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Filing
FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One) |
|
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
|
For
the quarterly period ended March 31, 2005 |
|
OR |
|
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
|
For
the Transition Period
from to |
Commission
File Number 001-32157
ADVENTRX
Pharmaceuticals, Inc.
(Exact
name of registrant as specified 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 |
858-552-0866 |
(Address
of principal executive offices, zip code and telephone number, including
area code) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ý No
o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12-b-2 of the Exchange Act): Yes o No
ý
The
number of shares outstanding of the registrant’s common stock, $.001 par value,
as of April 30, 2005 was 54,843,551.
ADVENTRX
PHARMACEUTICALS, INC.
FORM
10-Q QUARTERLY REPORT
For
the Period Ended March 31, 2005
TABLE
OF CONTENTS
Page | ||||
PART
I - FINANCIAL INFORMATION |
|
|||
|
Item
1 |
Condensed
Consolidated Financial Statements |
||
|
a. |
Condensed
Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and December
31, 2004 |
1. | |
|
b. |
Condensed
Consolidated
Statements of Operations for the three months ended March 31, 2005 and
2004 and for the period from inception through March 31, 2005
(Unaudited) |
2. | |
|
c. |
Condensed
Consolidated
Statement of Stockholders’ Equity (Deficit) from Inception (June 12, 1996)
through March 31, 2005
(Unaudited) |
3. | |
|
d. |
Condensed
Consolidated
Statements of Cash Flows for the three months ended March 31, 2005 and
2004 and for the period from inception through March 31, 2005
(Unaudited) |
5. | |
|
e. |
Notes
to Condensed
Consolidated Financial Statements
(Unaudited) |
6. | |
|
Item
2 |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
9. | |
|
Item
3 |
Quantitative
and Qualitative Disclosures About Market Risk |
17. | |
|
Item
4 |
Controls
and Procedures |
17. | |
|
|
|
||
PART
II - OTHER INFORMATION |
||||
|
|
|
||
|
Item
1 |
Legal
Proceedings |
18. | |
|
Item
2 |
Unregistered
Sales of Equity Securities and Use of Proceeds |
18. | |
|
Item
5 |
Other
Information |
18. | |
|
Item
6 |
Exhibits |
18. | |
|
|
|
||
SIGNATURES |
PART I
- - FINANCIAL INFORMATION
Item
1. Condensed
Consolidated Financial Statements
ADVENTRX
PHARMACEUTICALS, INC.
(Formerly Biokeys Pharmaceuticals, Inc.)
(Formerly Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Condensed
Consolidated Balance Sheets
March 31, 2005 |
December
31, 2004 |
||||||
(unaudited) |
|||||||
Assets |
|||||||
Current
assets: |
|||||||
Cash
and cash equivalents |
$ |
10,532,678 |
$ |
13,032,263 |
|||
Accrued
interest income |
—
|
10,808
|
|||||
Prepaid
expenses |
54,881
|
115,144
|
|||||
Other
current assets |
27,392
|
—
|
|||||
Assets
available for sale |
—
|
108,000
|
|||||
Total
current assets |
10,614,951
|
13,266,215
|
|||||
Property
and equipment, net |
290,482
|
285,304
|
|||||
Other
assets |
53,012
|
57,268
|
|||||
Total
assets |
$ |
10,958,445 |
$ |
13,608,787 |
|||
Liabilities
and Shareholders’ Equity |
|||||||
Current
liabilities: |
|||||||
Accounts
payable |
$ |
970,324 |
$ |
532,327 |
|||
Accrued
liabilities |
102,392
|
628,754
|
|||||
Accrued
salary and related taxes |
88,796
|
57,315
|
|||||
Total
current liabilities |
1,161,512
|
1,218,396
|
|||||
Commitments
and contingencies |
|||||||
Shareholders’
equity: |
|||||||
Common
stock, $0.001 par value. Authorized 100,000,000 shares; issued
54,037,987 shares in 2005 and 53,834,237 shares in
2004 |
54,039
|
53,835
|
|||||
Additional
paid-in capital |
47,804,769
|
47,553,497
|
|||||
Deficit
accumulated during the development stage |
(38,027,128 |
) |
(35,182,194 |
) | |||
Treasury
stock, 23,165 shares at cost |
(34,747 |
) |
(34,747 |
) | |||
Total
shareholders’ equity |
9,796,933
|
12,390,391
|
|||||
Total
liabilities and shareholders’ equity |
$ |
10,958,445 |
$ |
13,608,787 |
See
accompanying notes to unaudited condensed consolidated financial
statements.
1
ADVENTRX
PHARMACEUTICALS, INC.
