options |
Shares
(000) |
Weighted-
Average
Exercise
Price |
Shares
(000) |
Weighted
Average
Exercise
Price |
|||||||||
Outstanding
at beginning of period |
2,980 |
$ |
0.38 |
1,690 |
$ |
0.23 |
|||||||
Granted |
310 |
$ |
1.50 |
2,040 |
$ |
0.58 |
|||||||
Forfeited |
(1,665 |
) |
$ |
0.23 |
(750 |
) |
$ |
0.50 |
|||||
|
|||||||||||||
Outstanding
at end of period |
1,625 |
$ |
0.75 |
2,980 |
$ |
0.38 |
|||||||
|
|||||||||||||
Options
exercisable at year end |
1,073 |
1,808 |
|||||||||||
Weighted-average
fair value of options
granted during the year |
$ |
1.28 |
$ |
0.54 |
|
Options
Outstanding |
Options
Exercisable |
||||||||||||||
Range
of
Exercise
Price |
Number
Outstanding
at
12/31/04 |
Weighted
Average
Remaining
Contractual
Life |
Weighted-
Average
Exercise
Price |
Number
Exercisable
at
12/31/04 |
Weighted-
Average
Exercise
Price |
|||||||||||
$0.20 to $1.50 | 1,625,000 |
4.03
years |
$ |
.75 |
1,072,502 |
$ |
.71 |
|||||||||
F-18
None of
the foregoing options were issued pursuant to a stock option plan. The
options expire on December 30, 2008 and vest as follows:
Options |
|
Exercise
price |
|
Vesting
date |
||||
12,500
|
0.20
|
October
2002 |
||||||
100,000
|
0.50
|
March
2003 |
||||||
137,500
|
0.50
|
April
2003 |
||||||
179,167
|
0.50
|
July
2003 |
||||||
11,250
|
1.25
|
July
2003 |
||||||
54,167
|
0.50
|
October
2003 |
||||||
11,250
|
1.25
|
October
2003 |
||||||
12,500
|
|
0.20
|
December
2003 |
|||||
54,167
|
0.50
|
January
2004 |
||||||
11,250
|
|
1.25
|
January
2004 |
|||||
33,750
|
1.50
|
March
2004 |
||||||
154,167
|
|
0.50
|
April
2004 |
|||||
11,250
|
1.25
|
April
2004 |
||||||
47,500
|
|
1.50
|
April
2004 |
|||||
3,750
|
1.50
|
June
2004 |
| |||||
54,167
|
0.50
|
July
2004 |
||||||
11,250
|
1.25
|
July
2004 |
||||||
37,500
|
1.50
|
July
2004 |
||||||
3,750
|
1.50
|
September
2004 |
||||||
54,167
|
0.50
|
October
2004 |
||||||
11,250
|
1.25
|
October
2004 |
||||||
37,500
|
1.50
|
October
2004 |
||||||
25,000
|
1.25
|
November
2004 |
||||||
3,750
|
1.50
|
December
2004 |
||||||
54,167
|
0.50
|
January
2005 |
||||||
11,250
|
1.25
|
January
2005 |
||||||
37,500
|
1.50
|
January
2005 |
||||||
33,750
|
1.50
|
March
2005 |
||||||
141,667
|
0.50
|
April
2005 |
||||||
11,250
|
1.25
|
April
2005 |
||||||
10,000
|
1.50
|
April
2005 |
||||||
3,750 |
1.50
|
June
2005 |
||||||
41,667
|
0.50
|
July
2005 |
||||||
3,750
|
1.50
|
September
2005 |
||||||
41,667
|
0.50
|
October
2005 |
||||||
25,000
|
1.25
|
November
2005 |
||||||
3,750
|
1.50
|
December
2005 |
||||||
41,667
|
0.50
|
January
2006 |
||||||
40,000
|
1.50
|
March
2005 |
||||||
41,663
|
0.50
|
April
2006 |
||||||
10,000
|
1.50
|
April
2006 |
||||||
Total |
1,625,000 |
(7) Net
Loss per Common Share
The
computation of basic and diluted net loss per share for the years ended December
31, 2004 and 2003 is as follows:
|
2004 |
2003 |
|||||
|
|||||||
Numerator: |
|
|
|||||
Net
loss |
$ |
(6,701,048 |
) |
$ |
(2,332,077 |
) | |
Preferred
Stock dividends |
— |
(37,840 |
) | ||||
Numerator
for basic and diluted loss per common share |
$ |
(6,701,048 |
) |
$ |
(2,369,917 |
) | |
Denominator
for basic and diluted
loss per share - weighted
average common shares
outstanding |
50,720,180 |
31,797,986 |
|||||
|
|||||||
Loss
per common share-basic and
diluted |
$ |
(0.13 |
) |
$ |
(0.07 |
) | |
|
F-19
Net loss
per common share is calculated according to Statement of Financial Accounting
No. 128, Earnings
per Share, using
the weighted average number of shares of Common Stock outstanding during the
period. The following potentially dilutive shares were not included in the
computation of net loss per common share - diluted, as their effect would have
been antidilutive due to the Company’s net losses in 2004 and 2003:
|
December
31, |
||||||
2004 |
2003 |
||||||
Preferred
Stock |
—
|
318,250 |
|||||
Warrants |
11,154,964 |
5,474,987 |
|||||
Options |
1,625,000 |
2,980,000 |
|||||
Total |
12,779,964 |
8,773,237 |
|||||
|
(8)
License
Agreements
M.D.
