Filing
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from_____________to_____________
Commission file number 000-33219
ADVENTRX PHARMACEUTICALS, INC.
(formerly Biokeys Pharmaceuticals, Inc.)
(Exact name of small business issuer as specified in its charter)
DELAWARE 84-1318182
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9948 HIBERT STREET, SUITE 100
SAN DIEGO, CALIFORNIA 92131
(Address of principal executive offices)
(858) 271-9671
(Issuer's telephone number, including area code)
As of November 1, 2003, 40,804,118 shares of the issuer's common stock, par
value $0.001 per share, were outstanding.
Transitional Small Business Disclosure Format (Check One): YES [ ] NO [X]
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TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
Signatures
Exhibit Index
Exhibit 3.7
Exhibit 10.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
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ADVENTRX PHARMACEUTICALS, INC.
(formerly Biokeys Pharmaceuticals, Inc.)
FORM 10-QSB
SEPTEMBER 30, 2003
INDEX
PART I FINANCIAL INFORMATION 1
Item 1. Condensed Financial Statements 1
a. Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and 1
December 31, 2002
b. Consolidated Statements of Operations for the three months ended
September 30, 2003 and 2002 and the nine months ended September 30, 2003
and 2002 and for the period from inception through September 30, 2003 2
(Unaudited)
c. Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002 and for the period from inception through 3
September 30, 2003 (Unaudited)
d. Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation 17
Item 3. Controls and Procedures 27
PART II Other Information 27
Item 1. Legal Proceedings 27
Item 2. Changes In Securities 27
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
i
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ADVENTRX PHARMACEUTICALS, INC.
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
DECEMBER
SEPTEMBER 30, 31,
2003 2002
------------------- ------------------
(UNAUDITED)
ASSETS
Current asset - cash and cash equivalents $ 3,784,305 $ 103,928
Property and equipment, net 15,479 13,434
Other assets 55,690 12,983
------------------- ------------------
Total assets $ 3,855,474 $ 130,345
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 397,729 $ 579,146
Accrued salary and related taxes 57,994 115,021
Accrued dividends payable 63,340 34,960
Current portion of notes payable -- 197,075
------------------- ------------------
Total current liabilities 519,063 926,202
Notes payable, net of current portion -- 56,873
------------------- ------------------
Total liabilities 519,063 983,075
------------------- ------------------
Commitments and contingencies -- --
Shareholders' equity / (deficit):
Series A cumulative convertible
preferred stock, $0.01 par
value. Authorized 8,000 shares;
issued and outstanding, 473
shares (aggregate involuntary
liquidation preference $473,000
at September 30, 2003 and
December 31, 2002) 4 4
Series B convertible preferred
series stock, $0.01 par value.
Authorized 200,000 shares;
issued and outstanding,
200,000 shares in 2002 (no
liquidation preference) 2,000 2,000
Series C convertible preferred
stock, $0.01 par value.
Authorized 125,000 shares;
issued and outstanding, 70,109
shares in 2002 (aggregate
involuntary liquidation
preference $701,093 at December
31, 2002) -- 701
Common stock, $0.001 par value.
Authorized 100,000,000 shares;
issued 41,363,915 and outstanding
40,714,118 shares in 2003 and
issued and outstanding 17,460,275
shares in 2002 41,398 17,496
Additional paid-in capital 31,009,872 25,276,138
Deficit accumulated during the development stage (27,666,011) (26,149,069)
Treasury stock, at cost (50,852) --
------------------- ------------------
Total shareholders' equity / (deficit) 3,336,411 (852,730)
------------------- ------------------
Total liabilities and shareholders' equity / (deficit) $ 3,855,474 $ 130,345
=================== ==================
See accompanying notes to consolidated financial statements.
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ADVENTRX PHARMACEUTICALS, INC.
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
INCEPTION
(JUNE 12, 1996)
THROUGH
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- ------------------------------------------ ----------------
2003 2002 2003 2002 2003
------------------ ----------------- --------------------- ------------------- ----------------
Net sales $ -- $ -- -- -- $ 174,830
Cost of goods
sold -- -- -- -- 51,094
------------------ ----------------- --------------------- ------------------- ----------------
Gross margin -- -- -- -- 123,736
Grant revenue -- -- 3,603 -- 129,733
Interest income 2,740 -- 4,464 948 94,431
------------------ ----------------- --------------------- ------------------- ----------------
2,740 -- 8,067 948 347,900
------------------ ----------------- --------------------- ------------------- ----------------
Operating
expenses:
Research and
development 208,778 205,700 415,301 390,327 4,396,230
General and
administrative 277,248 331,645 1,103,176 1,301,002 7,932,424
Depreciation
and
amortization 1,969 128,272 5,146 384,815 10,094,883
Impairment
loss -
write off
of goodwill -- -- -- -- 5,702,130
Interest
expense 212 13,613 1,386 40,393 179,090
Equity in
loss of
investee -- -- -- -- 178,936
------------------ ----------------- --------------------- ------------------- ----------------
Total operating expenses 488,207 679,230 1,525,009 2,116,537 28,483,693
------------------ ----------------- --------------------- ------------------- ----------------
Loss before
cumulative
effect of
change in
accounting
principle (485,467) (679,230) (1,516,942) (2,115,589) (28,135,793)
Cumulative
effect of
change in
accounting
principle -- -- -- -- (25,821)
------------------ ----------------- --------------------- ------------------- ----------------
Net loss (485,467) (679,230) (1,516,942) (2,115,589) (28,161,614)
Preferred stock dividends (9,460) (64,702) (28,380) (200,220) (602,320)
------------------ ----------------- --------------------- ------------------- ----------------
Net loss applicable to common
stock $ (494,927) $ (743,932)$ (1,545,322) $ (2,315,809) $ (28,763,934)
================== ================= ===================== =================== ================
Loss per common share - basic
and diluted $ (.02) $ (.05)$ (0.05) $ (0.15)
================== ================= ===================== ===================
See accompanying notes to consolidated financial statements.
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ADVENTRX PHARMACEUTICALS, INC.
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
INCEPTION
(JUNE 12, 1996)
NINE MONTHS ENDED SEPTEMBER 30, THROUGH
--------------------------------------- SEPTEMBER 30,
2003 2002 2003
------------------ ------------------- -------------------
Cash flows from operating activities:
Net loss $ (1,516,942) $ (2,115,589)$ (28,161,614)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 5,146 1,812 9,644,883
Amortization of debt discount -- 356,003 450,000
Forgiveness of employee receivable -- -- 30,036
Impairment loss - write off of goodwill -- -- 5,702,130
Expenses paid by warrants 105,883 17,121 436,130
Expenses paid by preferred stock -- 102,375 142,501
Expenses related to stock warrants issued -- 289,262 612,000
Expenses related to employee stock
options issued 249,969 -- 579,265
Expenses paid by issuance of common stock 160,299 2,595 771,048
Equity in loss of investee -- -- 178,936
Write-off of license agreement -- -- 152,866
Cumulative effect of change in
accounting principle -- -- 25,821
Changes in assets and liabilities, net
of effect of acquisitions:
(Increase) decrease in other assets (42,707) 19,411 (195,058)
Increase (decrease) in accounts payable
and accrued liabilities (184,877) 549,524 (65,472)
Increase in sponsored research payable
and license obligation -- -- 924,318
------------------ ------------------- -------------------
Net cash used in operating activities (1,223,229) (777,486) (8,772,210)
------------------ ------------------- -------------------
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 (7,191) -- (113,284)
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 -- 35,993 405,993
Advance to investee -- -- (90,475)
Cash transferred in rescission of
acquisition -- -- (19,475)
Cash received in rescission of acquisition -- -- 230,000
------------------ ------------------- -------------------
Net cash provided by (used in)
investing activities (7,191) 35,993 335,742
------------------ ------------------- -------------------
Cash flows from financing activities:
Proceeds from sale of preferred stock -- 300,000 4,200,993
Proceeds from sale of common stock 5,164,745 -- 7,100,710
Proceeds from sale or exercise of
warrants -- 286,675 334,516
Repurchase of warrants -- -- (55,279)
Payment of financing and offering costs -- -- (98,976)
Payments of notes payable and long-term
debt (253,948) -- (605,909)
Proceeds from issuance of notes payable
and detachable warrants -- 80,000 1,344,718
------------------ ------------------- -------------------
Net cash provided by financing
activities 4,910,797 666,675 12,220,773
------------------ ------------------- -------------------
Net increase (decrease) in cash and
cash equivalents 3,680,377 (74,818) 3,784,305
Cash and cash equivalents at beginning of
period 103,928 164,476 --
------------------ ------------------- -------------------
Cash and cash equivalents at end of period $ 3,784,305 $ 89,658 $ 3,784,305
================== =================== ===================
See accompanying notes to consolidated financial statements.
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ADVENTRX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 2003 and 2002
(Unaudited)
(1) DESCRIPTION OF THE COMPANY
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (the Company), is a
development stage enterprise, that conducts biomedical research and
development focused on treatments for cancer and certain viral infections,
including HIV. The Company currently does not manufacture, market, sell or
distribute any product. Through its license agreements with University of
Texas M.D. Anderson Cancer Center (M.D. Anderson), University of Southern
California (USC), and the National Institutes of Health (NIH), the Company
has rights to drug candidates in varying early stages of development.