(Formerly
Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Condensed
Consolidated Statements of Operations
(unaudited)
Three
months ended March 31, |
Inception (June
12, 1996) |
|||||||||
2005 |
2004 |
2005 |
||||||||
Net
sales |
$ |
— |
$ |
— |
$ |
174,830 |
||||
Cost
of goods sold |
—
|
—
|
51,094
|
|||||||
Gross
margin |
—
|
—
|
123,736
|
|||||||
Grant
revenue |
—
|
—
|
129,733
|
|||||||
Interest
income |
37,322
|
3,346
|
239,600
|
|||||||
37,322
|
3,346
|
493,069
|
||||||||
Operating
expenses: |
||||||||||
Research
and development |
1,704,797
|
296,375
|
9,179,051
|
|||||||
General
and administrative |
1,150,033
|
414,382
|
13,583,330
|
|||||||
Depreciation
and amortization |
27,126
|
3,052
|
10,167,142
|
|||||||
Impairment
loss – write off of goodwill |
—
|
—
|
5,702,130
|
|||||||
Interest
expense |
300
|
—
|
179,390
|
|||||||
Equity
in loss of investee |
—
|
—
|
178,936
|
|||||||
Total
operating expenses |
2,882,256
|
713,809
|
38,989,979
|
|||||||
Loss before cumulative effect of change
in accounting principle |
(2,844,934 |
) |
(710,463 |
) |
(38,496,910 |
) | ||||
Cumulative
effect of change in accounting principle
|
—
|
—
|
(25,821 |
) | ||||||
Net
loss |
(2,844,934 |
) |
(710,463 |
) |
(38,522,731 |
) | ||||
Preferred
stock dividends |
—
|
—
|
(621,240 |
) | ||||||
Net
loss applicable to common stock |
$ |
(2,844,934 |
) |
$ |
(710,463 |
) |
$ |
(39,143,971 |
) | |
Loss
per common share – basic and diluted |
$ |
(.05 |
) |
$ |
(.02 |
) |
See
accompanying notes to unaudited condensed consolidated financial
statements.
2
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(A
Development Stage Enterprise)
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
Inception (June 12, 1996) through March 31, 2005
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
Inception (June 12, 1996) through March 31, 2005
Cumulative
convertible preferred stock, series
A |
Cumulative
convertible preferred stock, series
B |
Cumulative
convertible preferred stock, series
C |
Common
stock |
Additional paid-in |
Deficit accumulated during the development |
Treasury Stock, |
Total shareholders’ equity |
||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
capital |
stage |
at
cost |
(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 |
3,200
|
32
|
—
|
—
|
—
|
—
|
—
|
—
|
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 |
3,200
|
32
|
—
|
—
|
—
|
—
|
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 |
) |
—
|
—
|
—
|
||||||||||||||||||||||||
Issuance
of common stock to pay preferred dividends |
—
|
—
|
—
|
—
|
—
|
—
|
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 expenses |
137
|
1
|
—
|
—
|
—
|
—
|
—
|
—
|
136,499
|
—
|
—
|
136,500
|
|||||||||||||||||||||||||
Net
loss |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(16,339,120 |
) |
—
|
(16,339,120 |
) | |||||||||||||||||||||||
Balances
at December 31, 2001 |
3,337
|
33
|
—
|
—
|
—
|
—
|
15,005,191
|
15,005
|
23,389,818
|
(24,043,342 |
) |
—
|
(638,486 |
) |
See
accompanying notes to unaudited condensed consolidated financial
statements.
3
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(A
Development Stage Enterprise)
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
Inception (June 12, 1996) through March 31, 2005
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
Inception (June 12, 1996) through March 31, 2005
CONTINUED
FROM PREVIOUS PAGE
Cumulative convertible preferred
stock, series A |
Cumulative
convertible preferred stock, series
B |
Cumulative
convertible preferred stock, series
C |
Common
stock |
Additional paid-in |
Deficit accumulated during the development |
Treasury Stock, |
Total shareholders’ equity |
||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
capital |
stage |
at
cost |
(deficit) |
||||||||||||||||||||||||||
Dividends
payable on preferred stock |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(242,400 |
) |
—
|
—
|
(242,400 |
) | |||||||||||||||||||||||
Repurchase
of warrants |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||
Sale
of warrants |
—
|
—
|
—
|
—
|
—
|
—
|
240,000
|
240
|
117,613
|
—
|
—
|
117,853
|
|||||||||||||||||||||||||
Cashless
exercise of warrants |
—
|
—
|
—
|
—
|
—
|
—
|
100,201
|
100
|
(100 |
) |
—
|
—
|
—
|
||||||||||||||||||||||||
Excersice
of warrants |
—
|
—
|
—
|
—
|
—
|
—
|
344,573
|
345
|
168,477
|
—
|
—
|
168,822
|
|||||||||||||||||||||||||
Sale
of preferred stock at $1.50 |
—
|
—
|
200,000
|
2,000
|
—
|
—
|
—
|
—
|
298,000 |
—
|
—
|
300,000 |
|||||||||||||||||||||||||
Sale
of preferred stock at $10.00 |
—
|
—
|
—
|
—
|
70,109
|
701
|
— | — | 700,392 | — | — | 701,093 | |||||||||||||||||||||||||
Conversion
of preferred stock into common stock |
(3,000 |
) |
(30 |
) |
—
|
—
|
—
|
—
|
1,800,000
|
1,800
|