Anderson
Pursuant
to a patent and technology license agreement dated June 14, 1996 between M.D.
Anderson and the Company (the M.D. Anderson License Agreement), the Company
acquired a license to seven patents and patent applications related to
technology for HIV/AIDS therapy and prevention. Under the M.D. Anderson License
Agreement, the Company is obligated to pay M.D. Anderson for all out-of-pocket
expenses incurred in filing, prosecuting, enforcing, and maintaining the
licensed patent rights and all future patent-related expenses paid by M.D.
Anderson as long as the M.D. Anderson License Agreement remains in
effect.
The M.D.
Anderson License Agreement was amended effective June 15, 2000 (the Amendment).
The Amendment incorporated additional licensed subject matter, revised certain
royalty rates due to M.D. Anderson upon commercialization, and settled past due
patent and research and development amounts from the Company to M.D. Anderson.
The Company gave consideration valued at approximately $172,000 through the
issuance of 71,555 shares of Common Stock to reimburse M.D. Anderson for patent
costs incurred through June 15, 2000. The Company also issued 414,829 shares of
Common Stock to M.D. Anderson valued at $1,000,000, based on the market value of
the Company’s stock at the date of the settlement agreement, to settle past due
research and development obligations. In addition, the Company committed to
funding at least $1,000,000 of research and development activity through
December 31, 2001. Finally, the Amendment defined a milestone payment of Common
Stock with a value of $1,000,000 due to M.D. Anderson upon the enrollment of the
first patient in the first FDA Phase I human trial of any product that utilizes
licensed subject matter.
Under the
amended M.D. Anderson License Agreement, the Company has the right to a
royalty-bearing, exclusive license to manufacture, have manufactured, and use
and/or sell licensed products. M.D. Anderson’s retained interest consists of
royalties on net sales of licensed products and a share of consideration
received by the Company from all sublicenses and assignments. No royalties were
paid under this agreement during the years ended December 31, 2004 and 2003,
respectively. The M.D. Anderson License Agreement continues in effect until all
patent rights have expired.
Also, we
currently plan to renegotiate the terms of our license agreement with MD
Anderson. We have no guarantee that we will be able to negotiate terms,
including the royalty and milestone payment terms, which would be mutually
acceptable to both MD Anderson and the Company.
F-20
USC
Under an
Option and License Agreement with USC dated January 23, 1998, amended August 16,
2000, the Company acquired license rights to a total of three patents, two
relating to the Company’s CoFactor product and one relating to Selone, both of
which are intended for use in connection with cancer chemotherapy. In addition,
under a second Option and License Agreement dated August 17, 2000, the Company
acquired rights under four patents related to its Thiovir anti-viral
technologies. These agreements with USC (the USC License Agreements) grant the
Company exclusive worldwide licenses to study, use, manufacture and market drug
products covered by the subject patents. Under the USC License Agreements, the
Company is obligated to pay USC for out-of-pocket expenses incurred in filing,
prosecuting, enforcing, and maintaining the licensed patent rights and all
future patent-related expenses paid by USC as long as the USC License Agreements
remain in effect and until the patent rights have expired. USC’s retained
interest consists of royalties on net sales of licensed products and a share of
consideration received by the Company from all sublicenses and assignments. No
royalties have been paid under this agreement. The USC License Agreements
continue in effect until all patent rights have expired.