On May 30, 2003, the Company merged its 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.
The Company's shares of common stock trade in the over-the-counter market
under the symbol AVRX.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management
believes that the estimates utilized in preparing its financial statements
are reasonable and prudent. Actual results could differ from those
estimates.
The most significant accounting estimates relate to valuing equity
transactions as described below. The value assigned to stock warrants
granted to non-employees are accounted for in accordance with SFAS No. 123
and Emerging Issues Task Force (EITF) Issue 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services (EITF 96-18). The Company
values warrants using the Black-Scholes pricing model. Common stock is
valued using the market price of common stock on the measurement date as
defined in EITF 96-18. Series A 8% convertible preferred stock is valued
at the liquidation value of $1,000 per share. Series B preferred stock is
valued at the purchase price of $1 per share.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies Statement of Financial Accounting Standards No. 123
and related interpretations in accounting for employee stock-based
compensation, and includes the required footnote disclosures thereon.
The Company accounts for nonemployee stock-based compensation in
accordance with EITF 96-18. Amounts are based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
The value assigned to stock warrants granted to non-employees are
accounted for in accordance with SFAS No. 123 and Emerging Issues Task
Force (EITF) Issue 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The Company values warrants using the
Black-Scholes pricing model. Common stock is valued using the market price
of common stock on the measurement date as defined in EITF 96-18.
4
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CASH EQUIVALENTS
Highly-liquid investments with original maturities of three months or less
when purchased are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and accounts payable are
a reasonable estimate of their fair values at the balance sheet dates due
to the short-term nature of these instruments. The fair value of notes
payable at the date of issuance and at September 30, 2003 was not
determinable.
The Company maintains cash and cash equivalents with banks, which from time
to time may exceed federally insured limits. The Company periodically
assesses the financial condition of the institutions and believes that the
risk of any loss is minimal.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are calculated using the straight-line method over the estimated useful
lives of the assets. The costs of improvements that extend the lives of the
assets are capitalized. Repairs and maintenance are expensed as incurred.
DEFERRED FINANCING COSTS
Costs associated with arranging debt financing are deferred and amortized
using the effective interest method over the term of the notes payable.
DEBT DISCOUNT
The discount on notes payable is being amortized using the effective
interest method through the stated due dates of each note.
REVENUE RECOGNITION
The Company recognizes revenue at the time service is performed on
commercial contracts and collectability is reasonably assured. Revenue from
government grants is a reimbursement for expenditures associated with the
research. The Company submits bills to the grant agency and revenue is
recognized at the time the expenses are reimbursed.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred, including
Company-sponsored research and development and cost of patent rights and
technology rights under license agreements that have no alternative future
use when incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that property and
equipment and intangible or other long-lived assets with finite lives may
be impaired, an evaluation of the recoverability of currently recorded
costs will be made. If an evaluation is required, the estimated value of
undiscounted future net cash flows associated with the asset is compared to
the asset's carrying value to determine if impairment exists. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
INCOME TAXES
Income taxes are accounted for using the asset and liability method under
which deferred tax assets and liabilities are recognized for estimated
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in
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income in the period that includes the enactment date. Deferred tax expense
or benefit is recognized as a result of the change in the asset or
liability during the period.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest of $212 and $1,386 was paid during the nine months ended September
30, 2003 and 2002, respectively. No income taxes were paid during 2003 and
2002.
Noncash investing and financing transactions excluded from the consolidated
statements of cash flows for the nine months ended September 30, 2003 and
2002 are as follows:
2003 2002
----------------- -----------------
Dividends accrued $ 28,380 $ 200,220
Conversion of accrued interest
into common stock 53,326 --
Issuance of common stock upon
conversion of preferred stock 701,093 --
Issuance of warrants for
return of common stock 50,852 --
Cashless exercise of a warrant 23
NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123 (SFAS No. 148). SFAS
No. 148 amends FASB Statement No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of FASB Statement No. 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is effective
for the fiscal years beginning after December 15, 2002.
6
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In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities (FIN 46) which addressed consolidation by
business enterprises of variable interest entities that meet certain
criteria. FIN 46 was effective upon issuance, but did not have an impact
on the Company's financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity (SFAS No. 150), which establishes standards
for how a company classifies and measures certain financial instruments
with characteristics of both liabilities and equity. SFAS No. 150 is
generally effective for interim periods beginning after June 15, 2003.
The adoption of these new pronouncements did not have, or are not expected
to have, a material effect on the Company's consolidated financial
position or results of operations.
(3) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2003 and December 31, 2002 were as
follows:
USEFUL
LIVES 2003 2002
----------------- ------------------- ------------------
Office furniture and equipment 5 years $ 39,074 $ 31,883
Computer software and equipment 3 years 11,845 11,845
------------------- ------------------
50,919 43,728
Less accumulated depreciation and
amortization (35,440) (30,294)
------------------- ------------------
$ 15,479 $ 13,434
------------------- ------------------
(4) NOTES PAYABLE
In October and December 2001, the Company issued notes payable totaling
$300,000 and $150,000, respectively. The notes bear interest at 12% and
were originally due on the earlier of November 1, 2002 or the date of
receipt by the Company of gross proceeds of at least $600,000 from private
placement offerings. Interest accrues at 12% annually and was to be paid
in shares of common stock when the notes were to be repaid, based on the
five-day average closing price of common stock preceding the date when
interest is due. The notes were issued with detachable warrants to
purchase a total of 450,000 shares of common stock through November 2006
at an exercise price of $4.00 per share through December 31, 2002, and
thereafter at
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an exercise price that will be fixed at the higher of $2.50 or the average
closing price of the Company's common stock during the 20 trading days
prior to December 31, 2002, not to exceed $4.00 per share.
The entire proceeds of $450,000 were allocated to the warrants and debt
discount. The fair value of the warrants, calculated using the
Black-Scholes pricing model, is greater than the proceeds. The fair value
of the notes payable was not determinable at the dates of issuance. Of the
original debt discount of $450,000, amortized to the redemption value of
the debt through the initial stated due date of the notes payable,
$118,667 and $237,335 was amortized during the three and nine months ended
September 30, 2002, respectively.
Between October and December 2002, some of the notes and warrants were
amended and $220,000 in notes were converted to Series C preferred stock
of the Company. $60,000 in notes were repaid and the due date of the
$170,000 in remaining notes was extended to April 1, 2003. The exercise
price of nine warrants to purchase an aggregate of 420,000 shares of
common stock was amended to $0.50 per share. The outstanding balance on
the notes was $170,000 at December 31, 2002. In April 2003, the Company
converted a trade payable into a note payable in the amount of $83,948.
The note carried interest at 10% per year and called for eighteen monthly
payments of $5,000 per month beginning July 1, 2003. The trade payable was
reclassified as of December 31, 2002 with current and long term portions
of $27,075 and $56,873. The note was repaid in full in June 2003.
(5) INCOME TAXES
Significant components of income tax expense for the three and nine months
ended September 30, 2003 and 2002 are as follows:
THREE MONTHS ENDED
SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
2003 2002 2003 2002
------------------- ------------------ ------------------- ------------------
Deferred
tax
benefit $ 148,058 $ 382,638 $ 344,280 $ 667,825
Increase
in
valuation
allowance
for
deferred
tax assets (148,058) (382,638) (344,280) (667,825)
------------------- ------------------ ------------------- ------------------
Income
tax
expense $ -- $ -- $ -- $ --
=================== ================== =================== ==================
The tax effects of temporary differences that give rise to deferred tax
assets at September 30, 2003 and December 31, 2002 are as follows:
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2003 2002
------------------ -------------------
Net operating loss carryforward $ 4,398,414 $ 4,051,425
Organization costs and license
agreement, due to differences in
amortization 27,825 30,534
------------------ -------------------
Total deferred tax assets 4,426,239 4,081,959
Less valuation allowance (4,426,239) (4,081,959)
------------------ -------------------
Net deferred tax assets $ -- $ --
------------------ -------------------
At September 30, 2003, the Company had unused net operating loss
carryforwards of approximately $13,000,000 for tax reporting purposes,
which expire from 2112 through 2114 and from 2119 through 2123.
(6) EQUITY TRANSACTIONS
In a private placement offering to European investors pursuant to
Regulation S of the Securities and Exchange Commission, the Company sold a
total of 3,200 shares of its Series A 8% Convertible Preferred Stock
(Series A preferred stock) for gross proceeds of $3,200,000 between August
and September 2000. In addition to the shares of Series A preferred stock,
which are convertible into common stock at $4.00 per share, the offering
included warrants to purchase a total of 400,000 shares of common stock at
$5.00 per share. The Series A preferred stock has a liquidation preference
of $1,000 per share plus accrued and unpaid dividends, carries cumulative
dividends at 8% per annum payable semi-annually, and provides for future
adjustments in conversion price if specified dilutive events take place.
The Series A preferred stock is redeemable at the option of the Company at
any time the closing price of common stock remains at a level of at least
$8 per share for 20 consecutive days if the Company is listed on the
American Stock Exchange or NASDAQ at such time, with the redemption price
being equal to the liquidation preference. In addition, at any time after
July 1, 2003, the Company may call all of any portion of the outstanding
Series A preferred stock for redemption on at least 30 days' notice, at a
redemption price equal to 105% of the liquidation preference plus all
accrued and unpaid dividends. The Company incurred consulting fees
totaling $76,500, paid to a stockholder who acted as a finder and agent in
this transaction.