(1,770 |
) |
—
|
—
|
—
|
||||||||||||||||||||||
Preferred
stock dividends forgiven |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
335,440
|
—
|
—
|
335,440
|
|||||||||||||||||||||||||
Issuance
of warrants to pay operating expenses |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
163,109
|
—
|
—
|
163,109
|
|||||||||||||||||||||||||
Issuance
of common stock to pay operating expenses |
—
|
—
|
—
|
—
|
—
|
—
|
6,292
|
6
|
12,263
|
—
|
—
|
12,269
|
|||||||||||||||||||||||||
Issuance
of preferred stock to pay operating expenses |
136
|
1
|
—
|
—
|
—
|
—
|
—
|
—
|
6,000
|
—
|
—
|
6,001
|
|||||||||||||||||||||||||
Issuance
of stock options to employees |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
329,296
|
—
|
—
|
329,296
|
|||||||||||||||||||||||||
Net
loss |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,105,727 |
) |
—
|
(2,105,727 |
) | |||||||||||||||||||||||
Balances
at December 31, 2002 |
473
|
4
|
200,000
|
2,000
|
70,109
|
701
|
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 |
—
|
—
|
—
|
—
|
(70,109 |
) |
(701 |
) |
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 |
—
|
—
|
—
|
—
|
—
|
—
|
230,000
|
230
|
206,569
|
—
|
—
|
206,799
|
|||||||||||||||||||||||||
Issuance
of warrants to pay operating expenses |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
156,735
|
—
|
—
|
156,735
|
|||||||||||||||||||||||||
Issuance
of stock options to employees |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
286,033
|
—
|
—
|
286,033
|
|||||||||||||||||||||||||
Net
loss |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,332,077 |
) |
—
|
(2,332,077 |
) | |||||||||||||||||||||||
Balances
at December 31, 2003 |
473
|
4
|
200,000
|
2,000
|
—
|
—
|
42,491,708
|
42,492
|
32,556,963
|
(28,481,146 |
) |
—
|
4,120,313 |
||||||||||||||||||||||||
Extinquishment
of dividends payable on preferred stock |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
72,800
|
—
|
—
|
72,800
|
|||||||||||||||||||||||||
Conversion
of Series A cummulative preferred stock |
(473 |
) |
(4 |
) |
—
|
—
|
—
|
—
|
236,500
|
236
|
(232 |
) |
—
|
—
|
—
|
||||||||||||||||||||||
Conversion
of Series B preferred stock |
—
|
—
|
(200,000 |
) |
(2,000 |
) |
—
|
—
|
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 |
|||||||||||||||||||||||
Exercise
of warrants |
—
|
—
|
—
|
—
|
—
|
—
|
203,750 |
204 |
122,046 |
—
|
—
|
122,250 |
|||||||||||||||||||||||||
Issuance
of stock options to employees |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
129,226
|
—
|
—
|
129,226
|
|||||||||||||||||||||||||
Net
loss |
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,844,934 |
) |
—
|
(2,844,934 |
) | |||||||||||||||||||||||
Balances
at March 31, 2005 (unaudited) |
—
|
$ |
— |
—
|
$ |
— |
—
|
$ |
— |
54,037,987 |
$ |
54,039 |
$ |
47,804,769 |
$ |
(38,027,128 |
) |
$ |
(34,747 |
) |
$ |
9,796,933 |
|||||||||||||||
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
4
ADVENTRX
PHARMACEUTICALS, INC.
(Formerly
Biokeys Pharmaceuticals, Inc.)
(A
Development Stage Enterprise)
Condensed
Consolidated Statements of Cash Flows
(unaudited)
Three
months ended March 31, |
Inception (June 12, 1996) through March 31, |
|||||||||
2005 |
2004 |
2005 |
||||||||
Cash
flows from operating activities: |
||||||||||
Net
loss |
$ |
(2,844,934 |
) |
$ |
(710,463 |
) |
$ |
(38,522,731 |
) | |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
||||||||||
Depreciation
and amortization |
27,126
|
3,052
|
9,717,142
|
|||||||
Amortization
of debt discount |
—
|
—
|
450,000
|
|||||||
Forgiveness
of employee receivable |
—
|
—
|
30,036
|
|||||||
Impairment
loss – write off of goodwill |
—
|
—
|
5,702,130
|
|||||||
Expenses
paid by warrants |
—
|
—
|
573,357
|
|||||||
Expenses
paid by preferred stock |
—
|
—
|
142,501
|
|||||||
Expenses
related to stock warrants issued |
—
|
—
|
612,000
|
|||||||
Expenses
related to employee stock options issued |
129,226
|
86,860
|
1,269,477
|
|||||||
Expenses
paid by issuance of common stock |
—
|
—
|
817,548
|
|||||||
Equity
in loss of investee |
—
|
—
|
178,936
|
|||||||
Write-off
of license agreement |
—
|
—
|
152,866
|
|||||||
Write-off
assets available for sale |
108,000
|
—
|
108,000
|
|||||||
Cumulative
effect of change in accounting principle |
—
|
—
|
25,821
|
|||||||
Changes
in assets and liabilities, net of effect of acquisitions: |
||||||||||
(Increase)
decrease in prepaid and other assets |
47,935
|
(107,359 |
) |
(382,653 |
) | |||||
Increase
(decrease) in accounts payable and
accrued liabilities |
(56,884 |
) |
(38,774 |
) |
640,241
|
|||||
Increase
in sponsored research payable and license
obligation |
—
|
—
|
924,318
|
|||||||
Net
cash used in operating activities |
(2,589,531 |
) |
(766,684 |
) |
(17,561,011 |
) | ||||