In May
2003, the Option and License Agreement dated August 17, 2000 was amended to
eliminate minimum royalty payments and instead require payments upon the
achievement of certain milestones. These milestones include a payment due
following market approval from the FDA, and is it unlikely that we will reach
this milestone in 2005.
NIH
Agreement
During
December 2002, the Company entered into a worldwide exclusive patent license
agreement with the Public Health Service National Institutes of Health (NIH)
concerning composition of matter for our drug, BlockAide/CR. Under the
terms of the agreement, the Company agrees to pay minimum royalty payments
during the first year of the license and minimum annual royalties thereafter or
the higher amount based upon a percentage of net sales. In addition, there
are benchmark royalties based upon: initiation of Phase I trials, initiation of
Phase II trials, initiation of Phase III trials, and upon first approval of a
Product License Application for an HIV therapeutic or vaccine in the U.S. and
for first approval in Europe. No material amount has been paid under this
agreement to date.
(9) Commitments and Contingencies
Operating
Leases
The
Company is obligated under operating leases for office space and equipment. In
July 2004, the Company leased office space in San Diego, California. Based
on a straight-line basis, the lease requires a monthly payment of $15,532 and
expires in August 2009. Rent expense was $118,966 and $40,648 during the
years ended December 31, 2004 and 2003, respectively.
Future
rental commitments under all operating leases amounts are as
follows:
Year
Ending |
||||
December
31, |
|
|||
2005 |
$ |
183,437 |
||
2006 |
188,756 |
|||
2007 |
194,238 |
|||
2008 |
193,721 |
|||
2009 |
131,705 |
|||
Total
|
$ |
891,857 |
||
Litigation
In the
normal course of business, the Company may become subject to lawsuits and other
claims and proceedings. Such matters are subject to uncertainty and outcomes are
often not predictable with assurance. On March 28, 2005, the Company received a
letter from counsel to a former executive in which the former executive claims
that the Company constructively terminated him, discriminated against him on the
basis of age and committed various torts against him. No settlement demand was
specifically made by the former executive in this letter and the letter
otherwise did not state any specific monetary damages that this former executive
has purportedly sustained. The Company believes that these claims lack merit and
intends to vigorously defend against them. Management is not aware of any other
pending or threatened lawsuit or proceeding that would have a material adverse
effect on the Company’s financial position, results of operations or cash
flows.
(10) |
Subsequent
Events |
Company
401(k) Plan
Effective
January 1, 2005, the Company adopted a deferred savings and profit sharing plan
under Section 401(k) of the Internal Revenue Code. Substantially all of its
employees may participate in and make voluntary contributions to this defined
contribution plan after they meet certain eligibility requirements. The Company
makes a percentage match of employee contributions subject to the Safe Harbor
provision of the 401(k) Plan.
F-21 |
Exhibit
10.11
Cellia
Habita, M.D., Ph.D.
March 1,
2004
[
]
Dear Dr.
Habita,
Thank you
for your interest in working for us. This letter is to confirm our offer to you
to join ADVENTRX Pharmaceuticals as a full-time employee as of Monday, March 8,
2004.
You will
begin employment as Vice President, Clinical and Medical Affairs, reporting
directly to me, at a starting salary of $160,000.00 annually, paid every two
weeks on the 1st and
15th of each
month. You may elect to participate in the Employee Benefits Program for
Healthcare coverage, which is completely paid for by the Company (current annual
cost of $16,000.00 for medical and dental). You will receive a performance
review on an annual basis, which will be based upon an assessment of your
ability to achieve agreed upon goals and the extent of your contribution to the
overall organization. Employment is on an at-will basis.
You will
be responsible for conducting Clinical and Medical activities both internally,
and externally to implement our development and clinical programs to further our
preclinical and clinical projects. You will take primary responsibility for
regulatory submissions. A key responsibility will be to develop a plan and
implementation schedule for submitting and obtaining European approval for
clinical program testing. You will assist in efforts that will result in
speaking engagements at clinical meetings, assist in the development of research
and clinical protocols and lend assistance on marketing and technical materials
for the Company. You will also be expected to assist in technical searches,
R&D planning, technology assessments and marketing research.