In May 2000, the Company issued warrants to two of its research scientists
for the purchase of a total of 100,506 shares of common stock. The fair
value of the warrants on the date of issue, $140,000, has been recorded as
a noncash research and development expense. The warrants are exercisable
at $0.49 per share and expired in May 2003. The warrants were not
exercised prior to their expiration.
In February 2001, the Company granted 100,000 shares of common stock to a
consulting firm for financial consulting services to be provided in 2001.
The Company recognized the value of these shares, $375,000, as a noncash
charge to expense during 2001.
In May 2001, the Company repurchased warrants to purchase 50,254 shares of
common stock for $55,279 and sold the same warrants in June 2001 for
$47,741. The warrants have an exercise price of $0.49 per share.
In August 2001, two warrant holders exercised warrants through a cashless
exercise. Warrants to purchase a total of 271,758 shares of common stock
were exchanged for a total of 218,493 shares of common stock.
In October 2001, the Company issued 93,421 shares of common stock valued
at $213,000 to pay dividends on Series A preferred stock that had accrued
through June 30, 2001.
In December 2001, the Company entered into a consulting agreement with a
third party for financial consulting services. The services were paid
through the issuance of 273 shares of Series A preferred stock
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with a fair value of $273,000, 12,585 shares of common stock with a fair
value of $24,541, and five-year warrants to purchase 34,125 shares of
common stock at an exercise price of $5.00 per share with a fair value of
$62,280. The compensation vested 50% in December 2001 and 50% in December
2002. The Company recognized the value of 50% of these equity instruments
in 2002 and 2001 and recorded a noncash charge to expense of $154,769 and
$315,909, respectively. The warrants were valued using the Black-Scholes
pricing model. Common stock was valued using the market price of common
stock as defined in EITF 96-18. Series A preferred stock was valued at the
liquidation value of $1,000 per share.
In February 2002, the Company issued 200,000 shares of Series B Convertible
Preferred Stock at $1.50 per share for proceeds of $300,000. The par value
of the Series B Convertible Preferred Stock is $0.01 and there is no
liquidation preference.
In March 2002, the Company transferred warrants which had previously been
held in escrow to three investors who immediately exercised the warrants
for the purchase of a total of 229,573 shares of common stock at $0.49 per
share.
In April 2002, warrants to purchase a total of 240,000 shares of common
stock at $0.49 per share were exercised for $117,600 in proceeds to the
Company.
In June 2002, a warrant holder exercised warrants through a cashless
exercise. Warrants to purchase a total of 144,435 shares of common stock
were exchanged for a total of 100,201 shares of common stock.
In July 2002, warrants to purchase a total of 115,000 shares of common
stock at $0.49 per share were exercised for $46,000 in proceeds to the
Company.
In October and December 2002, the Company issued an aggregate of 70,109.3
shares of Series C Convertible Preferred Stock (Series C preferred stock)
with a par value of $0.01 per share. The Series C preferred stock is
convertible into common stock at $0.05 per share and has a liquidation
preference of $10 per share plus accrued and unpaid dividends. The purchase
price of 22,000 shares of Series C preferred stock was paid by the
conversion of $220,000 of notes payable. In addition, warrants that were
issued in conjunction with the converted notes payable were amended to
modify the purchase price of the common stock to $0.50 per share.
On November 21, 2002, the Company exchanged 3,000 shares of Series A
preferred stock for 1,800,000 shares of common stock. In conjunction with
this transaction the Company purchased 375,000 warrants from the preferred
stockholder for $100. In conjunction with the exchange, accumulated
preferred dividends in the amount of $335,440, which had been accrued
through the date of the exchange, were extinguished upon conversion. In
January 2003, the Company paid accrued interest on notes payable through
the issuance of 119,454 shares of common stock, having a fair market value
on the date of issuance of $26,649.
In January 2003, the Company completed a private placement of 1,589,872
shares of common stock and warrants to purchase an additional 476,962 share
of common stock at $0.40 per share to private investors for gross proceeds
of $635,949 in cash.
In March 2003, the holders of 70,109.3 shares of Series C preferred stock
elected to convert their shares of Series C preferred stock into 14,021,860
shares of common stock.
In March 2003, the Company paid two consulting firms for services rendered
with 125,000 shares of common stock with a fair market value on the date of
issuance of $68,750, and two warrants to purchase 37,500 shares of common
stock at an exercise price of $0.50 per share. Each warrant will expire on
March 25, 2006. The fair market value of the warrants was $33,777.
In March 2003, the Company issued four warrants to four individuals in
consideration of certain investment banking advice. The four warrants
represent the right to purchase 25,783, 50,000, 50,000 and 10,000 shares of
common stock at an exercise price of $0.50 per share. Each warrant will
expire on March 25, 2006. The fair market value of the warrants was
$61,151.
10
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In March 2003, the Company issued a warrant to a former executive in
consideration of certain covenants related to his separation from the
Company. The warrant represents the right to purchase 150,000 shares of
common stock at an exercise price of $1.25 per share. The warrant will
expire on December 12, 2005. The Company recognized compensation expense of
$50,852 in connection with the issuance of this warrant.
During the three months ended March 31, 2003, $10,955 was recognized in
conjunction with the vesting of warrants previously issued for consulting
services.
In April 2003, the Company paid accrued interest on notes payable through
the issuance of 46,376 shares of common stock, having a fair market value
on the date of issuance of $26,845.
In June 2003, the Company completed a private placement of 5,027,312 shares
of common stock and warrants to purchase an additional 1,508,199 shares of
common stock at $0.60 per share to private investors for gross proceeds of
$2,010,829 in cash.
The Company paid cash commissions of $49,400 in connection with the private
placement.
In June 2003 the Company issued 59,535 shares of common stock as
commissions on the private placement. The value of the commission was
$56,099.
In June 2003 the Company issued warrants to purchase 43,422 shares of
common stock at $0.60 per share and warrants to purchase 86,844 shares of
common stock at $0.10 per share as commissions on the private placement.
The value of these warrants was $129,521.
In June 2003, the Company paid a consulting firm for services rendered with
75,000 shares of common stock with a fair market value on the date of
issuance of $91,500.
Between August 2003 and September 2003, the Company completed a private
placement of 2,691,990 shares of common stock and warrants to purchase an
additional 834,600 shares of common stock at $1.25 per share to private
investors for gross proceeds of $2,691,990 in cash.
The Company paid cash commissions of $124,500 in connection with the
private placement.
In September 2003 the Company issued 124,076 shares of common stock as
commissions on the private placement. The value of the commission was
$188,596.
In September 2003, a warrant to purchase a total of 150,000 shares of
common stock at $1.25 per share was exercised in a cashless exchange for
23,165 shares of common stock.
Nonemployee stock-based compensation that is not valued at the fair value
of consideration received is valued, as of the grant date, using the
Black-Scholes pricing model with the following assumptions for grants in
2003 and 2002: no dividend yield for either year; expected volatility of
125% to 199%; risk-free interest rates 2.78% to 6.8%; and expected lives of
three and seven years, respectively.
At September 30, 2003, there were outstanding warrants to purchase a total
of 5,651,617 shares of common stock as follows:
EXERCISE
WARRANTS PRICE EXPIRATION DATE
--------------------- -------------------- ------------------
689,148 $ 0.49 December 2003
620,622 0.49 September 2005
450,000 0.50 October 2005
85,000 0.50 March 2006
100,000 3.00 April 2006
144,740 0.01 May 2006
150,000 0.50 May 2006
1,850,779 0.60 May 2006
502,528 0.49 June 2006
958,800 1.25 October 2006
11
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(7) STOCK COMPENSATION PLANS
In October 2002, the Company granted three non-statutory stock options to
purchase an aggregate of 1,525,000 shares and one non-statutory stock
option to purchase 165,000 shares of common stock at $0.20 and $0.50 per
share, respectively. The value of the options on the date of the grant was
$329,296.
In March 2003, the Company granted four non-statutory stock options to
purchase an aggregate of 1,900,000 shares of the Company's common stock at
$0.50 per share. The options were valued using the Black-Scholes pricing
model. The value of the options on the date of the grant was $948,846. The
Company recognized compensation expense of $98,153 and $249,969 in the
three and nine month periods ended September 30, 2003, respectively,
related to the portion of the options which vested in that period.
In April and June 2003, the Company and four of its option holders agreed
to revise the vesting schedules of the non-statutory stock options held by
such optionholders. No other terms were changed. In addition, in June 2003
one non-statutory stock option was modified such that any portion of the
option that was not vested as of July 1, 2003 was cancelled in exchange
for cash compensation.
On July 1, 2003, the Company formed a Scientific Advisory Board (the SAB).
Each of the three SAB members were granted an option to purchase 30,000
shares of common stock at a purchase price of $1.25 per share. The value
of the options on the date of grant, July 1, 2003, is $97,086.