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 |
(32,304 |
) |
(36,794 |
) |
(460,546 |
) | ||||
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 used in investing activities |
(32,304 |
) |
(36,794 |
) |
(11,520 |
) | ||||
Cash
flows from financing activities: |
||||||||||
Proceeds
from sale of preferred stock |
—
|
—
|
4,200,993
|
|||||||
Proceeds
from sale of common stock |
—
|
—
|
24,152,596
|
|||||||
Proceeds
from sale or exercise of warrants |
122,250
|
2,250
|
533,840
|
|||||||
Repurchase
of warrants |
—
|
—
|
(55,279 |
) | ||||||
Payment
of financing and offering costs |
—
|
(1,251 |
) |
(1,465,750 |
) | |||||
Payments
of notes payable and long-term debt |
—
|
—
|
(605,909 |
) | ||||||
Proceeds
from issuance of notes payable and detachable warrants |
—
|
—
|
1,344,718
|
|||||||
Net
cash provided by financing activities |
122,250
|
999
|
28,105,209
|
|||||||
Net
increase (decrease) in cash and cash equivalents |
(2,499,585 |
) |
(802,479 |
) |
10,532,678
|
|||||
Cash
and cash equivalents at beginning of period |
13,032,263
|
4,226,397
|
—
|
|||||||
Cash
and cash equivalents at end of period |
$ |
10,532,678 |
$ |
3,423,918 |
$ |
10,532,678 |
||||
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
5
ADVENTRX
Pharmaceuticals, Inc.
Notes
to Condensed Consolidated Financial Statements
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 and safety of existing drugs by addressing significant problems such
as drug metabolism, toxicity, bioavailability or resistance. The Company
currently does not manufacture, market, sell or distribute any product. Through
our license agreements with 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.
Unaudited interim financial statements
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 2005 and its results of operations and cash flows for the three
months ended March 31, 2005 and 2004 and for the period from inception (June 12,
1996) through March 31, 2005. Information included in the consolidated balance
sheet as of December 31, 2004 has been derived from, and certain terms used
herein are defined in, the audited consolidated financial statements of the
Company as of December 31, 2004 (the "Audited Financial Statements") included in
the Company's Annual Report on Form 10-KSB (the "10-KSB") for the year ended
December 31, 2004 that was previously filed with the Securities and Exchange
Commission (the "SEC"). Pursuant to the rules and regulations of the SEC,
certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America have been condensed or omitted from these financial
statements unless significant changes have taken place since the end of the most
recent fiscal year. Accordingly, these unaudited condensed consolidated
financial statements should be read in conjunction with the Audited Financial
Statements and the other information also included in the 10-KSB.
The
results of the Company's operations for the three months ended March 31, 2005
are not necessarily indicative of the results of operations for the full year
ending December 31, 2005.
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities as of the dates of the condensed consolidated balance sheets and
reported amount of revenues and expenses for the periods presented. Accordingly,
actual results could materially differ from those estimates.
6
Supplementary
Cash Flow Information
Noncash
investing and financing transactions excluded from the condensed statements of
cash flows for the three months ended March 31, 2005 and 2004 and for the period
from inception (June 12, 1996) through March 31, 2005 are as
follows:
Three
months ended March 31, |
Inception (June
12, 1996) |
|||||||||
2005 |
2004 |
31-Mar-05 |
||||||||
Issuance
of warrants, common stock and preferred stock for: |
||||||||||
Conversion
of notes payable and accrued interest |
$ |
— |
$ |
— |
$ |
1,213,988 |
||||
Payment
of operating expenses |
—
|
—
|
1,224,281
|
|||||||
Conversion
of preferred stock |
—
|
2,004
|
2,705
|
|||||||
Acquisitions |
—
|
—
|
14,617,603
|
|||||||
Payment
of dividends |
—
|
—
|
213,000
|
|||||||
Financial
advisor services in conjunction with private placement |
—
|
—
|
1,137,456
|
|||||||
Settlement
of claim |
—
|
—
|
86,375
|
|||||||
Acquisition
of treasury stock in settlement of a claim |
—
|
—
|
34,747
|
|||||||
Assumptions
of liabilities in acquisitions |
—
|
—
|
1,009,567
|
|||||||
Acquisition
of license agreement for long-term debt |
—
|
—
|
161,180
|
|||||||
Cashless
exercise of warrants |
—
|
38 |
3,742
|
|||||||
Dividends
accrued |
—
|
—
|
621,040
|
|||||||
Trade
asset converted to available for sale asset |
—
|
—
|
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
|
|||||||
Detachable
warrants issued with notes payable |
—
|
—
|
450,000
|
3.