You will
be awarded 100,000 stock options, under the currently approved Employee Stock
Option Program of ADVENTRX, at a price of $1.50 per share. The first 30,000
options will vest at signing of this offer letter and commencement of work. The
second 30,000 will vest at the first anniversary of your employment and the
remaining options will vest on your second anniversary. There will also be the
possibility to receive additional stock options in the future based upon your
performance and the overall success of the Company. Your Non Statutory Stock
Option Agreement is attached. It is subject to acceptance of your employment
offer and approval by the Board of Directors.
You are
entitled to 4 weeks paid vacation per year. You will also have time off on
holidays with full pay. In addition, based upon hours worked and expected
fluctuations in schedules, you will receive comp time based upon my
recommendation and corporate approval.
In your
new capacity you will play an instrumental role in the future success of the
Company, as we move from our preclinical to clinical development status.
Please
sign both copies of this letter with your acceptance and return one in the
envelope provided.
Sincerely,
/s/ JOAN
M. ROBBINS
Joan M.
Robbins, Ph. D
Chief
Technical Officer
/s/
CELLIA HABITA
Acceptance
- - Cellia Habita, M.D., Ph.D. - date signed
Exhibit
10.12
November
15, 2004
Brian M.
Culley
[
]
Dear
Brian:
ADVENTRX
Pharmaceuticals, Inc. is pleased to offer you full-time employment on the terms
and conditions stated in this offer letter. We would employ you as Vice
President, Business Development reporting to Evan M. Levine, President &
CEO. Your
responsibilities would include the following:
Position
Responsibilities:
· |
Responsible
for the development and implementation of business strategies to meet
company goals and objectives. |
· |
Develops,
investigates, negotiates, and tracks business
agreements. |
· |
In
conjunction with senior scientific staff, plans and evaluates projects by
performing market research, determining the project’s financial viability
and planning a marketing strategy. |
· |
Works
with finance to design cost & pricing models that maximize growth
potential of the project. |
· |
Administers
and monitors appropriate cost and service measures (budgets, metrics,
measures, controls) to ensure the achievement of all key target goals and
objectives. |
· |
Negotiates
relationships with leading researchers in the field as
consultants. |
· |
Responsible
for overseeing projects and maximizing project resources. Leads efforts to
analyze current project operations and makes recommendations for
improvement and coordinates the decision-making
process. |
· |
Confers
with project personnel to provide technical
advice. |
· |
Creates
and delivers presentations to the Board of Directors and potential
corporate investors, venture capitalists, and strategic
partners. |
· |
Perform
other duties as required. |
General
Responsibilities:
· |
Operate
to the highest ethical and moral standards. |
· |
Comply
with our policies and procedures. |
· |
Adhere
to quality standards set by regulations, and our policies, procedures and
mission. |
· |
Communicate
effectively with supervisors, colleagues and subordinates. Be committed to
team effort and be willing to assist in unrelated job areas when called
upon. |
· |
Provide
administrative leadership for us and provide knowledge-based expertise in
related areas that can be applied to meeting the strategic
goals. |
· |
Travel
as needed. |
We would
initially compensate you at the rate of $170,000 per year, less payroll
deductions and withholding, payable in accordance with our payroll policies.
We would
recommend that our Board of Directors grant you a nonstatutory stock option to
purchase 100,000 shares of our common stock which option would vest with respect
to 33,352 shares on your first anniversary of employment with the remainder of
the shares vesting at the rate of 2,777 shares per month for each month of your
employment until fully vested. The
issuance of this option would be conditioned on the adoption by us and our
stockholders of a stock option plan, which we currently expect to do by May
2005. There
would also be the possibility of receiving additional stock options in the
future based upon your performance and our overall success.
As an our
employee, you would be entitled to participate in our medical, dental, life
insurance and 401(k) programs on the same terms as our other full-time
employees. These programs as well as other employee benefits and policies are
described in further detail in our Policies and Procedure Manual. We reserve the
right to modify or amend at our sole discretion the terms of any and all
employee benefit programs from time to time without advance notice to our
employees. “Notwithstanding our employee vacation policy set forth in the Policy
and Procedure Manual, you will be entitled to 20 vacation days per year which
shall accrue in accordance with our general vacation accrual
policy.”