SEPTEMBER 30, 2003
-------------------------------------
SHARES WEIGHTED-AVERAGE
NON-STATUTORY STOCK OPTIONS (000) EXERCISE PRICE
- ------------------------------------------------- ------------------- -----------------
Outstanding at January 1, 2003 1,690 $0.23
Granted 1,990 $0.55
Exercised -- --
Forfeited 750 $0.50
------------------
Outstanding at September 30, 2003 2,930 $0.37
==================
Options exercisable at September 30, 2003 1,730
Weighted-average fair value of options granted
during the nine months $ 0.55
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OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 9/30/03 LIFE PRICE AT 9/30/03 PRICE
- ---------------- ---------------- ----------------- ------------ ----------------- --------------
$0.20 to $1.2 2,930,00 0.36 1,730,40 0.31
5 0 7.4 years $ 7 0 $ 9
None of the foregoing options were issued pursuant to a stock option plan.
The options expire on December 30, 2008 and vest as follows:
EXERCISE
OPTIONS PRICE VESTING DATE
-------------------------- ------------------------------- -------------------------
1,012,500 $0.20 October 2002
165,000 0.50 October 2002
100,000 0.50 March 2003
135,500 0.50 April 2003
62,500 0.20 July 2003
179,167 0.50 July 2003
11,250 0.20 July 2003
62,500 0.20 October 2003
54,167 0.50 October 2003
11,250 1.25 October 2003
12,500 0.20 December 2003
62,500 0.20 January 2004
54,167 0.50 January 2004
11,250 1.25 January 2004
62,500 0.20 April 2004
154,167 0.50 April 2004
11,250 1.25 April 2004
62,500 0.20 July 2004
54,167 0.50 July 2004
11,250 1.25 July 2004
62,500 0.20 October 2004
54,167 0.50 October 2004
11,250 1.25 October 2004
62,500 0.20 January 2005
54,167 0.50 January 2005
11,250 1.25 January 2005
62,500 0.20 April 2005
141,667 0.50 April 2005
11,250 1.25 April 2005
41,667 0.50 July 2005
41,667 0.50 October 2005
41,667 0.50 January 2006
41,663 0.50 April 2006
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(8) NET LOSS PER COMMON SHARE
The computation of basic and diluted net loss per share for the three and
nine months ended September 30, 2003 and 2002 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- ---------------------------------------
2003 2002 2003 2002
------------------- ------------------ ------------------- ------------------
Numerator:
Net loss $ (485,477) (679,230)$ (1,516,942) (2,115,589)
Preferred
stock
dividends (9,460) (64,702) (28,380) (200,220)
------------------- ------------------ ------------------- ------------------
Numerator
for basic
and
diluted
loss per
share $ (494,937) (743,932)$ (1,545,322) (2,315,809)
=================== ================== =================== ==================
Denominator
for basic
and diluted
loss per
share -
weighted
average
common
shares
outstanding 23,839,669 15,679,743 30,245,421 15,322,340
=================== ================== =================== ==================
Loss per
common share
- - basic and
diluted $ (0.02) (0.05)$ (0.05) (0.15)
=================== ================== =================== ==================
Net loss per common share is calculated according to Statement of
Financial Accounting No. 128, Earnings per Share, using the weighted
average number of shares of common stock outstanding during the period. At
September 30, 2003 and 2002, 5,551,167 and 2,802,217 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 loss incurred in 2003 and 2002.
(9) LICENSE AGREEMENTS
M. D. ANDERSON
Pursuant to a patent and technology license agreement dated June 14, 1996
between M.D. Anderson and the Company (the M.D. Anderson License
Agreement), the Company acquired a license to seven patents and patent
applications related to technology for HIV/AIDS therapy and prevention.
Under the M.D. Anderson License Agreement, the Company is obligated to pay
M.D. Anderson for all out-of-pocket expenses incurred in filing,
prosecuting, enforcing, and maintaining the licensed patent rights and all
future patent-related expenses paid by M.D. Anderson as long as the M.D.
Anderson License Agreement remains in effect.
The M.D. Anderson License Agreement was amended effective June 15, 2000
(the Amendment). The Amendment incorporated additional licensed subject
matter, revised certain royalty rates due to M.D.
14
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Anderson upon commercialization, and settled past due patent and research
and development amounts from the Company to M.D. Anderson. The Company
gave consideration valued at approximately $172,000 through the issuance
of 71,555 shares of common stock to reimburse M.D. Anderson for patent
costs incurred through June 15, 2000. The Company also issued 414,829
shares of common stock to M.D. Anderson valued at $1,000,000, based on the
market value of the Company's stock at the date of the settlement
agreement, to settle past due research and development obligations. In
addition, the Company committed to funding at least $1,000,000 of research
and development activity through December 31, 2001. Finally, the Amendment
defined a milestone payment of common stock with a value of $1,000,000 due
to M.D. Anderson upon the enrollment of the first patient in the first FDA
Phase I human trial of any product that utilizes licensed subject matter.
Under the amended M.D. Anderson License Agreement, the Company has the
right to a royalty-bearing, exclusive license to manufacture, have
manufactured, and use and/or sell licensed products. M.D. Anderson's
retained interest consists of royalties on net sales of licensed products
and a share of consideration received by the Company from all sublicenses
and assignments. No royalties were paid under this agreement during the
quarters ended June 30, 2003 and 2002, respectively. The M.D. Anderson
License Agreement continues in effect until all patent rights have
expired.
USC
Under an Option and License Agreement with USC dated January 23, 1998,
amended August 16, 2000, the Company acquired license rights to a total of
three patents, two relating to the Company's CoFactor product and one
relating to Selone, both of which are intended for use in connection with
cancer chemotherapy. In addition, under a second Option and License
Agreement dated August 17, 2000, the Company acquired rights under four
patents related to its Thiovir anti-viral technologies. These agreements
with USC (the USC License Agreements) grant the Company exclusive
worldwide licenses to study, use, manufacture and market drug products
covered by the subject patents. Under the USC License Agreements, the
Company is obligated to pay USC for out-of-pocket expenses incurred in
filing, prosecuting, enforcing, and maintaining the licensed patent rights
and all future patent-related expenses paid by USC as long as the USC
License Agreements remains in effect and until the patent rights have
expired. USC's retained interest consists of royalties on net sales of
licensed products and a share of consideration received by the Company
from all sublicenses and assignments. No royalties have been paid under
this agreement. The USC License Agreements continue in effect until all
patent rights have expired.
In May 2003, the Option and License Agreement dated August 17, 2000 was
amended to eliminate minimum royalty payments and instead require payments
upon the achievement of certain milestones.
NIH AGREEMENT
During December 2002, the Company entered into a worldwide exclusive
patent license agreement with the Public Health Service National
Institutes of Health (NIH) concerning composition of matter for its drug,
BlockAide/CR. Under the terms of the agreement, the Company agrees to pay
minimum royalty payments during the first year of the license and minimum
annual royalties thereafter or the higher amount based upon a percentage
of net sales. In addition, there are benchmark royalties based upon:
initiation of Phase I trials, initiation of Phase II trials, initiation of
Phase III trials, and upon first approval of a Product License Application
for an HIV therapeutic or vaccine in the US and for first approval in
Europe.
(10) SPONSORED RESEARCH
Since September 1996, the Company has entered into a total of four
Sponsored Research Agreements (SRAs) with M.D. Anderson. Under the SRAs,
M.D. Anderson agreed to conduct specific research activities for the
Company, at the expense of the Company, into various aspects of treating
HIV infections using technologies made available under the M.D. Anderson
License Agreement. All amounts due to M.D. Anderson under the first three
SRAs were paid or settled as of December 31, 2000, and such SRAs have been
terminated. The most recent SRA with M.D. Anderson, entered into September
7, 2000, provides for studies to test the ability of a mixture of
synthetic HIV derived peptides to elicit an antibody-negative cell
mediated immune response. The testing will seek to determine if this
immune response can protect against new infection and if the preparation
can be administered after HIV infection as a therapeutic. This SRA
requires a total of $814,490
15
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payable in two equal installments for research to be conducted through
2001 and into 2002. The first installment was paid by the Company in 2000
and the second in 2001.
(11) OPERATIONAL STATUS
The accompanying consolidated financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and
satisfaction of liabilities and commitments in the normal course of
business. The Company has incurred losses since inception and had net
losses of $1,516,942 and $2,105,727 for the nine months ended September
30, 2003 and the year ended December 31, 2002, respectively.
Through September 30, 2003 the Company has been principally engaged in
licensing and research and development efforts. The Company has no current
revenues, is not marketing any products, and projects a loss from
operations for 2003. The Company will require additional capital, which it
intends to obtain through equity and debt offerings and/or strategic
partnership in order to continue to operate its business. The Company's
ability to meet its obligations as they become due and to continue as a
going concern must be considered in light of the expenses, difficulties
and delays frequently encountered in operating a new business,
particularly since the Company will focus on research, development and
unproven technology which may require a lengthy period of time and
substantial expenditures to complete. Even if the Company is able to
successfully develop new products or technologies, there can be no
assurance that the Company will generate sufficient revenues from the sale
or licensing of such products and technologies to be profitable.
Management believes that the Company's ability to meet its obligations as
they become due and to continue as a going concern through at least
December 31, 2003 is dependent upon obtaining additional financing. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
(12) 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 proceeding
that would have a material adverse effect on the Company's financial
position, results of operations or cash flows.