Net Loss Per Common Share
The
computation of basic and diluted net loss per share for the three months ended
March 31, 2005 and 2004 is as follows:
Three
months ended March 31, |
|||||||
|
2005 |
2004 |
|||||
Numerator: |
|
|
|||||
Net
loss |
$ |
(2,844,934 |
) |
$ |
(710,463 |
) | |
Numerator
for basic and diluted loss per share |
$ |
(2,844,934 |
) |
$ |
(710,463 |
) | |
Denominator
for basic and diluted loss per share - weighted average common shares
outstanding |
53,967,933
|
42,886,237
|
|||||
Loss
per common share-basic and diluted |
$ |
(0.05 |
) |
$ |
(0.02 |
) |
Net loss
per common share is calculated according to Statement of Financial Accounting
Standards No. 128, Earnings per Share, using the weighted average number of
shares of common stock outstanding during the period. At March 31, 2005 and
2004, 12,581,096 and 5,421,237 potentially dilutive shares, respectively, 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 incurred in
2005 and 2004.
7
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 2005:
March
31, 2005 |
||||
Warrants |
10,956,096
|
|||
Options |
1,625,000
|
|||
Total |
12,581,096 |
4.
Stock Compensation Plans
The
Company applies Statement of Financial Accounting Standards No. 123 (revised)
and related interpretations in accounting for employee stock-based
compensation.
The
Company recognized compensation expense of $129,226 and $86,860 in the three
months ended March 31, 2005 and 2004, respectively, related to the portion of
employee stock options which vested in that period.
5.
Equity Transactions
In the
three months ended March 31, 2005, the Company’s warrant holders exercised five
warrants for an aggregate of 203,750 shares of common stock, with proceeds to
the Company of $122,250.
As of
March 31, 2005, the Company had an obligation to issue 25,000 shares of common
stock as partial payment for services rendered by a consulting firm. Those
shares are recognized at fair market value as of the date of obligation and will
be issued through our transfer agent.
6.
Commitments and Contingencies
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. Management is not aware of any pending or
threatened lawsuit or preceding that would have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
Notwithstanding the foregoing, 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. On April 4,
2005, the Company attended a mediation session with this former
executive at which the Company was unable to reach a settlement
of the former executive’s claims. The Company currently plans to
schedule another mediation session with respect to this matter in June
2005.
7.
Subsequent Events
In April
2005, the Company’s warrant holders exercised 21 warrants for an additional
778,650 shares of common stock, with proceeds to the Company of $985,505. Also
in April 2005, 40,079 shares of common stock were issued upon the net exercise
of a single warrant to purchase 50,254 shares of common stock.
8
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction with the
financial statements and related notes contained elsewhere in this report. See
“Risk Factors” regarding certain factors known to us that could cause reported
financial information not to be necessarily indicative of future results.
Forward
Looking Statements
This
Quarterly Report on Form 10-Q 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 Quarterly 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 Quarterly 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 under the heading "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.
Overview
We are a
biopharmaceutical research and development company focused on introducing new
technologies for anticancer and antiviral treatments that improve the
performance and safety of existing drugs by addressing significant problems such
as drug metabolism, toxicity, bioavailability or resistance. The Company
currently does not manufacture, market, sell or distribute any product. Through
our license agreements with 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.
We have
incurred net losses since our inception. As of March 31, 2005, our accumulated
deficit was approximately $38 million. We expect to incur substantial and
increasing losses for the next several years as we continue development and
possible commercialization of new products.
To date,
we have funded our operations primarily through sales of equity securities.
Our
business is subject to significant risks, including risks inherent in our
ongoing clinical trials, the regulatory approval processes, the results of our
research and development efforts, commercialization, and competition from other
pharmaceutical companies.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of the consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses and the related disclosure of contingent assets and liabilities. We
review our estimates on an on-going basis, including those related to valuation
of goodwill, intangibles and other long-lived assets. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the bases for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions. Our accounting policies are described in more detail in Note 1 to
our consolidated financial statements included in our Annual Report on Form
10-KSB. We have identified the following as the most critical accounting
policies and estimates used in the preparation of our consolidated financial
statements.
9
Stock
Compensation Plans. 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.
The
Company recognized compensation expense of $129,226 and $86,860 in the three
months ended March 31, 2005 and 2004, respectively, related to the portion of
the options which vested in that period.
Results
of Operations
Research
and Development Expenses. Total
research and development expenses were $1.7 million for the three months
ended March 31, 2005 compared to $296,000 for the comparable period in 2004, an
increase of $1.4 million or 475%. The quarter to quarter increase in research
and development expenses was primarily related to clinical trial expenses to
fund our Phase II clinical trial of CoFactor. Other factors include increased
headcount and personnel costs, clinical trial and related clinical manufacturing
costs, contract and other outside service fees, quality assurance, quality
control, medical affairs and the development of a manufacturing process for
CoFactor.
We
currently expect that our research and development expenses will significantly
increase from the level of expenses in the quarter ended March 31, 2005 as we
ramp up our Phase III pivotal clinical trial of CoFactor for the treatment of
metastatic colorectal cancer in the United States, and our Phase IIb clinical
trial of CoFactor for the treatment of metastatic colorectal cancer in
Europe.