Your
employment with us would be “at will” and not for a specified term. We make no
express or implied commitment that your employment will have a minimum or fixed
term, that we may take adverse employment action only for cause or that your
employment is terminable only for cause. We may terminate your employment with
or without cause and with or without advance notice at any time and for any
reason. Any contrary representations or agreements that may have been made to
you are superseded by this offer. The at-will nature of your employment
described by this offer letter shall constitute the entire agreement between you
and ADVENTRX concerning the nature and duration of your employment. Although
your job duties, title and compensation and benefits may change over time, the
at-will nature of your employment with us can only be changed in a written
agreement signed by you and our CEO.
Our
proprietary rights and confidential information are among our most important
assets. In addition to signing this offer letter as a condition to your
employment, you must also sign the Confidential
Information, Non-Solicitation and Invention Assignment Agreement, a copy of
which is attached.
We
require that in the course of your employment with us that you not use or
disclose to us any confidential information, including trade secrets, of any
former employer or other person to whom you have had an obligation of
confidentiality. Rather, you will be expected to use only that information which
is generally known and used by persons with training and experience comparable
to your own, which is common knowledge in the industry or otherwise legally in
the public domain, or which is otherwise provided or developed by us. During our
discussions about your proposed job duties, you assured us that you would be
able to perform those duties within the guidelines just described. Accordingly,
you further agree that you will not bring on to our premises any unpublished
documents or property belonging to any former employer or other person to whom
you have an obligation of confidentiality.
As an
employee, we require that you comply with all of our policies and procedures,
including, without limitation, our Code of Business Conduct and Ethics, a copy
of which is attached. Violation of any or our policies or procedures would be
cause for disciplinary action including termination.
Your
employment with us is also conditioned upon your ability to provide adequate
documentation of your legal right to work in the United States, as well as
educational credentials, and successful completion of our reference checking
process. If you make any misrepresentations to us or omit to state a material
fact necessary in order to make another statement made not misleading, we may
void this offer or, if you are already employed, terminate your
employment.
If any
portion of this offer letter shall, for any reason, be held invalid or
unenforceable, or contrary to public policy or any law, the remainder of this
offer letter shall not be affected by such invalidity or unenforceability, but
shall remain in full force and effect, as if the invalid or unenforceable term
or portion thereof had not existed within this offer letter.
If you
accept this offer, we would like you to begin full time work with us on December
1, 2004. I look forward to you joining us and being an integral and important
part of our team. Please sign below to accept this offer and return the fully
executed letter to me within five business days. You should keep one copy of
this letter for your own records.
Sincerely,
ADVENTRX Pharmaceuticals, Inc. | ACCEPTED AND AGREED: | |
/s/ JOAN M. ROBBINS | /s/ BRIAN M. CULLEY | |
Joan M. Robbins, Ph.D. | Brian M. Culley | |
Chief Technical Officer | ||
|
Date: | |
Exhibit
10.13
November
17, 2004
Carrie E.
Carlander
[
]
Dear
Carrie:
ADVENTRX
Pharmaceuticals, Inc. is pleased to offer you full-time employment on the terms
and conditions stated in this offer letter. We would employ you as a Chief
Financial Officer reporting to Evan M. Levine, President & CEO. Your
responsibilities would include the following:
Position
Responsibilities:
· |
Financial
analysis and planning. |
· |
Perform
financial modeling and projections, including cost-benefit analysis,
pro-forma P&Ls, balance sheet and cash flows. |
· |
Oversee
the month end closing activities and general ledger entries within the
accounting function to include all general ledger account
reconciliation’s. |
· |
Maintain
and refine all accounting functions and processes for the Company (i.e.