EMPLOYMENT CONTRACTS
Effective January 1, 2003 the Company entered into a letter agreement with
its Chief Financial Officer to retain his services for a period of one
year at a monthly cost of $5,000. The letter agreement will automatically
renew for additional one-year terms unless either the Company or the Chief
Financial Officer gives notice to the other party at least 60 days prior
to the end of the then current term of such party's termination of the
letter agreement.
OPERATING LEASES
The Company is obligated under operating leases for office space and
equipment. The Company had a lease for office space in Houston, Texas
which expired in November 2000 and was continued on a month-to-month basis
through October 31, 2002 at which point it was terminated. In February
2001, the Company leased office space in San Diego, California. The lease
requires a monthly payment of $3,038 and expires in January 2004. Rent
expense was $28,247 and $44,776 during the nine months ended September 30,
2003 and 2002, respectively.
Future rental commitments under all operating leases amounts to $17,377 in
2004.
(13) SUBSEQUENT EVENTS
In October 2003, the Company completed a private placement of 90,000
shares of common stock and warrants to purchase an additional 27,000
shares of common stock at $1.25 per share to private investors for gross
proceeds of $90,000 in cash.
16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Management Discussion and Analysis or Plan of Operation should be read in
conjunction with the accompanying consolidated financial statements and notes
included in this report. This Quarterly Report on Form 10-QSB 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 products and 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 Annual Report that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"expects," "intends," "projects," or similar expressions are intended to
identify forward-looking statements. Our actual results could differ materially
from those expressed or implied by these forward-looking statements as a result
of various factors, including the risk factors described in Risk Factors and
elsewhere in this report. We undertake no obligation to update publicly any
forward-looking statements for any reason, except as required by law, even as
new information becomes available or other events occur in the future
CoFactor(TM), BlockAide/CR(TM), BlockAide/VP(TM), Thiovir(TM), EradicAide(TM)
and Selone(TM) are our trademarks. Product names, trade names and trademarks of
other entities are also referred to in this report.
GENERAL
In this report, the terms "Company," "we," "us" and "our" refer to
ADVENTRX Pharmaceuticals, Inc. The term "Common Stock" refers to the Company's
Common Stock, par value $0.001 per share.
We were initially organized as a corporation under the Delaware
General Corporation Law in December 1995. In October 2000, we closed the merger
of our wholly owned subsidiary, Biokeys Acquisition Corp., with and into
Biokeys, Inc. In consideration of the merger, we issued an aggregate of
6,999,990 shares of Common Stock to the holders of capital stock of Biokeys,
Inc. In May 2003, we merged Biokeys, Inc., our wholly owned subsidiary, into the
Company and changed our name from Biokeys Pharmaceuticals, Inc. to ADVENTRX
Pharmaceuticals, Inc.
The Company is a development stage enterprise which conducts
biomedical research and development focused on treatments for cancer and certain
viral infections, including HIV. Our business is in the development stage; we
have not generated any significant revenues and we have not yet marketed any
product. Pursuant to license agreements with the University of Texas M.D.
Anderson Cancer Center ("M.D. Anderson"), the National Institutes of Health
("NIH") and the University of Southern California ("USC"), we have been granted
development, commercialization, manufacturing and marketing rights to a number
of drug candidates in the fields of antiviral and anticancer therapy, which are
in varying stages of development. Our goal is to become a leading developer of
drug therapies for the treatment of the Human Immunodeficiency Virus ("HIV"),
Acquired Immune Deficiency Syndrome ("AIDS") and cancer.
As a development-stage biomedical research company, we have not yet
generated any revenues from our anticancer and antiviral drug candidates and
have had no earnings since inception. Our expenses from inception have related
to costs incurred in research activities for the development of our drug
candidates and administrative expenses required to support these efforts. As of
September 30, 2003, we have an accumulated development stage deficit of
$(27,666,011).
We expect losses to continue for the foreseeable future, and such
losses will likely increase as we approach human clinical trials for our
CoFactor drug and our HIV drugs. Future profitability will be dependent upon our
ability to complete the development of our pharmaceutical products, obtain
necessary regulatory approvals and
17
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effectively market such products. Also, the Company, which has only limited
resources, will be required to establish agreements with other parties for the
clinical testing, manufacturing, commercialization and sale of its products.
Our drug candidate CoFactor(TM), a chemotherapy biomodulator also
known as 5, 10 methylenetetrahydrofolate, a naturally occurring substance
necessary for cell growth, is scheduled to begin human clinical trials in QI
2004 for a front-line, 48 patient Phase II human trial in the United States. The
trial design is a Simon Two Phase study to treat metastatic colorectal cancer.
The first phase of the trial will consist of 23 newly diagnosed patients. Each
patient will be dosed with 60mg/m2 of bolus CoFactor 20 minutes before receiving
450mg/m2 of 5-FU once a week for two eight week-cycles, consisting of six weekly
treatments, followed by two weeks of rest. Patients will be evaluated after each
eight week cycle for tumor response. If four or more patients exhibit a response
to treatment, defined as measurable tumor reduction of greater than 50%, 25
additional patients will be enrolled in Stage 2. The Company expects similar
results as experienced in 33 metastatic colorectal cancer patients in Sweden in
a previous clinical trial where time to tumor progression (the length of time
that tumors are stable or responding to treatment) and remission rates were
doubled and less toxicity was observed over the current approved therapy. The
Simon Two Phase trial is designed to study safety and efficacy and has the
potential to be merged into a Phase III clinical trial depending on response
rates, toxicities and time to progression. The Company has contracted for the
manufacturing of CoFactor for our Phase II clinical trial. CoFactor has been
manufactured according to cGMP (current good manufacturing practices) standards
with Merck Eprova AG in Schaffhausen, Switzerland. We signed a contract with a
principal investigator and a clinical research organization (CRO) for the trial.
Each phase of the trial is expected to cost approximately $600,000 for a total
of $1,200,000. Depending on patient recruitment rates, the Company expects this
trial to last for approximately one year. The Company has allocated resources to
fund the first half of the trial and plans to either raise additional capital or
enter into a development partnership to continue the trial. We cannot assure
that we will be able to raise additional capital or enter into any development
partnerships to continue the trial. The inability to fund the second half of
this clinical trial could have a material adverse effect on the Company.
Our drug candidate BlockAide/CR(TM), an HIV Viral Entry Inhibitor,
composed of a 15 amino acid peptide which mimics a portion of the V3 loop of
HIV, is scheduled to begin human clinical trials in QI 2004 for the treatment of
HIV and AIDS. The trial will consist of 16 HIV- infected patients in a Phase
Ib/IIa trial that will take place at the VA Hospital at the University of
California at San Diego ("UCSD"). The Company has contracted for the manufacture
of BlockAide/CR under cGMP standards with Multiple Peptide Systems in San Diego,
CA. Dr. David Looney, Associate Professor of Medicine at UCSD, will act as
principal investigator for the trial and Synteract, will serve as the clinical
research organization (CRO). The purpose of the trial is to investigate safety,
pharmacology, and virological effects of BlockAide/CR in HIV- infected patients
not currently on HAART (highly active antiretroviral therapy). Efficacy
parameters to be examined will include response of plasma HIV levels and CD4
(immune system cell) count. The first six patients will receive 10mg of
BlockAide/CR by intravenous injection once per day for two weeks. The second ten
patients will receive 100mg of BlockAide/CR for two weeks by intravenous
injection once per day. The trial is expected to cost approximately $450,000.
The Company has allocated resources to fund this clinical trial.
Our drug candidate EradicAide(TM), is an HIV therapeutic vaccine,
composed of six synthetic peptides, which stimulates a killer-T cell response to
clear HIV-infected cells. The Company plans to begin human trials during QII
2004. The Company intends to file an investigational new drug application with
the Food and Drug Administration (the "FDA") for permission to treat
HIV-infected individuals in a Phase Ib/IIa trial, which will enable collection
of safety and early efficacy data. The intended protocol is a 10-patient study
consisting of HIV-infected individuals who will be treated with autologous (the
patient's own) dendritic cells (cells that present antigens to other immune
system cells, such as CD4 cells) that have been pulsed with EradicAide peptides.
The Company expects to determine the virologic response to this treatment, while
establishing the safety and tolerability of the peptides in human use. In
addition, the Company is in the process of evaluating several adjuvant (immune
stimulator) systems as delivery vehicles for the EradicAide peptides. The
initial trial is expected to cost approximately $500,000. Cost will increase as
additional studies are implemented to test different adjuvant systems that would
enable universal treatment without the need for autologous dendritic cells. The
Company has allocated resources for the initial trial. We cannot assure that we
will be able to raise additional capital or enter into any
18
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development partnerships to conduct subsequent trials. The inability to fund the
subsequent clinical trials of EradicAide could have a material adverse effect on
the Company.
CRITICAL ACCOUNTING POLICIES
Accounting for Equity Transactions
The most significant accounting estimates relate to recording equity
transactions. The values assigned to stock options or warrants granted to
non-employees are accounted for in accordance with SFAS No. 123 and Emerging
Issues Task Force ("EITF") 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services," which require that such costs be measured at the end of each
reporting period to account for changes in the fair value of our Common Stock
until the options or warrants are vested.