General
and Administrative Expenses. General
and administrative expenses were $1.2 million for the three months ended
March 31, 2005 compared to $414,000 for the comparable period in 2004, an
increase of $736,000 or 178%. The quarter to quarter increase in general and
administrative expenses was primarily due to the hiring of additional personnel
in the finance and marketing and business development departments, increased
directors and officers insurance premiums, increased legal fees, the payments
for settlements of certain disputes, and increased expenses associated with
business development activities. We expect that our general and administrative
expenses will increase measurably during the second quarter of 2005 as we ramp
up our evaluation, testing and documenting of our system of internal controls
over financial reporting as we prepare to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 and that these expenses will be sustained at least
through the end of 2005 as we continue this process.
Interest
Income. Interest
income for the three months ended March 31, 2005 was $37,000 compared to $3,000
of net interest income for the comparable period in 2004. The increase is
attributable to higher average invested balances from proceeds received in a
financing we closed in April 2004.
Liquidity
and Capital Resources
As of
March 31, 2005, our principal sources of liquidity were our cash and cash
equivalents which totaled $10.5 million as compared to $13.0 million
as of December 31, 2004. This decrease was primarily due to the use of cash to
fund research and development and general and administrative expenses.
Net cash
used in operating activities was $2.6 million during the three months ended
March 31, 2005, compared with $767,000 during the three months ended March 31,
2004. The increase in net cash used in operating activities was primarily due to
the increase in our operating expenses as we expanded our research and
development activities.
Net cash
used in investing activities was $32,000 during the three months ended March 31,
2005 compared with $37,000 during the three months ended March 31, 2004. Cash
flows from investing activities for the three months ended March 31, 2005 and
2004 consisted of purchases in office and lab equipment.
Net cash
provided by financing activities was $122,000 during the three months ended
March 31, 2005 compared with net cash provided by financing activities of $1,000
during the three months ended March 31, 2004. Cash flows from financing
activities for the three months ended March 31, 2005 and 2004 consisted of
proceeds from the sale or exercise of warrants, offset by financing costs for
the sale of common stock in April 2004.
10
Our
future capital uses and requirements depend on numerous forward-looking factors
and cannot be budgeted with any reasonable certainty. These factors include but
are not limited to the following:
· |
the
progress of our clinical trials; |
· |
the
progress of our research activities; |
· |
the
number and scope of our research programs; |
· |
the
progress of our preclinical development
activities; |
· |
our
ability to establish and maintain strategic
collaborations; |
· |
the
costs involved in enforcing or defending patent claims and other
intellectual property rights; |
· |
the
costs and timing of regulatory approvals; |
· |
the
costs of establishing or expanding manufacturing, sales and distribution
capabilities; |
· |
the
success of the commercialization of our products;
and |
· |
the
extent to which we license, acquire or invest in other products,
technologies and businesses. |
To date,
we have funded our operations primarily through the sale of equity securities as
well as through equipment and leasehold improvement financing. Through March 31,
2005, we received aggregate net proceeds of approximately $38.0 million
from the sale of equity securities. We believe that our existing cash and cash
equivalents will be sufficient to meet our projected operating requirements
through March 31, 2006.
We intend
to finance our operations and capital expenditure needs through the sale of
additional equity securities, debt financing or strategic collaboration
agreements. We cannot be sure that additional financing will be available when
needed or that, if available, financing will be obtained on favorable terms. If
we raise additional funds by issuing equity securities, substantial dilution to
existing stockholders would likely result. If we raise additional funds by
incurring debt financing, which is not likely given our lack of operating
revenue, the terms of the debt may involve significant cash payment obligations
as well as covenants and specific financial ratios that may restrict our ability
to operate our business. In addition, we may not be successful in obtaining
collaboration agreements, or in receiving milestone or royalty payments under
those agreements. Having insufficient funds may require us to delay, scale back
or eliminate some or all of our research or development programs or to
relinquish greater or all rights to product candidates at an earlier stage of
development or on less favorable terms than we would otherwise choose. Failure
to obtain adequate financing also may adversely affect our ability to operate as
a going concern.
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 $38 million as of March 31, 2005. 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.
11
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.
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.
12
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.
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.
13
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 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 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 could have a material adverse effect on us.
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 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 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.
14
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.
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.
15
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.
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.
16
Changes
in laws and regulations that affect the governance of public companies has
increased our operating expenses and will continue to do
so.
Recently
enacted changes in the laws and regulations affecting public companies,
including the provisions of the Sarbanes-Oxley Act of 2002 and the listing
requirements for American Stock Exchange have imposed new duties on us and on
our executives, directors, attorneys and independent accountants. In order to
comply with these new rules, we have hired and expect to hire additional
personnel and use additional outside legal, accounting and advisory services,
which have increased and are likely to continue increasing our operating
expenses. In particular, we expect to incur additional administrative expenses
as we implement Section 404 of the Sarbanes-Oxley Act, which requires management
to report on, and our Independent Registered Public Accounting Firm to attest
to, our internal controls. For example, we expect to incur significant expenses
in connection with the implementation, documentation and testing of our existing
and possibly newly implemented control systems. Management time associated with
these compliance efforts necessarily reduces time available for other operating
activities, which could adversely affect operating results. If we are unable to
achieve full and timely compliance with these regulatory requirements, we could
be required to incur additional costs, expend additional management time on
remedial efforts and make related public disclosures that could adversely affect
our stock price and result in securities litigation.