financial statements, budgets, and analyses). |
· |
Prepare
the annual budget and on-going re-forecasts and
projections. |
· |
Responsible
for the preparation and submission of various SEC and tax
filings. |
· |
Board
and shareholder relations, including providing Board materials and
answering questions regarding financial
statements. |
· |
Creates
and delivers presentations to the Board of Directors and potential
corporate investors, venture capitalists, and strategic
partners. |
· |
Assesses
Company accounting and operational systems/policies to safeguard assets
and ensure accurate financial information. |
· |
Works
with our outside auditors to provide supporting documentation and
information as needed. |
· |
Oversees
and directs the preparation and issuance of the corporation’s annual
report. |
· |
Leads
any financing efforts and is the key contact for due
diligence. |
· |
Establishes
and maintains contacts with shareholders, financial institutions, and the
investment community. |
· |
Perform
other duties as required. |
General
Responsibilities:
· |
Operate
to the highest ethical and moral standards. |
· |
Comply
with our policies and procedures. |
· |
Adhere
to quality standards set by regulations, and our policies, procedures and
mission. |
· |
Communicate
effectively with supervisors, colleagues and subordinates. Be committed to
team effort and be willing to assist in unrelated job areas when called
upon. |
· |
Provide
administrative leadership for us and provide knowledge-based expertise in
related areas that can be applied to meeting the strategic
goals. |
· |
Travel
as needed. |
We would
initially compensate you at the rate of $180,000 per year, less payroll
deductions and withholding, payable in accordance with our payroll policies.
We would
recommend that our Board of Directors grant you a nonstatutory stock option to
purchase 200,000 shares of our common stock which option would vest with respect
to 66,680 shares on your first anniversary of employment with the remainder of
the shares vesting at the rate of 5,555 shares per month for each month of your
employment until fully vested. The issuance of this option would be conditioned
on the adoption by us and our stockholders of a stock option plan, which we
currently expect to do by May 2005. There would also be the possibility of
receiving additional stock options in the future based upon your performance and
our overall success.
As an our
employee, you would be entitled to participate in our medical, dental, life
insurance and 401(k) programs on the same terms as our other full-time
employees. These programs as well as other employee benefits and policies are
described in further detail in our Policies and Procedure Manual. We reserve the
right to modify or amend at our sole discretion the terms of any and all
employee benefit programs from time to time without advance notice to our
employees. “Notwithstanding our employee vacation policy set forth in the Policy
and Procedure Manual, you will be entitled to 20 vacation days per year which
shall accrue in accordance with our general vacation accrual
policy.”
Your
employment with us would be “at will” and not for a specified term. We make no
express or implied commitment that your employment will have a minimum or fixed
term, that we may take adverse employment action only for cause or that your
employment is terminable only for cause. We may terminate your employment with
or without cause and with or without advance notice at any time and for any
reason. Any contrary representations or agreements that may have been made to
you are superseded by this offer. The at-will nature of your employment
described by this offer letter shall constitute the entire agreement between you
and ADVENTRX concerning the nature and duration of your employment. Although
your job duties, title and compensation and benefits may change over time, the
at-will nature of your employment with us can only be changed in a written
agreement signed by you and our CEO.
Our
proprietary rights and confidential information are among our most important
assets. In addition to signing this offer letter as a condition to your
employment, you must also sign the Confidential
Information, Non-Solicitation and Invention Assignment Agreement, a copy of
which is attached.
We
require that in the course of your employment with us that you not use or
disclose to us any confidential information, including trade secrets, of any
former employer or other person to whom you have had an obligation of
confidentiality. Rather, you will be expected to use only that information which
is generally known and used by persons with training and experience comparable
to your own, which is common knowledge in the industry or otherwise legally in
the public domain, or which is otherwise provided or developed by us. During our
discussions about your proposed job duties, you assured us that you would be
able to perform those duties within the guidelines just described. Accordingly,
you further agree that you will not bring on to our premises any unpublished
documents or property belonging to any former employer or other person to whom
you have an obligation of confidentiality.
As an
employee, we require that you comply with all of our policies and procedures,
including, without limitation, our Code of Business Conduct and Ethics, a copy
of which is attached. Violation of any or our policies or procedures would be
cause for disciplinary action including termination.
Your
employment with us is also conditioned upon your ability to provide adequate
documentation of your legal right to work in the United States, as well as
educational credentials, and successful completion of our reference checking
process. If you make any misrepresentations to us or omit to state a material
fact necessary in order to make another statement made not misleading, we may
void this offer or, if you are already employed, terminate your
employment.
If any
portion of this offer letter shall, for any reason, be held invalid or
unenforceable, or contrary to public policy or any law, the remainder of this
offer letter shall not be affected by such invalidity or unenforceability, but
shall remain in full force and effect, as if the invalid or unenforceable term
or portion thereof had not existed within this offer letter.