Our Series A 8% Convertible Preferred Stock is recorded at the
liquidation preference of $1,000 per share and Series B Convertible Preferred
Stock is recorded at its purchase price of $1.00 per share. The value of the
warrants issued with the Series B Convertible Preferred Stock was deemed de
minimus. Series C Convertible Preferred Stock is recorded at its liquidation
preference of $10 per share. Our Common Stock is valued using the market price
of Common Stock on the measurement date as defined in EITF 96-18. The Company
values warrants using the Black-Scholes pricing model. The model considers a
number of factors, including the market price and expected volatility of our
Common Stock at the date of measurement or re-measurement. The expense related
to all equity transactions is amortized over the vesting period of the related
equity instruments.
The amount of compensation expense we record in future periods could
fluctuate significantly from period to period as a result of: (a) the periodic
re-measurement of equity instruments from non-employees principally as a result
of fluctuations in the market price of our Common Stock; (b) the method and
period over which the value is amortized as charges to operations; (c)
additional equity instruments granted; and (d) subsequent forfeitures or
cancellations of unvested instruments.
Research And Development Costs
Research and development costs consist of costs incurred for
Company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses and are
expensed as incurred. Patent costs and technology license fees for technologies
that are utilized in research and development and have no alternative future use
are expensed when incurred.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003
The Company continued to have no operating revenue and only minimal
interest income earned on the balance of funds maintained in the Company's bank
accounts in the calendar quarters and nine months ended September 30, 2003 and
2002.
During the third quarter of 2003, we continued our research and
development efforts in connection with our CoFactor product for colorectal
cancer and our EradicAide and BlockAide products for HIV/AIDS. We incurred
research and development expenses of $208,778 for the quarter; up from $205,700
in the year-earlier period. Research and development expenses for the nine
months ended September 30, 2003 were $415,301, up from $390,327, in the
year-earlier period.
On July 8, 2002, the Company announced it had been granted an
exclusive worldwide license by the NIH for an issued US patent and issued and
applied for foreign patents for Europe, Australia, Japan, Israel and Canada. The
technology covered by these patents and patent applications complements patents
and technology licensed to the Company from M.D. Anderson for the development of
the Company's viral entry inhibitor, BlockAide/CR. The agreement requires the
Company to pay NIH previously incurred patent expenses, ongoing patent
maintenance fees, minimum annual royalties, milestone payments related to the
progress of the product from preclinical status through
19
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various stages of human clinical trials and application for marketing approval
by the FDA, and royalties of 1.5 to 2.0 percent on net sales, if and when they
occur.
General and administrative expenses for the third quarter of 2003
decreased by $54,397 to $277,248 from $331,645 in the year-earlier quarter.
General and administrative expenses for the nine months ended September 30, 2003
were $1,103,176 compared to $1,301,002 in the year-earlier period. The decrease
of $197,826 was due to lower consulting, legal and professional fees in 2003.
Depreciation and amortization amounted to $1,969 for the three months
and $5,146 for nine months ended September 30, 2003 compared with $128,272 for
the three months and $384,815 for the nine months ended September 30, 2002. The
larger amounts in 2002 included amortized debt discount relating to $450,000 of
notes payable that were issued in the fourth quarter of 2001 of $118,668 and
$356,002 in the three and nine months ended September 30, 2002, respectively,
and amortized other assets of $9,000 and $27,000 in the three and nine months
ended September 30, 2002, respectively.
Interest expense amounted to $212 for the three months and $1,386 for
nine months ended September 30, 2003 compared with $13,613 for the three months
and $40,393 for the nine months ended September 30, 2002. The decrease is due to
the maturation and retirement of notes payable during 2002 and 2003.
As a result of the increase in compensation expense recorded related
to the issuance and recording of employee stock options and the reduction in
debt discount amortization, and the other factors noted above, the Company's
loss for the third quarter decreased to $(485,467) from a loss of $(679,230) for
the year-earlier period, and the loss per share decreased to $(0.02) from
$(0.05) per share in the year-earlier period. For the nine-month period, the
loss declined to $(1,516,942) or $(0.05) per share from $(2,115,589) or $(0.15)
per share in the first nine months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred negative cash flows since its inception, and
has funded its activities primarily through short-term loans and sales of equity
securities. As of September 30, 2003, cash amounted to $3,784,305, compared with
$103,928 on December 31, 2002.
The Company does not have any bank or any other commercial financing
arrangements. The Company's operations since the merger with Biokeys, Inc. and
during the preceeding 12 months have been funded primarily from the proceeds of
private equity placements.
On September 12, 2002, the Company announced, in conjunction with
BioDelivery Sciences International ("BDSI") that the NIH awarded a $300,000 SBIR
(Small Business Innovation Research) grant to BDSI to further develop the
formulation of the Company's EradicAide HIV drug. BDSI is working with the
Company, via its researchers at M.D. Anderson, to test technology for oral
delivery of EradicAide. BDSI began receiving funding from the $300,000 grant
during the first quarter of 2003 and will receive periodic installments over two
years, as work progresses. These funds will be divided approximately equally
between BDSI and M.D. Anderson on behalf of the Company, based upon actual
expenditures which will be reimbursed from the grant.
As discussed earlier in this report, the Company anticipates
initiating human clinical trials for three of its drug candidates, the cost of
which is expected to total between $8 million and $10 million over the next 18
months. We continue to seek the additional capital necessary to fund our
research projects and clinical trials, as well as general and administrative
expenses. Continuation of our research and development activities is dependent
on obtaining additional financing. The Company is actively seeking such
financing. The Company anticipates obtaining additional capital through equity
or debt financing, strategic alliances with corporate partners and others, or
through other sources not yet identified. The Company cannot guarantee that
additional funding will be available on acceptable terms, or at all. If adequate
funds are not available, the Company may be required to delay, scale-back or
eliminate certain aspects of its operations or attempt to obtain funds through
arrangements with
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collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets.
The Company's dependence on obtaining additional capital will continue
at least until the Company is able to begin marketing its new technologies. The
Company's future capital requirements and the adequacy of its financing will
depend upon numerous factors, including the successful commercialization of the
Company's drug candidates, progress in its product development efforts, progress
with preclinical studies and clinical trials, government grants, the cost and
timing of production arrangements, the development of effective sales and
marketing activities, the cost of filing, prosecuting, defending and enforcing
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of its products.
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.
The Company had an accumulated deficit of $27,666,011 as of September
30, 2003. Since the Company presently has no source of revenues and is committed
to continuing its 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 and
successfully marketed. In addition, the Company has funded its operations
primarily through the sale of Company securities, and has had limited working
capital for its product development and other activities.
WE HAVE NO CURRENT PRODUCT SALES REVENUES OR PROFITS.
The Company has devoted its 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 the Company's present activities, and no revenues will likely be
available until, and unless the new products are clinically tested, approved by
the FDA and successfully marketed, either by the Company or a marketing partner,
an outcome which the Company is not able to guarantee.
IT IS UNCERTAIN THAT THE COMPANY WILL HAVE ACCESS TO FUTURE CAPITAL OR
GOVERNMENT GRANTS.
It is not expected that the Company 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 and/or clinical development may be required
to fund our activities. We cannot assure 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, may
involve restrictive covenants which preclude the Company from making
distributions to stockholders and taking other actions beneficial to
stockholders. If adequate funds are not available, the Company may be required
to delay or reduce the scope of its drug development program or attempt to
continue development by entering into arrangements with collaborative partners
or others that may require the Company to relinquish some or all of its rights
to proprietary drugs. The inability to fund its capital requirements would have
a material adverse effect on the Company.
THE COMPANY IS NOT CERTAIN THAT IT WILL BE SUCCESSFUL IN THE
DEVELOPMENT OF ITS DRUG CANDIDATES.
The successful development of any new drug is highly uncertain and is
subject to a number of significant risks. Our drug candidates, 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
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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 the Company from marketing a drug product. There can be no assurance
that the development of drug candidates will demonstrate the efficacy and safety
of a drug candidate as a therapeutic drug, or, even if demonstrated, that there
will be sufficient advantages to its use over other drugs or treatments so as to
render the drug product commercially viable. In the event that the Company is
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.
THE COMPANY WILL FACE INTENSE COMPETITION FROM OTHER COMPANIES IN THE
PHARMACEUTICAL INDUSTRY.
The Company is engaged in a segment of the pharmaceutical industry
that is highly competitive and rapidly changing. If successfully developed and
approved, any of the Company's 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 the Company. The Company anticipates that it 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 by the Company. Competitive products
may render the Company's drugs obsolete or noncompetitive prior to the Company's
recovery of development and commercialization expenses.
Many of the Company's 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 the Company, which would have a material adverse
effect on the Company.
THERE IS NO ASSURANCE THAT THE COMPANY'S PRODUCTS WILL HAVE MARKET
ACCEPTANCE.
The success of the Company will depend in substantial part on the
extent to which a drug product 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
drug product of the Company.
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.
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The Company's ability to commercialize its 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. The Company cannot guarantee that adequate
third-party insurance coverage will be available for the Company to establish
and maintain price levels sufficient for realization of an appropriate return on
its 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 uses of the Company's products, the market acceptance
of these products would be adversely affected if the amount of reimbursement
available for the use of the Company's therapies proved to be unprofitable for
health care providers.