Failure
to implement effective control systems, or failure to complete our assessment of
the effectiveness of our internal control over financial reporting, may subject
us to regulatory sanctions and could result in a loss of public confidence,
which could harm our operating results and our stock price.
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 and again as of March 31, 2005. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that as of
both these dates, 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. Since the date of that evaluation, management has begun
to implement changes intended to improve certain aspects of our disclosure
controls and procedures. If we fail to implement effective disclosure controls
and procedures, we may be unable to make timely disclosure of material
information, which could subject us to regulatory sanctions, loss of public
confidence and stockholder lawsuits.
Pursuant
to Section 404 of the Sarbanes-Oxley Act, beginning with our year ending
December 31, 2005, if we are an “accelerated filer” as of December 31,
2005, or December 31, 2006, if we are not an “accelerated filer” as of December
31, 2005, we will be required to include in our annual report our assessment of
the effectiveness of our internal control over financial reporting and our
audited financial statements as of the end of that fiscal year. Furthermore, our
independent registered public accounting firm will be required to attest to
whether our assessment of the effectiveness of our internal control over
financial reporting is fairly stated in all material respects and separately
report on whether it believes we maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2005, if we are an
“accelerated filer” as of December 31, 2005, or December 31, 2006, we are not an
“accelerated filer” as of December 31, 2005.
In
connection with its audit of our financial statements for the fiscal year ended
December 31, 2004, J.H. Cohn LLP, 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. We are
taking steps intended to remedy these material weaknesses. However, if we fail
to remedy these material weaknesses, fail to timely complete our assessment, or
if our independent registered public accounting firm cannot timely attest to our
assessment, we could be subject to regulatory sanctions and a loss of public
confidence in our internal control. In addition, any failure to implement
required new or improved controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to fail to timely
meet our regulatory reporting obligations.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
The
primary objective of our investment activities is to preserve principal while
maximizing the income we receive from our investments without significantly
increasing the risk of loss. Some of the investable securities permitted under
our cash management policy may be subject to market risk for changes in interest
rates. To mitigate this risk, we maintain a portfolio of cash equivalent and
short-term investments in a variety of securities which may include investment
grade commercial paper, money market funds, government debt issued by the United
States of America, state debt, certificates of deposit and investment grade
corporate debt. Presently, we are exposed to minimal market risks associated
with interest rate changes because of the relatively short maturities of our
investments and we do not expect interest rate fluctuations to materially affect
the aggregate value of our financial instruments. We manage the sensitivity of
our results of operations to these risks by maintaining investment grade
short-term investments. Our cash management policy does not allow us to purchase
or hold derivative or commodity instruments or other financial instruments for
trading purposes. Additionally, our policy stipulates that we periodically
monitor our investments for adverse material holdings related to the underlying
financial solvency of the issuer. As of March 31, 2005, our investments
consisted mostly of cash and U.S. government debt. Our results of operations and
financial condition would not be significantly impacted by either a 10% increase
or decrease in interest rates due mainly to the short-term nature of our
investment portfolio. We have not used derivative financial instruments in our
investment portfolio. Additionally, we do not invest in foreign currencies or
other foreign investments.
Item 4.
Controls and Procedures.
Evaluation
of disclosure controls and procedures.
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
March 31, 2005. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of March 31, 2005, 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. This is primarily
because our accounting system software has limitations that may not allow us to
ensure prior period financial information is not changed and because we lack a
formal process to review and document journal entries. Our accounting system
software currently 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. We plan 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.
As of
March 31, 2005, management has engaged with various consulting firms to migrate
our accounting system to a new system with fewer limitations and greater
controls. Management has also recruited, and will continue to
recruit, additional finance and accounting staff and services to design,
document and implement a formal review and documentation process based on
current industry best-practices.
17
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings.
In the
normal course of business, we may become subject to lawsuits and other claims
and proceedings. Such matters are subject to uncertainty and outcomes are often
not predictable with assurance. We are not aware of any pending or threatened
lawsuit or proceeding that would have a material adverse effect on our financial
position, results of operations or cash flows. Notwithstanding the foregoing, on
March 28, 2005, we received a letter from counsel to a former executive in which
the former executive claims that we 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. We believe that these claims lack
merit and intend to vigorously defend against them. On April 4, 2005, we
attended a mediation session with this former executive at which we were unable
to reach a settlement of the former executive’s claims. We currently plan to
schedule another mediation session with respect to this matter in June
2005.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
During
the three months ending March 31, 2005, we issued 203,750 shares of common stock
to two of our warrant holders in connection with their exercise of outstanding
warrants. We received gross proceeds of $122,250 upon exercise of these
warrants. In addition, from April 1, 2005 through April 30, 2005, we issued
818,729 shares of common stock to 15 of our warrant holders in connection with
their exercise of outstanding warrants. We received gross proceeds of $985,505
upon exercise of these warrants. Pursuant to the terms of an agreement we
entered into with Burnham Hill Partners, a division of Pali Capital, Inc., in
March 2004, we are obligated to pay a 4% cash commission on each cash exercise
of warrants issued in a financing that we consummated in April 2004. In
accordance with this obligation, we owe Burnham Hill Partners approximately
$28,000 in connection with the exercises of warrants from April 1, 2005 through
April 30, 2005. No other commission or other remuneration was paid or given
directly or indirectly in connection with these warrant exercises. The issuances
of shares of common stock upon exercise of these warrants were not registered
under the Securities Act of 1933 in reliance upon Section 4(2) of such
Act.