If you
accept this offer, we would like you to begin full time work with us on November
17, 2004. I look forward to you joining us and being an integral and important
part of our team. Please sign below to accept this offer and return the fully
executed letter to me within five business days. You should keep one copy of
this letter for your own records.
Sincerely,
ADVENTRX Pharmaceuticals, Inc. | ACCEPTED AND AGREED: | |
/s/ EVAN M. LEVINE | /s/ CARRIE E. CARLANDER | |
Evan M. Levine | Carrie E. Carlander | |
President & CEO | ||
Date: |
EXHIBIT
21.1
LIST
OF SUBSIDIARIES
ADVENTRX
(Europe) Ltd.
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement on Form
S-3 (No. 333-117022) previously filed by ADVENTRX Pharmaceuticals, Inc. of our
report dated February 5, 2005 on our audit of the consolidated financial
statements of the Company as of December 31, 2004 and 2003 and for the years
then ended, which report appears elsewhere in this Annual Report on Form 10-KSB
of the Company for the year ended December 31, 2004.
/s/ J. H.
COHN LLP
San
Diego, California
March 29,
2005
EXHIBIT
31.1
CERTIFICATION
I, Evan
Levine, certify that:
1. I have
reviewed this annual report on Form 10-KSB of ADVENTRX Pharmaceuticals, Inc.;
2. Based
on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(c)
Disclosed in this annual report any change in the registrant’s internal control
over financial reporting that occurred during registrant’s most recent fiscal
quarter (the registrant’s fourth quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
|
March 31,
2005 |
| ||
|
| |||
|
By:
|
/s/
EVAN LEVINE |
| |
|
|
Evan
Levine | ||
|
|
Chief
Executive Officer |
EXHIBIT
31.2
CERTIFICATION
I, Carrie
E. Carlander, certify that:
1. I have
reviewed this annual report on Form 10-KSB of ADVENTRX Pharmaceuticals, Inc.;
2. Based
on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(c)
Disclosed in this annual report any change in the registrant’s internal control
over financial reporting that occurred during registrant’s most recent fiscal
quarter (the registrant’s fourth quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
|
March 31,
2005 |
| ||
|
| |||
|
By:
|
/s/
CARRIE E. CARLANDER |
| |
|
|
Carrie
E. Carlander | ||
|
|
Chief
Financial Officer |
Exhibit
32.1
CERTIFICATION
Evan
Levine, Chief Executive Officer of ADVENTRX Pharmaceuticals, Inc., hereby
certifies pursuant to the requirement set forth in Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
Section 1350) that, to the best of his knowledge:
1. The
Annual Report on Form 10-KSB of ADVENTRX Pharmaceuticals, Inc. for the year
ended December 31, 2004 fully complies with the requirements of
Section 13(a) or 15(d) of the Exchange Act and
2. The
information contained in the Annual Report on Form 10-KSB of ADVENTRX
Pharmaceuticals, Inc. for the year ended December 31, 2004 fairly presents,
in all material respects, the financial condition and results of operations of
ADVENTRX Pharmaceuticals, Inc. for the period covered by the Annual Report.
Dated:
|
March 31,
2005 |
| ||
|
| |||
|
By:
|
/s/
EVAN LEVINE |
| |
|
|
Evan
Levine | ||
|
|
Chief
Executive Officer |
Exhibit
32.2
CERTIFICATION
Carrie E.
Carlander, Chief Financial Officer of ADVENTRX Pharmaceuticals, Inc., hereby
certifies pursuant to the requirement set forth in Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
Section 1350) that, to the best of his knowledge:
1. The
Annual Report on Form 10-KSB of ADVENTRX Pharmaceuticals, Inc. for the year
ended December 31, 2004 fully complies with the requirements of
Section 13(a) or 15(d) of the Exchange Act and
2. The
information contained in the Annual Report on Form 10-KSB of ADVENTRX
Pharmaceuticals, Inc. for the year ended December 31, 2004 fairly presents,
in all material respects, the financial condition and results of operations of
ADVENTRX Pharmaceuticals, Inc. for the period covered by the Annual Report.
Dated:
|
March 31,
2005 |
| ||
|
| |||
|
By:
|
/s/
CARRIE E. CARLANDER |
| |
|
|
Carrie
E. Carlander | ||
|
|
Chief
Financial Officer |