UNCERTAINTIES RELATED TO HEALTH CARE REFORM MEASURES MAY AFFECT THE
COMPANY'S 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. The Company cannot predict the effect health care reforms may
have on its business, and there is no guarantee that any such reforms will not
have a material adverse effect on the Company.
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 may
be to delay marketing of new products for a considerable period of time, to
impose costly procedures upon the Company's activities, and to provide an
advantage to larger companies that compete with the Company. There can be no
assurance that FDA or other regulatory approval for any products developed by
the Company 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 the Company's ability to utilize
any of its technologies, thereby adversely affecting the Company's 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.
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THE COMPANY'S SUCCESS WILL BE DEPENDENT ON LICENSES AND PROPRIETARY
RIGHTS IT RECEIVES FROM OTHER PARTIES, AND ON ANY PATENTS IT MAY OBTAIN.
Our success will depend in large part on the ability of the Company
and its licensors 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. The Company has obtained licenses to
patents and other proprietary rights from M.D. Anderson, USC and the NIH.
The patent positions of pharmaceutical companies, including those of
the Company, are uncertain and involve complex legal and factual questions.
There is no guarantee that the Company or its 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 the Company. In addition, we
cannot assure that any patents issued to or licensed by the Company will not be
challenged, invalidated, infringed or circumvented, or that the rights granted
thereunder will provide competitive disadvantages to the Company.
Litigation, which could result in substantial cost, may also be
necessary to enforce any patents to which the Company has rights, or to
determine the scope, validity and unenforceability of other parties' proprietary
rights, which may affect the rights of the Company. 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 the Company's 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 the Company
pending resolution of the disputed matters.
The Company may also rely on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks 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 the
Company will have adequate remedies for any breach, or that trade secrets will
not otherwise become known or be independently discovered by competitors.
THE COMPANY'S LICENSE AGREEMENTS CAN BE TERMINATED IN THE EVENT OF A
BREACH.
The license agreements pursuant to which the Company has licensed its
core technologies for its potential drug products permit the licensors,
respectively M.D. Anderson, NIH and USC, to terminate the agreement under
certain circumstances, such as the failure by the licensee to use its reasonable
best efforts to commercialize the subject drug or the occurrence of any other
uncured material breach by the licensee. The license agreements also provide
that the licensor is primarily responsible for obtaining patent protection for
the technology licensed, and the licensee is required to reimburse it for the
costs it incurs in performing these activities. The license agreements also
require the payment of specified royalties. Any inability or failure to observe
these terms or pay these costs or royalties could result in the termination of
the applicable license agreement in certain cases. The termination of any
license agreement would have a material adverse effect on the Company.
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 the Company 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.
THE COMPANY'S SUCCESS IS DEPENDENT ON ITS KEY PERSONNEL.
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The Company is dependent on a small management group and on
independent researchers, some of whom are inventors of the patents licensed to
the Company for core technologies and drugs developed at M.D. Anderson and USC.
Scientific personnel may from time to time serve as consultants to the Company
and may devote a portion of their time to the Company's business, as well as
continue to devote substantial time to the furtherance of the Company's
sponsored research at M.D. Anderson, USC and other affiliated institutions as
may be agreed to in the future, but such personnel are not employees of the
Company and are not bound under written employment agreements. The services of
such persons are important to the Company, and the loss of any of these services
may adversely affect the Company.
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 the Company 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 the Company.
WE CURRENTLY HAVE NO SALES OR MARKETING CAPABILITY.
The Company does not have marketing or sales personnel. The Company
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 the
Company will be able to establish marketing, distribution or sales capabilities
or make arrangements with third parties to perform those activities on terms
satisfactory to the Company, or that any internal capabilities or third party
arrangements will be cost-effective.
In addition, any third parties with which the Company 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 the Company will be able
to control the amount and timing of resources that any third party may devote to
the products of the Company or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with, and/or the withdrawal of support for, the products of the Company.
THE COMPANY DOES 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.
The Company will not have any manufacturing capacity. When required,
the Company will seek to establish relationships with third-party manufacturers
for the manufacture of clinical trial material and the commercial production of
a drug product just as it has with Merck Eprova AG, Multiple Peptide Systems,
Inc., and Peptisyntha, Inc. There can be no assurance that the Company 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 the drug product 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 its manufacturing requirements on
commercially acceptable terms would have a material adverse effect on the
Company.
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THE COMPANY DOES NOT HAVE ITS OWN RESEARCH FACILITIES AND WILL BE
DEPENDENT ON THIRD PARTIES FOR DRUG DEVELOPMENT.
The Company does not have its own research and development facilities
and engages consultants and independent contract research organizations to
design and conduct clinical trials in connection with the development of a drug.
As a result, these important aspects of a drug's development will be outside the
direct control of the Company. In addition, there can be no assurance that such
third parties will perform all of their obligations under arrangements with the
Company 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.
The business of the Company will expose it 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 the Company. The Company intends to obtain
additional limited product liability insurance for its clinical trials, directly
or through its marketing development partners or contract research organization
(CRO) partners, when they begin in the U.S. and to expand its insurance coverage
if and when the Company begins marketing commercial products. However, there can
be no assurance that the Company will be able to obtain product liability
insurance on commercially acceptable terms or that the Company 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 the Company could have a material adverse effect on the
Company.
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 share
that risk in excess of our insurance limits. 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 Company's 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 the Company or its 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.
The Company has never paid cash dividends on Common Stock, and does
not intend to do so in the foreseeable future.
THE ISSUANCE OF SHARES OF OUR PREFERRED STOCK MAY ADVERSELY AFFECT OUR
COMMON STOCK.
The Board of Directors is authorized to designate one or more series
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 of the Company from occurring, among other
possibilities.
UNDER PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW, THE COMPANY'S MANAGEMENT MAY BE ABLE TO BLOCK OR IMPEDE A
CHANGE IN CONTROL.
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The Company's Certificate of Incorporation authorizes the Board of
Directors (the "Board") to issue shares of undesignated preferred stock without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any such preferred stock that may be issued in the
future. Moreover, 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 the Certificate of
Incorporation and the 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 the Common Stock.
OFFICERS' AND DIRECTORS' LIABILITIES ARE LIMITED UNDER DELAWARE LAW.
Pursuant to the Company's 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. The Certificate of
Incorporation and by-laws provide that the Company must indemnify its officers
and directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their having served as officers or directors.
ITEM 3. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The company's management, with the participation of the company's
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the company's disclosure controls and procedures as of
September 30, 2003. Based on this evaluation, the company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information the Company is required to disclose in the reports it files
under the Securities Exchange Act of 1934, as amended , within the time periods
specified in the Securities and Exchange Commission's rules and forms.
(b) CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls
or other factors that could significantly affect those controls subsequent to
the date of the Company's evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 10, 2003, the Company filed a complaint in the Superior
Court of California in and for the County of San Diego (the "State Court
Action"), Case No. GIC817527, alleging claims against Louis R. Reif, a former
officer and director of the Company, for breach of fiduciary duty, negligent
misrepresentation, and aiding and abetting breach of fiduciary duty, and seeking
damages and injunctive relief (the "Claims"). On September 25, 2003, the Company
filed a first amended complaint in the State Court Action naming additional
defendant, Robert D. Whitworth, who is also a former officer and director of the
Company. On October 17, 2003, Mr. Reif filed a Notice of Removal of Action in
the U.S. District Court in and for the Southern District of California (the
"Federal Court"), joined by Mr. Whitworth. In the Federal Court, the lawsuit
bears the Case No. 03-cv2072JH. On November 6, 2003, Messrs. Reif and Whitworth
filed motions with the Federal Court to dismiss the complaint. The Company
intends to oppose the motions. To the knowledge of the Company, as of the date
of this report, no other filings have been made by the Company or Messrs. Reif
or Whitworth with respect to the State Court Action or the Notice of Removal or
motion to dismiss filed by Messrs. Reif and Whitworth. The outcome of and the
amount of any damages that may be recovered in the State Court Action is
uncertain.
ITEM 2. CHANGES IN SECURITIES.
On July 1, 2003 the Company granted three stock options to members of
its Scientific Advisory Board to purchase an aggregate of 90,000 shares of
Common Stock at $1.25 per share. The options expire on December 30, 2008.
Between August 2003 and September 2003, the Company completed a private
placement of 2,691,990 shares of common stock and warrants to purchase an
additional 834,600 shares of common stock at $1.25 per share to private
investors for gross proceeds of $2,691,990 in cash.
27
In September 2003 the Company issued 124,076 shares of common stock as
commissions in connection with the Company's private placement.
In September 2003, a warrant to purchase a total of 150,000 shares of
common stock at $1.50 per share was exercised in a cashless exchange for 23,165
shares of common stock.
In October 2003, the Company completed a private placement of 90,000
shares of common stock and warrants to purchase an additional 27,000 shares of
common stock at $1.25 per share to private investors for gross proceeds of
$90,000 in cash.