Item
5. Other
Information
We
received a letter dated April 13, 2005 from the University of Texas M.D.
Anderson Cancer Center and the Board of Regents of The University of Texas
System (collectively, “MD Anderson”) notifying us of MD Anderson’s intent to
terminate the Patent and Technology License Agreement, dated June 14 1996, as
amended June 15, 2000 (the “MDA Agreement”), between us and MD Anderson.
Pursuant to the MDA Agreement, MD Anderson licenses to us certain patents
required for the development of Eradicaide, which we planned to develop for use
as a viral entry inhibitor against HIV. MD Anderson asserts that we are in
breach of the provisions of the MDA Agreement that requires us to pay certain
expenses of MD Anderson, provide reports to MD Anderson and commercialize the
technology licensed under the MDA Agreement. Pursuant to terms of the MDA
Agreement, the MDA Agreement will automatically terminate 30 days after MD
Anderson’s notice if we do not cure the alleged breach for our failure to pay
certain expenses of MD Anderson or 90 days after MD Anderson’s notice if we cure
the alleged failure to pay breach but do not cure the other alleged breaches. We
do not believe we owe any expense reimbursement to MD Anderson under the MDA
Agreement. Nevertheless, because we believe that the estimated costs and
technical risks of developing the technology licensed under the MDA Agreement
outweigh the benefit we could reasonably realize if we were to bring any of the
licensed technology to market, we determined not to cure any of the alleged
breaches and allowed the MDA Agreement to automatically terminate by its
terms.
Item
6.
Exhibits.
An
Exhibit Index has been attached as part of this quarterly report and is
incorporated herein by reference.
18
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
May 16, 2005 |
|
ADVENTRX
Pharmaceuticals, Inc. |
By: |
/s/
Evan M. Levine | |
|
|
President
and Chief Executive Officer |
Date:
May 16, 2005 |
|
ADVENTRX
Pharmaceuticals, Inc. |
By: |
/s/
Carrie Carlander | |
|
|
Chief
Financial Officer, Treasurer and Vice President, Finance
ADVENTRX
Pharmaceuticals, Inc. |
19
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 | |
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 |
Not
used. | |
10.2 |
Not
used. | |
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 | |
10.11
(13) |
Offer
Letter, dated March 1, 2004, from the Company to Cellia Habita, M.D.,
Ph.D. | |
10.12
(13) |
Offer
Letter, dated November 15, 2004, from the Company to Brian
Culley | |
10.13
(13) |
Offer
Letter, dated November 17, 2004, from the Company to Carrie
Carlander | |
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 |
20
(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. |
(13) |
Incorporated
by reference to the same-numbered exhibit to the Company’s Annual Report
on Form 10-KSB, filed March 31, 2005. |
21
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Evan
Levine, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc.
(the “Company”);
2. Based
on my knowledge, this 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 report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The
Company’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)) 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 Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Evaluated the effectiveness of the Company’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c.
Disclosed in this report any change in the Company’s internal control over
financial reporting that occurred during the Company’s most recent fiscal
quarter (the Company’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting; and
5. The
Company’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to
adversely affect the Company’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 Company’s internal control over financial
reporting.
|
|
|
Date: May 16, 2005 | /S/ EVAN LEVINE | |
| ||
Evan
Levine Chief Executive Officer and President |
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Carrie
Carlander, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc.
(the “Company”);
2. Based
on my knowledge, this 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 report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The
Company’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)) 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 Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Evaluated the effectiveness of the Company’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c.
Disclosed in this report any change in the Company’s internal control over
financial reporting that occurred during the Company’s most recent fiscal
quarter (the Company’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting; and
5. The
Company’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to
adversely affect the Company’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 Company’s internal control over financial
reporting.
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Date: May 16, 2005 | /S/ CARRIE CARLANDER | |
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Carrie
Carlander Chief Financial Officer, Treasurer and Vice President, Finance |
EXHIBIT
32.1
CERTIFICATION
OF CEO AND CFO FURNISHED PURSUANT TO
18
U.S.C. § 1350,
AS
ADOPTED PURSUANT TO
§
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of ADVENTRX Pharmaceuticals,
Inc. (the “Company”) for the quarterly period ended March 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), each
of Evan Levine, Chief Executive Officer and President of the Company, and Carrie
Carlander, Chief Financial Officer, Treasurer and Vice President, Finance, of
the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge,
that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
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Date: May 16, 2005 | /S/ EVAN LEVINE | |
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Evan
Levine Chief Executive Officer and President |
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Date: May 16, 2005 | /S/ CARRIE CARLANDER | |
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Carrie
Carlander Chief Financial Officer, Treasurer and Vice President, Finance |
This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.