Except as otherwise noted above, no commission was paid or given,
directly or indirectly, in connection with any of the above sales, issuances, or
exchanges.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance on Section 4(2) of the Securities Act, as transactions by an
issuer not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of October 1, 2003, the Company had received the written consent, in lieu of
a meeting of stockholders, from the holders of 22,396,793 shares of Common
Stock, representing approximately 53.7% of our outstanding voting capital stock,
authorizing the Company to increase the authorized number of shares of capital
stock of the Company from 51,000,000 shares to 101,000,000 shares by filing an
amendment to the Company's Certificate of Incorporation (the "Stockholder
Consent"). Pursuant to Rule 14c-2 under the Exchange Act, the Company may not
take the actions authorized by the Stockholder Consent until 20 days after the
filing of a definitive information statement on Schedule 14C regarding the
Stockholder Consent and the mailing of the information statement to each
stockholder that did not deliver an executed Stockholder Consent. On November 3,
2003 the Company filed a preliminary information statement on Schedule 14C
regarding the Stockholder Consent (the "Preliminary 14C"). On November 7, 2003,
the Company received oral comments to the Preliminary 14C from the SEC
requesting clarifying revisions. The Company intends to amend the Preliminary
14C to address the SEC's comments and file an amended Preliminary 14C in
November 2003. If the Company does not receive any comments from the SEC on the
amended Preliminary 14C within 10 days of its filing, the Company will file a
definitive information statement on Schedule 14C. No other matters were
submitted to a vote of the holders of the Company's securities, through
solicitation of proxies or otherwise, during the first nine months of 2003.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ---------------- ------------------------------------------------------------------------------
2.1* Agreement and Plan of Merger dated May 19, 2000 among BioQuest, Inc.; BioQuest
Acquisition Corp.; and Biokeys, Inc.
3.1* Certificate of Amendment of Certificate of Incorporation of BioQuest, Inc.
3.2 Not currently in use.
3.3* Certificate of Merger of BioQuest Acquisition Corp. into Biokeys, Inc.
3.4* Certificate of Incorporation of BioQuest Acquisition Corp.
28
- --------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
- ---------------- ------------------------------------------------------------------------------
3.6* Amended and Restated Bylaws of Biokeys Pharmaceuticals, Inc.
3.7++ Certificate of Ownership and Merger Merging Biokeys, Inc. with and into Biokeys
Pharmaceuticals, Inc.
4.1* Certificate of Designation of BioQuest, Inc.
4.2*** Certificate of Designation of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock of Biokeys Pharmaceuticals, Inc. effective September 23,
2002
10.1** Patent and Technology License Agreement with M.D. Anderson - June, 1996 (Request for
confidential treatment of certain data)
10.2** Amendment to M.D. Anderson Licensing Agreement June 15, 2000 (Request for confidential
treatment of certain data)
10.3** Option and License Agreement with USC - June 23, 1998 (Co Factor and Selone) (Request
for confidential treatment of certain data)
10.4* Amendment to Option and License Agreement with USC dated August 16, 2000 (Co Factor
and Selone) (Request for confidential treatment of certain data)
10.5** Option and License Agreement with USC dated August 17, 2000 (Thiovir) (Request for
confidential treatment of certain data)
10.6++ Amendment to Option and License Agreement with USC dated April 21, 2003 (Request for
confidential treatment of certain data)
10.7*** Patent License Agreement, effective August 1, 2002, between Biokeys, Inc. and the
National Institutes of Health
10.8+ Letter Agreement, effective January 1, 2003, between Biokeys Pharmaceuticals, Inc. and
Steven M. Plumb, P.C.
10.9+ Offer Letter, dated March 5, 2003, from Biokeys Pharmaceuticals, Inc. to Joan M.
Robbins, Ph.D.
11.1* Statement Regarding Computation of Per Share Earnings
21.1+ Subsidiaries of Biokeys Pharmaceuticals, Inc.
24.1* Powers of Attorney (included on signature pages)
31.1 Section 302 - Principal Executive Officer Certification
31.2 Section 302 - Principal Financial Officer Certification
32.1 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
* Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form 10-SB, filed October 2, 2001.
** Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form 10-SB/A, filed January 11, 2002.
*** Incorporated by reference to the same-numbered exhibit to the Company's
Quarterly Report on Form 10-QSB, filed November 26, 2002.
+ Incorporated by reference to the same numbered exhibit to the Company's Annual
Report on Form 10-KSB filed April 16, 2003.
++ Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-QSB filed August 14, 2003. (B) REPORTS ON FORM 8-K.
We have not filed any current reports on Form 8-K since February 10,
2003.
29
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 12, 2003 /s/ Steven M. Plumb
-----------------------
Steven M. Plumb, CPA
Chief Financial Officer
30
- --------------------------------------------------------------------------------
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1* Agreement and Plan of Merger dated May 19, 2000 among BioQuest, Inc.; BioQuest
Acquisition Corp.; and Biokeys, Inc.
3.1* Certificate of Amendment of Certificate of Incorporation of BioQuest, Inc.
3.2 Not currently in use.
3.3* Certificate of Merger of BioQuest Acquisition Corp. into Biokeys, Inc.
3.4* Certificate of Incorporation of BioQuest Acquisition Corp.
3.6* Amended and Restated Bylaws of Biokeys Pharmaceuticals, Inc.
3.7++ Certificate of Ownership and Merger Merging Biokeys, Inc. with and into Biokeys
Pharmaceuticals, Inc.
4.1* Certificate of Designation of BioQuest, Inc.
4.2*** Certificate of Designation of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock of Biokeys Pharmaceuticals, Inc. effective September 23, 2002
10.1** Patent and Technology License Agreement with M.D. Anderson - June, 1996 (Request for
confidential treatment of certain data)
10.2** Amendment to M.D. Anderson Licensing Agreement June 15, 2000 (Request for confidential
treatment of certain data)
10.3** Option and License Agreement with USC - June 23, 1998 (Co Factor and Selone) (Request for
confidential treatment of certain data)
10.4* Amendment to Option and License Agreement with USC dated August 16, 2000 (Co Factor and 1 Selone)
(Request for confidential treatment of certain data)
10.5** Option and License Agreement with USC dated August 17, 2000 (Thiovir) (Request for
confidential treatment of certain data)
10.6++ Amendment to Option and License Agreement with USC dated April 21, 2003 (Request for
confidential treatment of certain data)
10.7*** Patent License Agreement, effective August 1, 2002, between Biokeys, Inc. and the
National Institutes of Health
10.8+ Letter Agreement, effective January 1, 2003, between Biokeys Pharmaceuticals, Inc. and
Steven M. Plumb, P.C.
10.9+ Offer Letter, dated March 5, 2003, from Biokeys Pharmaceuticals, Inc. to Joan M. Robbins,
Ph.D.
11.1* Statement Regarding Computation of Per Share Earnings
21.1+ Subsidiaries of Biokeys Pharmaceuticals, Inc. as of December 31, 2002
24.1* Powers of Attorney (included on signature pages)
31.1 Section 302 - Principal Executive Officer Certification
31.2 Section 302 - Principal Financial Officer Certification
32.1 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
* Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form 10-SB, filed October 2, 2001.
** Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form 10-SB/A, filed January 11, 2002.
*** Incorporated by reference to the same-numbered exhibit to the Company's
Quarterly Report on Form 10-QSB, filed November 26, 2002.
+ Incorporated by reference to the same numbered exhibit to the Company's Annual
Report on Form 10-KSB filed April 16, 2003.
++ Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-QSB filed August 14, 2003.
31
EXHIBIT 31.1
ADVENTRX PHARMACEUTICALS, INC.
CERTIFICATE PURSUANT TO
RULE 13A-14 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Nicholas J. Virca, Chief Executive Officer of ADVENTRX Pharmaceuticals, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ADVENTRX
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures as of the
date of the end of the period covered by this report based on our
evaluation as of the Evaluation Date;
c) disclosed in this report any changes in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially effect, the Registrant's internal
control over financial reporting.
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have identified
for the Registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
November 12, 2003 /s/ NICHOLAS J. VIRCA
----------------------
Nicholas J. Virca
Chief Executive Officer
EXHIBIT 31.2
ADVENTRX PHARMACEUTICALS, INC.
CERTIFICATE PURSUANT TO
RULE 13A-14 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Steven M. Plumb, Chief Financial Officer of ADVENTRX Pharmaceuticals, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ADVENTRX
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures as of the
date of the end of the period covered by this report based on our
evaluation as of the Evaluation Date;
c) disclosed in this report any changes in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially effect, the Registrant's internal
control over financial reporting.
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have identified
for the Registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
November 12, 2003 /s/ STEVEN M. PLUMB
-----------------------
Steven M. Plumb, CPA
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of ADVENTRX
Pharmaceuticals, Inc. (the "Company") for the quarterly period ended September
30, 2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), each of Nicholas J. Virca, Chief Executive Officer of the
Company, and Steven M. Plumb, Chief Financial Officer of the Company, hereby
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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.
/s/ NICHOLAS J. VIRCA
- -------------------
Nicholas J. Virca
Chief Executive Officer
November 12, 2003
/s/ STEVEN M. PLUMB
- ------------------
Steven M. Plumb
Vice President and Chief Financial Officer
November 12, 2003
This certification accompanies this Report pursuant to Section 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 Section 18 of the Securities Exchange Act of 1934, as
amended.
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